Can I cap how much vacation employees can accrue and still comply with California law?
Q. My employees receive one week of paid vacation per year. Since I cannot have a use-it-or-lose-it policy, can I just cap vacation accrual at five days?
A. California law requires employees to be given a “fair opportunity” to accrue vacation time. There is no specific amount of time that must be given, but the state’s Division of Labor Standards Enforcement (DLSE) suggests that employers can satisfy the “fair opportunity” requirement by giving employees nine months after the end of the year to continue to accrue vacation time. In other words, the accrual cap should be at or above one and three-fourths times the annual vacation time provided.
For example, according to the DLSE, an employer that provides 12 days of vacation time per year could comply with the law by choosing an accrual cap at or above 21 days.
The DLSE has specifically found arrangements such as your proposal, which require employees to use a week of vacation in the year in which it is accrued, to be unreasonable. It has also struck down similar policies, such as those requiring vacation to be used in the same year it was earned and those that prevent accrual at the start of a new year until all of the prior year’s vacation time is used.