California vacation laws don’t require employers to provide paid vacation time; no U.S. state does. However, sick leave, as paid time off (PTO), is required per California PTO laws. If you choose to offer paid vacations, you must document and communicate your policy, track time earned and taken, and pay unused benefits upon termination.
Outsourcing payroll and benefits to an HR provider like Zenefits is a great way to ensure compliance with California’s rules for documenting, tracking, and paying out unused vacation pay on the employee’s final paycheck. This easy-to-use software supports California vacation laws by letting your employees view pay stubs and PTO balances through an online portal. Sign up for your free 14-day trial.
How California PTO Laws Works
There are really only a few things that an employer needs to know about offering vacation in California to remain compliant with the California Division of Labor Standard rules on vacation. For starters, providing paid time off (PTO) and providing vacation aren’t exactly the same thing. Therefore, it’s best to have separate PTO policies for sick leave (time off for addressing health concerns) versus paid vacation (non-illness related time off that doesn’t pertain to a holiday, jury duty, or family medical leave).
Here’s a quick summary of the rules for all kinds of PTO in California:
California PTO, Leave & Vacation Law Requirements Comparison
Kinds of PTO
Must unused allotments be paid out upon termination?
3 days/72 hours paid
(more in some cities)
Paid time based on employer generosity
Unpaid leave only — If 50+ employees
12 weeks unpaid
Unpaid time off only
Paid time based on employer generosity
Paid time based on employer generosity
California PTO Laws Differ for Vacation vs Sick Leave
PTO is a general term that refers to any paid time off—for example, that may include time you pay employees for jury duty, holiday pay, maternity leave, vacation pay, or sick leave. Vacation is just one kind of PTO. Rules for providing it and tracking it differ from the rules for providing paid sick leave, another kind of PTO.
Paid Vacation Is Optional—Sick Leave Is Not
While providing paid vacation is optional, providing sick leave is mandatory in California. The minimum paid sick leave requirement businesses must provide full-time employees is three days or 72 hours. How much paid time off you provide may vary based on your company size, where it’s located, and how many hours your employees work.
Since paid sick leave is a kind of PTO, you must not only provide it but calculate it properly and document your policy on how it works. There are numerous rules you’ll need to keep in mind to comply with California’s mandatory Sick Leave Law—for instance, employees who work more than 30 days can start accruing sick leave.
California Vacation Laws Only Apply to Paid Vacation
If you choose to offer paid vacation time, either as a fixed amount (for example, 10 days per year) or as an accrual (let’s assume one hour earned for every 30 hours worked), you are obliged to pay out any unused balance upon termination, regardless of why the employee leaves. The California government considers earned PTO as “wages.” That’s different from other types of PTO, like paid sick leave, which if unused, do not need to be paid out when an employee leaves your company.
Who Needs to Comply with California Vacation Laws
If you don’t offer your employees paid vacation time off, there’s no need to comply with vacation laws in California. However, according to Rasmussen, most small businesses do offer paid vacation benefits to their employees. It’s a way to attract new hires and retain existing team members. In fact, offering paid vacation to give workers time off is considered an HR best practice, even if not required.
Here are examples of businesses in California that need to comply with California vacation laws:
- Any business offering paid vacations: Businesses offering paid time off for employee vacations must abide by California’s rules for managing and paying out PTO.
- Union or government contractors: Firms providing work on government contracts or under bargaining agreements that mandate paid vacation must abide by contract terms.
- Companies with sick leave policies allowing employees to use time off for “any reason”: Rules for what counts as sick leave are quite specific. If a business lets employees use that time for “other than sick leave,” such as personal leave or vacation, that policy will create an “earned” benefit, meaning you’ll have to pay out any earned, unused leave upon employee termination.
- Firms combining their sick and vacation leave policies in one PTO bucket: Combining vacation and sick leave into one bucket makes calculations tricky and will likely subject you to pay out all unused PTO balances upon an employee’s exit.
The best advice for California employers who do offer paid vacation leave is to abide by California’s PTO laws by clearly documenting their vacation policy, communicating the policy to workers, tracking earned balances, and paying unused time off in the employee’s final check.
Costs of Implementing PTO According to California Laws
The primary costs of implementing PTO (beyond the monies that you set aside to pay employees for their vacation), consists of the time you spend creating your PTO policies, time and effort required to communicate your policies, and HR or payroll software cost. This software is used to manage employee data and pay rates as well as track vacation and sick time earned and taken.
