Human Resource Blog

vacation time

In California can you pay an employee in lieu of that employee taking vacation? Are you breaking any labor law if you decline to do so?

The answers are yes and no. In California, once an employee has earned paid time off such as vacation, the employee must be allowed to use it or paid for it. The employee cannot lose paid vacation without being compensated for it, in California.

There is no law that you must allow employees to take a cash payment in lieu of using paid vacation. As an employer, you can dictate when employees will use paid vacation, even in California. You could simply inform this employee that she will be on vacation the week of March 1, or whenever it is convenient for you.

The “use-it-or-lose-it” vacation policy is illegal in California. In many states, if an employee does not use their paid vacation by a certain date (such as the employees anniversary or the end of the year) they simply lose that paid vacation time. In California, this is not legal. If vacation expires on December 31, the employee must be paid for that time. However, if you allow the employee to carry over vacation into the next year, there is no requirement that you pay the employee for the vacation time.

Many employees would prefer to not use their vacation, and simply be paid the cash value of it. It is lawful for an employer to do this in California, but there is no law that requires you to do so — and doing so increases your annual payroll cost. As long as you allow the employee to carry vacation over, or force the employee to use paid vacation, you are not obligated to pay the employee for the cash value of the paid vacation.

Example: California employee Raymon has 5 days of vacation. He prefers to work every week, and would like to be paid in lieu of using that vacation time. It would be lawful for you to agree to this arrangement. You could also decline this arrangement, and simply allow Raymon to carry over his vacation time into future payroll years. Or, you could tell tell Raymon that he must take a week of paid vacation beginning June 1, whether he wants to or not. Any of these options is legal in California. What is not legal is if Raymon loses the vacation time, and is not paid for it.