I want my employees to have 10 days of vacation each year, but I don’t want them to have to wait to use it while it accrues. Can I just give them a lump sum of 10 days of vacation at the beginning of each year?
In 1982, the California Supreme Court issued its decision in the case of Suastez v. Plastic Dress-up Co. (31 Cal 3d 774).
In that case, the court held that vacation entitlements constitute deferred wages which vest as they are earned, and any entitlement to vacation is a proportionate right and vests as labor is rendered (Division of Labor Standards Enforcement Policies and Interpretations Manual, Section 15.1.1).
Since that time, the State of California has taken the position that vacation benefits may be provided only on an accrual basis, and not in a lump sum format.
If you don’t want to make your employees wait to use their vacation until it has fully accrued, you can allow them to take the time off before the entire yearly amount has accrued. You can allow the employees to take more paid vacation time off than they have accrued, which would result in a negative balance in their vacation account. You can set a limit on how far into the negative you will allow an employee to go before he/she can no longer take paid time off.
If the employee has a negative balance, that amount will shrink as the employee works throughout the year, and it will eventually return to a positive balance, provided the employee does not leave his/her employment while having a negative balance in his/her account.
If the employee’s employment ends while he/she has a negative vacation balance, you are entitled to recover the value of that vacation that was advanced; however, it cannot be done through a payroll deduction.
You should consult with your legal counsel to determine the best course of action if an employee separates from employment with a negative vacation balance.
CalChamber members can learn more about Vacation in the HR Library.
Column based on questions asked by callers on the Labor Law Helpline, a service to California Chamber of Commerce preferred and executive members. Not a member? See how CalChamber can help you.