Here are examples of vacation management costs:
Vacation pay: The money you pay employees for paid time off can be substantial depending on your policy. A week’s paid time off for one $12 per hour minimum wage worker costs $480.
HR or payroll software: HR and payroll software manage time off requests and PTO leave balances. They run from $6-$12 a month per employee with a monthly service fee of about $40.
Legal compliance: You may also want an attorney to review your policies. Online legal firms like Rocket Lawyer charge as little as $39.99 per month.
Calculating Cost of Paid Vacation Days
The cost of a paid vacation day should be equal to the number of hours the employee works per day (often eight) and the pay rate of the employee. It’s then multiplied by the number of days of vacation offered. The table below provides averages across all U.S. businesses. Examples below demonstrate how you can determine what your vacation policy will cost your business.
Here are some examples showing employer-provided paid vacation costs given different pay rates and policies:
- Joe the plumber: Joe earns $22 per hour, averaging seven hours a day, and his employer pays one week of vacation per year. It will cost the business $770 per year to provide paid vacation to Joe ($22 x 7 x 5 = $770).
- Kim the insurance agent: Kim earns $15 per hour for eight hours a day, five days a week. She also earns commissions. Her employer provides two weeks’ paid vacation. It will cost the business $1,580 per year to provide Kim with vacation benefits ($15 x 8 x 10 = $1580). Note that commission pay doesn’t factor into the vacation calculation.
- Maury the manager: Maury is granted two weeks of vacation per year. Her salary is $120,000 annually in 26 equal (two week) pay periods (52 weeks a year). It will cost the employer $4,615 per year to provide vacation benefits to Maury ($120,000 ÷ 26 = $4,615.)
If you’re curious about how much your company’s PTO costs will be, consider using a PTO Calculator. You can use it to estimate what it will cost you to offer various kinds of vacation policies. You can input the number of days for example, and it will let you know how much PTO an employee will earn by week, month, and year. It can also track vacation time used and available.
Average Vacation Days
- According to the Bureau of Labor Statistics, the amount of vacation time provided to employees varies based on the job level and the number of years of service the worker has. On average, employers provide workers with eight to 16 days of paid vacation. That’s on top of the seven to eight days commonly paid for holidays and eight to 10 days of paid sick leave the average employer offers.
Average annual paid vacation days per year of service and job level*
Years of Service
*Excludes part-time workers. Data has been rounded.
Save yourself time creating policies and handbooks with an all-in-one software like Zenefits that starts at just $8 per month per worker plus a monthly $39 service fee. It can set up your PTO policies with rules that meet California’s requirements and track sick leave and vacation time separately. Zenefits offers a 14-day free demo. Your employees will be able to view PTO policies and vacation balances through an online system, making PTO compliance in California easy. Sign up for your free demo.
California Vacation Law Providers
If you’re uncertain whether your vacation, sick leave, and other PTO policies are compliant with California’s vacation law, you may want to work with an HR or legal expert. Laws change quickly, and you don’t want to face fines and penalties for not complying.
Here are some options for ensuring your vacation policies hold up in California:
1. Sign Up with an HR Software Provider
HR software providers like Zenefits cost about $6-$12 a month and contain built-in PTO rules when onboarding your workers. For example, if you pay full-time workers for vacation leave, but not part-time employees, you can set that up in Zenefits. You can also establish separate policies for vacation accruals if, for example, you don’t want new hires to earn vacation benefits until they’ve worked six months, or you want longer-term employees to earn more.
2. Subscribe to Scheduling and Timekeeping Software
Those with hourly workers may want to keep it simple—using a scheduling software like When I Work or time tracking app like Homebase that lets them input rules for accruing sick leave and earning paid time off. These tools cost only a few dollars a month per employee and automate employees’ time off requests. That helps you keep track of who has used their PTO and how much unpaid vacation time they have left.
3. Outsource Your Labor Law Compliance to a PEO
A PEO is a vendor that partners with your business for a monthly per employee fee that can run from about $49 to hundreds of dollars a month depending on the services you request. The benefit of a PEO is that it takes the back office HR and payroll work off your hands and ensures that your company is compliant with California labor laws at all times.
