Year-End Vacation and Leave Balances

We are in the last month of the year, and CEA advisors are receiving an increase in calls with questions regarding holiday, vacation, and sick time pay. In some cases, our members are making sure their current policies comply with state law, while others are looking ahead and planning changes to their policies for 2024. Here are a few things to keep in mind as time off requests begin to trickle in:

Vacation Rule Refresher

Under California law, vacation hours are considered wages that an employee earns as they work. This means that employers must be aware of certain protections associated with vacation hours, such as:

• Any unused and accrued vacation must be paid out upon termination of the employer/employee relationship.
• No “Use It or Lose It” policies are allowed for vacation. Once an employee earns vacation, it cannot be taken away.

A compliant vacation policy should address these protections as well as detailing the steps an employee must take to request any vacation pay or time off. We recommend that your policy explain the system in place for determining who is granted time off when multiple requests are submitted for the same time period. And, your policy should explain what happens with unused vacation hours at the end of the year. For example:

Year-End Vacation Time Alternatives:

• Unused vacation time is “rolled over” to the following calendar, anniversary, or fiscal year with (or without) a reasonable cap. (California defines a reasonable cap as at least 1.5 times the annual accrual rate.) Or,
• Unused vacation is paid out at the end of the year.

By the way, if you find yourself in a position where you cannot grant all requests and many of your employees are near their cap, or if you want to reduce the amount of vacation carried over, you can offer employees the option of a one-time “vacation payout”. Or,

• You can schedule a vacation for them, with reasonable notice (at least 90 days in advance).

Keep in mind that if you combine vacation and paid sick leave into one “PTO” account, certain limitations apply when it comes to you scheduling time off or paying out time off. One way to look at it is that if you combine Vacation and Paid Sick Leave into PTO, all the protections allotted to each of those two separate programs apply to all of the PTO hours. It is for this reason that we generally recommend keeping these two benefits separate.

What About Blackout Dates?

If there are certain days or times that you need to limit the number of employees who take time off (or deny it altogether), communicate this verbally and in writing as soon as possible. If these dates are the same year after year, we recommend adding this information to your employee handbook.

The state of California has stated that you should give reasonable advance notice if you are going to prohibit the use of vacation at a specific time, so the sooner you get the word out the better. Keep in mind that typically employees can’t be penalized for taking “protected time” away from work (such as sick leave) during these blackout periods.

PSL and Other Protected Leaves

Speaking of sick leave, remember that employees also have protections under Paid Sick Leave (PSL) and other protected leaves of absence.

• Employers cannot deny the right to use accrued paid sick days.
• Employers cannot take any action against an employee for using accrued sick days such as discharge, threat of discharge, demotion, suspension, etc.

This means that an employee using any available paid sick leave cannot be subject to disciplinary action due to the absence. In organizations that use a combined “PTO” bank, it could mean a large amount of hours available for the employee to take as protected Paid Sick Leave.

Other protected leaves include the California Family Rights Act (CFRA), Family Medical Leave Act (FMLA), and Pregnancy Disability, to name a few. More information is available to CEA Members in our Leave of Absence Toolkit to help manage these situations. Open communication with your employees can help you be aware of any upcoming planned leaves in order to maintain an adequate workforce in the upcoming months.

More Considerations for 2024

Starting January 1, 2024, California employers of all sizes must provide a full week of mandatory sick leave each year, which is almost double the amount previously required. SB 616 will increase the current annual amount of paid sick leave from three days or 24 hours to five days or 40 hours (whichever is greater) for eligible employees. Employers have the option to provide this as a lump sum each year or use the accrual method of one hour for every 30 hours worked. For those who use the accrual method, be aware that the cap is increasing to 80 hours or 10 days (whichever is greater), however, you can still limit usage per year to five days or 40 hours.

Need Some Help?

If you have questions on the new PSL requirement, time-off guidelines, or any other policy, reach out to the CEA HR advisors for help. We can provide guidance, toolkits, worksheets, and other resources to meet your needs. To get help on your 2024 employee handbook, check out our summary of updates and our DIY handbook template. You can also register then register for our annual Labor Law Update to learn more about these changes and many others! Or, let us make the year-end smoother for you by calling CEA at 800.399.5331 or emailing us at ceainfo@employers.org, to get started.