WORKPLACE LAW -
Capping Vacation Accrual

Question:

I am completing my second year working for my company, and I have been extremely busy since I started working here. As a result of my schedule and workload, I have only taken one week of vacation thus far. I receive two weeks paid vacation each calendar year, and so I have three weeks vacation “in the bank.” Prior to the holidays, Human Resources informed me that I am going to hit my vacation “cap” as of the first of the year, and reminded me that I will not accrue any more vacation time until I use some. I have been working really hard for this company, and my schedule for the next few months will not allow time for vacation. Am I not entitled to use the three weeks of vacation that I missed out on? Is it legal for me to lose out on accruing additional vacation time? How is this different from a “use it or lose it” scenario?

Answer:

While employers in California are not required to provide their employees with paid vacation, nearly all employers choose to implement some form of vacation policy. Under California law however, vacation time is actually a form of wages, which are progressively earned by the employee each day that he or she works. So, for instance, an employee such as yourself who earns two weeks (or 80 hours) of vacation each year actually accrues approximately 0.30 hours of vacation time each work day.

Once an employee has earned vacation time, it cannot be taken away by the employer. California courts and the state Labor Code specifically prohibit so-called “use it or lose it” vacation policies that cause employees to forfeit earned vacation time if it is not used by a certain date. Employers cannot require their employees to forfeit already accrued vacation for any reason—once the employee has earned vacation time, it is his or hers to use as they wish.

Even though employers cannot take away vacation time that has already accrued, they can limit the amount of vacation time that an employee may accumulate. In other words, an employer may place a “reasonable cap” on vacation so that once a certain level of accrued vacation has been earned but not taken, vacation time no longer accrues until some of the accrued vacation time has been used. Once the employee uses some vacation time, vacation will again begin to accrue at the normal rate until the cap is reached once more.

It is important to understand that the employer is not required to give the employee the amount of vacation time that he or she would otherwise have accrued after the employee’s vacation reaches the maximum cap. In other words, an employee forfeits the opportunity to earn vacation time while his or her accrued vacation is at the maximum cap, and will not begin to accrue vacation again until he or she uses up some of the already accrued time.

When determining what the cap will be for their vacation policies, employers should consider factors such as the amount of vacation being offered, the opportunity for employees to use their vacation time during the year, and the type of business or industry that is involved. Caps that are frequently used by employers are one-and-one-half or two times the annual accrual rate. So, for example, an employee with 80 hours of vacation each year may have their total vacation time capped at 120 or 160 hours, respectively. Lower caps have the potential to run afoul of California’s restrictions on wage forfeiture.

Also, because accrued vacation time is treated as a form of wages, an employer must pay the employee for all accrued but unused vacation at the time the employment relationship is terminated. An employee who makes $10/hour and who quits or is fired with 20 hours of accrued vacation time is entitled to be paid $200, less applicable deductions. Note that the employer is only required to pay the employee for vacation time that has actually accrued, which means that the time is subject to whatever limitations (i.e., caps) the employer has put in place.

To answer your questions about accruing vacation time, because your company has established a cap on accruing additional time, then you will need to use up some of the accrued vacation time before you can begin to earn vacation time again. This is perfectly legal, and your employer should have been clear about its policy during your orientation. Alternatively, your employer has the option of letting you “cash out” your vacation benefits, and may likewise require that you accept pay for vacation that has accrued but has not been used.
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