If an employee is terminated before completing a 90-day probationary period, do we have to pay accrued vacation?
Yes, in most instances you are required to prorate vacation even when an employee does not complete the probationary period. It depends on whether a vacation policy exists and how the policy is written.
Employers in California are not required to provide vacation for their employees. If an employer has not established a vacation policy, vacation is not owed.
Once a policy is established, an employer must comply with Labor Code Section 227.3 and prorate any vested vacation time at termination of employment.
Labor Code Section 227.3. Unless otherwise provided by a collective bargaining agreement, whenever a contract of employment or employer policy provides for paid vacation, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to the employee as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide forfeiture of vested vacation time upon termination.
The policy determines when vacation is actually earned and vested. When a vacation policy provides vacation accrual on the date of hire and is fully earned on the employee’s yearly anniversary date, the time earned during the probationary period is owed to the employee upon termination.
A policy may be written in such a way that the accrual does not begin until the completion of a specified probationary period. This type of policy must be clearly written and a few rules apply.
For example, to completely exclude the probationary period, the employee may start to accrue on the 91st day and fully earn the full vacation hours one year from the 91st day. This method clearly excludes the probationary period from accrual.
Another valid method is to start accrual on the 91st day at a rate that results in a prorated portion of the full yearly accrual on the employee’s anniversary date.
The Division of Labor Standards Enforcement does not accept as valid any method that results in an acceleration of accrual starting on the 91st day that reverts to a lesser accrual for the next year. All vacation earnings must be proportional.
Review your policies to make sure prorated vacation is being paid correctly.
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.