Human Resource Blog

CA Vacation Payout upon termination

	Attendance Management
Vacation Request / Response Form Weekly Time Sheets Attendance Calendar for 2008, 2009, or 2010 Annual Attendance Tracker Vacation Request Form for 2008, 2009, 2010 (Calendar) Detailed Absence Report

	Compensation
Employee Payroll Action Form W-4 Employee Withholding Allowance Cert. Employee Payroll Status/Change Form Direct Deposit Form Total Compensation Summary

	Termination
Employee Warning Notice Employee Final Warning Notice Employee Resignation Form Exit Interview Questionnaire Separation Checklist

One of our employees quit while on an unpaid leave of absence. She was hired the first of March and quit the middle of April. She was on unpaid leave from the first of April until she quit, she did not work at all in April so she did not receive a final check. She also had unpaid time off from the end of March that was paid on the March 31st payroll. We usually deduct this time on the next check. Our payroll must be submitted three days before the paydate, the time without pay was during that three days. Her vacation balance was less hours than the time off without pay that was paid. She also was not eligable to use her vacation because our company policy states that you must be employed for three months before you can use any accrued vacation time. Should she be paid out for her vacation time even though she technally owes us for time that should not have been paid? Or can we deduct the time without pay that was paid to her from her vacation balance and pay her the remaing vacation time if any?

This is a grey area, but probably the employer must pay the worker’s vacation time, and is not permitted to deduct the overpayment. According to the California Division of Labor Standards Enforcement (of the California Department of Industrial Relations), accrued vacation time is considered earned wages in California. An employee who is fired must be paid “all of his or her wages, including accrued vacation, immediately at the time of termination” under Labor Code Sections 201 and 227.3.

 

An employee who quits must also be paid immediately, as long as the employee gives at least 72 hours notice. If an employee quits with less than 72 hours notice, the employer has 72 hours to issue the final paycheck – but in either case, vacation time is earned wages and must be paid.

If there is a valid employment contract in place, that may change these arrangements.

As far as deductions go, the state website says, “An employer can lawfully withhold amounts from an employee’s wages only: (1) when required or empowered to do so by state or federal law, or (2) when a deduction is expressly authorized in writing by the employee to cover insurance premiums, benefit plan contributions or other deductions not amounting to a rebate on the employee’s wages, or (3) when a deduction to cover health, welfare, or pension contributions is expressly authorized by a wage or collective bargaining agreement.” This is under Labor Code Sections 221 and 224.

In this case, the employer accidentally overpaid the worker for 3 days of salary in a previous pay period. One could legitimately argue that this was the employer’s error, and not the employee’s fault. While many states allow such an accidental advance or overpayment to a worker to be deducted from the final paycheck, it appears that California law does not.

This is supported by case law. In CSEA v. State of California (1988) 198 Cal.App.3d 374 the appellate court ruled that it was unlawful for the employer to make a deduction to the current paycheck, for a salary advance that was paid in error on a previous check.

The employer should take steps to pay this employee immediately. The penalty for not issuing a final paycheck within 72 hours is one day’s pay for each day of delay — in other words, if the employer is 10 days late paying the worker, the employer might be required to pay the worker for an additional 10 days.

For a final opinion, the employer could certainly contact the CA DLSE at 916-263-5378.

The employer has chosen to issue checks on the day the pay period for salaried workers ends. This method of calculating payroll is almost inevitably going to result in such overpayments which may not be recoverable in California.