Payment Rules for Unused Paid Time Off Differ for Vacation, Sick Leave

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herman_gary_SMDoes an employer have to pay employees for unused paid time off?

It depends upon what kind of paid time off it is. Employers may have policies of paying for time employees use as vacation or paid time off not tied to any particular event or to cover absences due to illness.

No Vacation Pay Forfeiture

Forfeiture of vacation pay is prohibited because the vacation pay is given without condition. That prohibition also covers paid time off not tied to a particular event like a birthday or anniversary date.

Although vacation or paid time off are not required by law, if an employer establishes a vacation or paid time off policy, there are some mandates.

California Labor Code Section 227.3 provides that at the time of termination, an employee shall be paid all vested vacation pay at the employee’s final rate of pay.

In the case of Suastez v. Plastic Dress-Up Company, the California Supreme Court determined that vested means that vacation is earned on an accrued basis. Once so earned, vacation cannot be lost.

Sick Leave

Sick leave is different, however. Before 2015, there was no statute requiring paid sick leave or addressing paid time for unused sick leave as exists with vacation.

California’s new mandatory sick leave law is codified in California Labor Code Section 245 et seq. The sick leave law mandate takes effect on July 1, 2015.

The statute specifically provides that an employer is not required to provide compensation to an employee for accrued, unused paid sick days upon termination, resignation, retirement or other separation from employment.


The Labor Law Helpline is a service to California Chamber of Commerce preferred and executive members. For expert explanations of labor laws and Cal/OSHA regulations, not legal counsel for specific situations, call (800) 348-2262 or submit your question at www.hrcalifornia.com.

Staff Contact: Gary Hermann

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Gary Hermann
About Gary Hermann
Gary Hermann joined the CalChamber in 2004 as an HR adviser. He previously worked for the Division of Labor Standards Enforcement for 26 years as a hearing officer, senior deputy labor commissioner and regional manager. His experience included processing wage claims, conducting investigations, staff development training and supervising 100 employees in nine district offices. He holds a J.D. from the University of Oregon.