4. Use an Online HR Consultant or Legal Services
Online legal services like Rocket Lawyer provides free policy templates and can review your time off policies for as low as $39.99 per month. Similarly, HR consultants like Bambee offer unlimited labor law compliance questions for as low as $99 per month. In fact, Bambee will audit your business and provide an employee handbook to help you stay ahead of any potential California PTO laws and labor compliance issues.
Best Practices to Implement California Vacation Laws
While the law doesn’t specify that you provide your workers with vacation benefits, most employers offer them. So here’s what you need to know if you do provide paid vacation benefits.
These examples can prevent any misunderstandings that may result in you paying out more than you intended:
- Document your policy: An employee handbook is a good place to do that.
- Provide new hires with a policy: Here’s how to structure a PTO policy and sample templates with which to start.
- Track earned and taken PTO: Payroll software helps to ensure the calculations are correct and lets employees see their used and remaining balances on pay stubs.
- Don’t discriminate: You can’t discriminate (based on protected classes) who gets paid time off or not. However, you can offer different worker classes—hourly employees, part-timers, new hires, or executives—different amounts of paid vacation.
- Provide leave accrual information: You must print leave balances on employee pay stubs or provide them with a means to view their balances such as through an HR portal.
- Pay out unused balances: If an employee is terminated (voluntarily or involuntarily), you must pay out any earned, unused vacation balance on their final paycheck.
- Don’t mix PTO and sick leave: If you don’t specify which time off is for sick leave and which is for vacation, you will end up paying out all earned unused PTO, including unused sick leave on an employee’s final check.
Pros & Cons of Offering PTO in California
According to CNBC, US workers get less PTO than workers in most industrialized nations, working some of the longest hours in the world. Humans need both a mental and physical break from work to remain their most productive. The benefits of offering PTO nearly always outweigh the costs.
Pros of Offering Vacation Benefits in California
Here are some of the top benefits of giving employees PTO for vacation:
- It gives your business a competitive advantage: In a tight labor market, you’ll get more job applicants if your job posting includes vacation benefits.
- It increases the chance they’ll say yes: Generous vacation benefits improve the likelihood candidates will accept your job offer.
- It reduces your turnover: Employees won’t have to choose between working and taking a vacation with their family. They’re less likely to quit if you provide that time off.
- It improves employee work-life balance: You’ll notice employees who take time off are less stressed, more creative, and more productive when they return to work.
Cons of Offering Vacation Benefits
Most of the downsides of California vacation law relate to cost and compliance:
- Cost: Paying an employee when they’re not working costs money.
- Documentation: If you offer any kind of PTO, including vacation, your policy must be documented, maintained, and communicated to all workers, especially upon hire.
- Calculation: Since California vacation law treats earned vacation as “earnings,” you must calculate and track your vacation grant, accruals, and balances.
- Pay stubs: California vacation law requires that your PTO balances be provided on pay stubs, electronically or in print. That may require purchasing software.
- Payments: California PTO laws mandate that earned, unused vacation benefits be paid out to employees upon termination. You need to have those dollars available.
Alternatives to California Vacation Law Compliance
If you’d like to offer paid vacation to your employees but don’t want to deal with California’s PTO laws, you have a few options—from unpaid time off to outsourcing your HR to a professional employer organization (PEO).
Here are ways to get around California’s PTO laws:
Don’t Offer Paid Vacation
Some employers give employees time off, unpaid. In that case, there’s nothing to pay out if an employee leaves your company. You can still create a PTO policy that lets workers take the time off that they need, such as one to four weeks a year—it’s just that it’s unpaid time off. This is most common for hourly and part-time workers. On the downside, your workers will need to save or plan their replacement income on their own.
Offer Unlimited Vacation
Let’s be honest, this is a bit of a misnomer. However, an unlimited vacation policy is an option if you simply want employees to be on the honor system for taking time off or working remotely (such as while on a cruise ship or family trip). This works best for salaried exempt professionals whose work productivity (not hours worked) drive their salary.
Before setting up an unlimited PTO plan, you’ll want to ensure it’s in compliance with California vacation laws. You’ll need a clear policy so you’re not required to make a huge payout at year-end.
Outsource Your Vacation Policy to a PEO
PEOs for small businesses provide a co-employment option wherein your PEO partner manages all of the labor law compliance such as HR, benefits, and payroll. You manage your workers’ day to day work, priorities, and on-site supervision. Their costs can vary widely and exceed well above a hundred dollars a month per person.
