Vacation Time, Sick Pay, Severance Pay, and Other Benefits

Some of the most frequently asked questions by clients are about benefits for employees under California law: Do employer's have to provide vacation to employees?  Can employers have a use-it-or-lose-it vacation policy?  Do employers have to give employees severance pay?  Below is the Division of Labor Standards Enforcement's (DLSE) explanation of employer's obligations regarding these issues.


        VACATION: Paid vacations are not required under California law. If an employer has an oral or written vacation policy, such vacation benefits are considered wages and are earned by the employee on a pro rata basis for each day of work. Because vacation is a form of deferred wages and vests as it is earned, vacation wages cannot be forfeited (or in other words, an employer cannot have a use-it-or-lose-it vacation policy) (Suastez v. Plastic Dress Up (1982) 31 Cal.3d 774) An employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. (Boothby v. Atlas Mechanical (1992) 6 Cal.App.4th 1595). When an employment relationship ends all vacation earned but not yet taken by the employee must be paid at the time of termination. (Labor Code §227.3). If employees are subject to a collective bargaining agreement, the provisions pertaining to vacation benefits in the collective bargaining agreement will apply. (Labor Code §227.3)


        SICK PAY:There is no state legal requirement under California law for employers to provide paid sick leave. Employers with a presence in San Francisco should note that the city does require employers to provide sick pay accrued at a rate of one hour of sick time for every thirty hours worked.  For these workers in San Francisco, the sick pay is capped at 72 hours for large businesses that have10 or more employees and at 40 hours for small businesses that have less than 10 employees.

Employees should refer to their employer’s policy with respect to paid sick leave. However, most employers participate in the State Disability Insurance Plan (SDI), which they pay for through payroll deductions. (Unemployment Insurance Code §2601, et seq.) Employers are required to give newly hired employees and employees leaving work due to pregnancy or non-occupational sickness or injury a copy of a notice of their disability insurance rights and benefits due to sickness, injury or pregnancy. (Unemployment Insurance Code §2613) Additional information concerning disability insurance can be obtained from your local office of the Employment Development Department (EDD).

If an employer has a sick leave policy, the employer must permit an employee to use in any calendar year, the employee’s accrued and available sick leave, in an amount not less than the sick leave that would be accrued during 6 months at the employee’s current rate of sick leave, to attend to an illness of a child, parent, domestic partner, or spouse of the employee. (Labor Code §233)


        SEVERANCE PAY:There is no legal requirement under California law that employers provide severance pay to an employee upon termination of employment. Employees should refer to their employer’s policy with respect to severance pay. Severance pay plans provided by an employer pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §1001 et seq. (ERISA), are subject to federal law. More information about ERISA can be found at the U.S. Department of Labor's website. In certain limited situations, California laws may apply. However, a thorough review of the facts is necessary before a determination can be made.

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