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Vacation Payout in California is Mandatory but Offering Vacation Isn’t

This might sound contradictory at first. Why would you have to pay out vacation if you don’t even have to offer vacation to begin with?

Well, if you choose to offer vacation, you have to follow some rules. You don’t actually have to offer vacation in California at all if you don’t want to (although, it is a perk that employees find desirable so maybe you should!) but if you do decide to implement some vacation benefits, you’ve got to stick to it till the end.


In California, earned vacation time is part of an employee’s wages. Just as you cannot decide to cut wages without warning, you can’t cut vacation either.

“Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination.” From the State of California website

An exception can be made if the employer put a reasonable cap on the accrual of vacation time or if a Collective Bargaining Agreement (negotiated between a Union and the employer) was signed.
To read the full FAQ on the subject of vacation time at the State of California website click here.

7 Comments

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    […] this month we wrote about vacation payout laws in California. To sum it up, you don’t have to pay your employees vacation, but if you choose to, there are […]

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    […] states also require that employers payout unused vacation time on that final paycheck. For example, in California, vacation time is considered wages, so any unused vacation time must be paid as wages on that final […]

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    […] the requirements for paid time off around the world. Now, some states, like California, do consider vacation time as wages. So if you offer vacation time, you must pay it out like wages upon termination of […]

  4. The New California Paid Sick Leave Law | The Timesheets Employee Management Blog
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    […] have no right to cash out this accrued time when their employment is terminated as they do with vacation time in California. If the employee returns within the next year, however, employees can reclaim their accrued sick […]

  5. christopher ochoa
    christopher ochoa August 14, 2015

    I have recently quit my job for a new one. I had 2 weeks of vacation time paid out to me,but when I received my check I realized they taxed my vacation pay out. Is this legal?

    • Peggy
      Peggy August 28, 2015

      Vacation payout is probably going to be taxed at the 25% supplemental wages rate. You might want to make sure that your entire check was not taxed at this higher rate, though.

  6. timesheets_blog
    timesheets_blog June 5, 2019

    Hi Jen, If the vacation was earned at a certain rate, my opinion is that you’d have a pretty strong case to make that you deserve the equivalent amount of vacation in terms of value. So if you had 5 days before, you’d have 6 days now – or something like that. I like your idea, however, to cash those days out at the old rate and start fresh. But either way would be fair.

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