Frequently Asked Questions (FAQs) About California Vacation Law
Without a formal California vacation law, small business owners are required to cobble together the rules that impact any business offering PTO. That leaves managers to field questions from their workers as well. We’ve done our best to answer the most common questions about California’s PTO laws.
As an employer, can I mandate workers ask for time off in advance?
Since paid vacation is an optional benefit provided by employers, the business has a great deal of latitude in setting up the employee vacation policy. For example, you could require employees to fill out a request form, or mandate that they provide two weeks’ notice of vacation time in advance.
If an employee quits, when do I have to pay out their unused vacation per California vacation law?
Earned, unused vacation must be paid out to terminated employees at the same time as they receive their final check. And California is very strict on when you must provide a final check to your employee.
Here is the time frame in which you need to submit final paychecks to terminated workers in California:
- If you fire them, you must provide them a final paycheck that same day.
- If they provide you at least 72 hours of advanced notice before they quit, you must give them their final paycheck on their last day worked.
- If they quit with no notice, you have 72 hours in which to provide the final paycheck.
What are common mistakes California employers make when it comes to vacation time?
If they’re not using an HR software, payroll service, or consultant, they are likely to make these vacation policy mistakes:
- Failing to document and communicate their PTO policies. The impact is that the law will interpret your policy in the most favorable way to employees. For example, let’s say you give one employee four weeks paid time off (due to their length of service). Without documentation, a court may rule that your vacation policy gives four weeks to everyone.
- Inconsistent application of vacation policies. The impact is that your favoritism might look like discrimination to a court. Let’s say you give a white female employee paid vacation to attend a wedding (because she’s a friend of yours), while you decline a vacation request from a Hispanic worker in the same job, making her wait until Christmas to take time off. A court may consider that racial discrimination.
- Allowing workers to use sick leave time for vacation. The impact is mostly financial. Unused sick leave need not be paid out upon termination, but if your PTO policy is all inclusive (sick leave time can also be used for vacation), that allotted time is deemed to fall under the rules for vacation time, meaning that all PTO is earned and you have to pay it out. (It’s best to have separate policies for sick leave and vacation leave in California.)
- Failure to pay out earned, unused vacation time on the final check. The impact is that you’re likely going to be required to pay the employee both their unused vacation time as well as a “waiting time” penalty for delaying their payment.
How many vacation days do you get in California?
California employers aren’t required to offer paid vacation. It’s up to your business to decide how many vacation days are allotted and when. Workers can typically find the number of vacation days in their job offer letter or company employee handbook. What workers do get in California is paid time off for sick leave. The minimum sick leave allotment for a full-time worker in California is three days or 24 hours, but that amount may be higher in some cities. It’s possible that a business combines these days in one paid time off policy.
Can an employer cap vacation time?
Yes. An employer may have a policy that provides no more than one-week paid vacation and that’s all you can take. If workers take more vacation time (paid or unpaid) without prior approval, they could be considered to have abandoned the job and likely be terminated from employment. However, if the time taken were for family medical or health issues, that time would fall under a different policy—either sick leave or family medical leave— with different rules.
Can an employer punish an employee by taking away vacation time?
Once an employee has earned vacation time, it’s considered “earned income,” and if they leave the employer, any banked vacation time that’s earned but unused is to be paid out in the final check. However, an employer may institute a policy that “caps” the amount of vacation time workers can accumulate, so you’re encouraged to use it. Just as an employer in California can’t dock your pay, they also can’t take away vacation time you’ve already earned.
If an employee takes vacation time before earning it, can I dock their final check?
No, in California, you cannot dock an employee’s final check for benefits that have been paid previously. Once the benefit has been paid, it can’t be retracted per the California Department of Industrial Relations.
Unlike most other U.S. states that can establish a “use it or lose it” vacation policy, California PTO laws prohibit that. As a business, you’re not required to offer paid vacation time to your workers. If you do, it’s important to understand that earned paid vacation time is considered employee earnings (part of their compensation) and can’t be taken away from a worker, even if they quit.
If you’re considering offering, revising, or expanding paid time off, it’s a good idea to partner with an all-inclusive HR service that can administer your PTO policies. Zenefits offers timekeeping software and leave management allowing workers to request time off while it keeps track of how much paid vacation time employees have earned and taken. In fact, its payroll add-on can ensure employee paychecks are compliant with California PTO laws.