Counting Paid Days Off

Many California employers wonder whether they should convert their current sick leave policy to one that allows “personal time off”, in which employees are given leave time but do not have to show it is needed for illness. Perhaps the employer plans to continue offering separate “vacation” time, and simply wishes to eliminate the need for employees to claim illness in order to take personal time. Employers are correct to wonder whether this would complicate their company’s leave policy.

If an employer offers leave time that is “unconditioned”, where the employee is not required to prove illness, then the leave time will accrue as deferred wages and will have to be paid out as severance upon termination of employment.

According to the Division of Labor Standards Enforcement, “personal time off” is given without condition, and thus, accrues and vests. DLSE 51.6.18 (personal days off given “without condition” cannot be forfeited and must be paid out as severance). Unconditioned leave (traditionally called “vacation”) must be paid out as severance if the employment terminates with unused leave. California Labor Code § 227.3 (employer policy shall not provide for forfeiture of vested vacation time upon termination) and Suastez v. Plastic Dress-Up Co. (1982) 31 C.3d 774 (paid vacation vests as deferred wages for services rendered).

An employer wishing to cap the amount of vacation time (or unconditioned leave) that accrues must explicitly state the existence of the cap in its policies. If it does, then an employee cannot store up over the years multiple weeks’ worth of pay to be deferred until severance. See Boothby v. Atlas Mechanical, Inc. (1992) 6 CA4th 1595 (cap permitted if stated in policies) and DLSE Manual 15.1.4. So, while there is no “use or lose” limit on vacation time, it is permissible to “cap” accrual until the employee exhausts all leave in the bank.