Sunday, February 5, 2023

Allowing Use of Sick Time for Vacation Could Prove Costly for Employer

My employee wants to take a few days off to take a trip with her family, but she is out of vacation time. Can I let her use her sick leave instead?

Many employers see no harm in allowing an employee to use their paid sick leave (PSL) as a substitute for vacation time, but doing so could lead to unintended and expensive financial consequences for the employer.

Vested vs. Unvested Time Off

The risk in allowing employees to use PSL for anything other than its intended purpose (such as illness or medical appointments) lies in the way California law draws the distinction between vested and unvested time-off benefits.

A vested benefit is one that belongs to the employee and can’t be taken away, and which must be paid out at the end of the employment relationship. An unvested benefit can be subject to a “use-it-or-lose-it” rule.

California’s Labor Commissioner says a time-off benefit that is “contingent upon the happening of a specific event” is an unvested benefit and does not have to be paid out at termination.

A time-off benefit that is given “without condition,” such as vacation time, is a vested benefit and must be paid out at termination. This is true no matter what name an employer may choose for the time off bank, such as Paid Time Off (PTO). DLSE Opinion Letter 1992.04.27

Paid Sick Leave

Under California law, PSL is not a vested benefit because it is tied to being used for specific purposes. California’s PSL law allows an employee to use it for the diagnosis, care or treatment of an existing health condition, or preventive care, either for themselves or certain family members.

For example, an employee could take PSL for a cold or other illness, to care for a sick child, for a doctor’s appointment for themselves or a family member or for preventive care, like a flu shot. Thus, California’s PSL law specifically states that any remaining balance does not need to be paid out at the time of termination, resignation, retirement or other separation from employment.

By allowing an employee to use their PSL bank for reasons that are not specifically allowed under the law, the employer may be unintentionally turning an unvested benefit into a vested one.

In other words, because the time off is no longer tied to illness or medical appointments and can be used to take a vacation, it may now be vested and belong to the employee and therefore could lead to a claim that it should have been paid out on separation.

Costly Risk

If a former employee were to file a claim with the Labor Commissioner because the time remaining in the PSL bank was not paid out, the financial risk to the employer is more than just the few hours or days that were not paid from that bank.

The employee would also be entitled to waiting time penalties of one full day’s wages for each day after their final pay was due, up to a maximum of 30 calendar days. Because most employees work about 20 days per month, the penalty can result in about an extra month-and-a-half of wages being owed.


Column based on questions asked by callers on the Labor Law Helpline, 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.

Ellen Savage
Ellen Savage
Ellen Savage joined the CalChamber in 1990 and currently serves as an HR adviser. She has been assisting employers on the Helpline since 1993. She was the editor of eight editions of the California Labor Law Digest and author of the CalChamber's California Hiring to Termination Guide. Her experience also includes practicing at a large Sacramento law firm and presenting at dozens of employment law seminars statewide. She holds a J.D. from Lincoln Law School.

Related Articles

How to Handle Vacation, Sick Leave, Paid Time Off, Holidays

In Episode 155 of The Workplace podcast, CalChamber employment law expert Matthew Roberts and CalChamber HR Adviser Ellen Savage answer common questions that employers are asking regarding vacation policies. Here in California, we have entered...

COVID-19 Paid Sick Leave Workplace Posting Now Available

As previously reported, on February 9, Governor Gavin Newsom signed into law SB 114, which has revived COVID-19 Supplemental Paid Sick Leave and will provide eligible employees with up to 80 hours of paid...

Governor Signs Sick Leave, Small Business Relief Bills

Governor Gavin Newsom this week signed a bill package providing $6.1 billion in tax relief, tax credits and grants for small businesses hurt by the pandemic and extending COVID-19 paid sick leave for workers. California...