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  • Vacation Policy Best Practices

    By   CalChamber   -  September 2, 2020

    In this episode of The Workplace podcast, CalChamber Executive Vice President and General Counsel Erika Frank is joined by employment law experts Bianca Saad and Matthew Roberts to discuss some of the best practices and common pitfalls of vacation policies in California.

    Accrual Caps

    Vacation policies are offered by employers at their option as there is no legal requirement to provide vacation time, Saad explains. Nevertheless, if an employer chooses to offer vacation time to its employees, the company must follow certain rules.

    For example, she says, employers cannot establish a “use it or lose it policy,” whereby employees must use their vacation time by a certain date or lose their accrued vacation time. Accrued vacation time is treated as earned wages, and thus if an employee were to separate from the company, the accrued time must be paid out to the employee.

    Employers can, however, set a reasonable cap on vacation accruals, Roberts adds. There are limits, and the accrued time cannot be taken away.

    Frank explains that a cap on accrual is when an employee stops accruing vacation time if they have hit the cap the employer has previously set. Once an employee uses their vacation time and their time in their “bank” falls below the cap, then the employee will resume accruing vacation time.

    In the past, a Labor Commissioner letter stated that a reasonable cap of 1.5 times the annual accrual rate for the employee was acceptable, but that letter is no longer in existence, Roberts tells Frank. Still, the idea behind a “reasonable cap” is for employers to allow enough opportunity for an employee to use the vacation accrued within a year of accruing it.

    “So, if we stay within the 1.5 to 2 times their annual accrual rate, more than likely you’ll fall back within that ‘reasonable cap’ percentage,” Roberts says.  Read More