Vacation Policy: Employer Has Latitude, But Beware of Illegal Impacts

Sharon Novak

Can we have different vacation policies for different worksites and for different groups in the same office?

Yes, California employers may establish different vacation policies among their employees.

Paid vacation is a discretionary employee benefit offered by employers. Because there are no laws requiring employers to provide paid vacations to employees, companies may decide who is entitled to paid vacation leave, the amount of leave, and when vacation can be taken.

Different Policies

Companies can adopt different policies for different groups.

Employers are not required to offer the same amount of paid vacation to all employees or to treat employees the same. Companies can choose to apply the same policy to all employees or can offer different policies to different groups of employees or to individual employees.

Employers have the flexibility to establish different accrual rates or rules based on multiple factors. Common distinctions made by employers in their paid vacation policies are:

  • Full-time vs. part-time employees.
  • Regular vs. temporary employees.
  • Exempt vs. non-exempt employees.
  • Length of employment.

Companies also may use paid vacation to attract new employees or to incentivize and reward current employees.

For example, applicants may negotiate a higher vacation amount than is provided in the company’s general vacation policy, or a company might grant an additional week of paid vacation to reward the outstanding performance of an employee.

No Illegal Reason

Different vacation policies cannot be based on an illegal reason or have a disparate impact on protected groups.

In establishing distinctions between groups of employees in paid vacation policies, a company would violate discrimination laws if the vacation policy were based on a classification prohibited by law. A company cannot adopt different policies based on race, gender, sexual orientation, religion, age, nationality, or any other protected characteristic.

Companies also should be alert to vacation policies that have a disparate impact on certain groups. For example, agricultural workers who receive fewer vacation days than office workers may allege that they are being affected unfairly by the discretionary policy.

Different vacation policies are rarely illegal. However, treating one group of employees more favorably than others may lower morale and cause resentment between the groups. Employees understand that working longer for a company may warrant more paid vacation. It may be harder to understand why employees in the Los Angeles office get more paid days off than those working in San Francisco.

Legal Requirements/Best Practices

Discretionary vacation policies are subject to legal requirements and best practices.

Although companies have considerable latitude regarding paid vacation policies, there are some limitations.

Legal Requirements

  • Because California treats accrued vacation time as wages, it cannot be forfeited or otherwise taken away.
  • When employees separate from a company, they must be paid for any unused, accrued vacation time as part of their final paycheck.

Best Practices

  • Employers should have a written vacation policy explaining accrual rates, eligibility criteria, and payout procedures. By committing your company to a written policy, you force yourself to clearly define the terms of the policy. This avoids uncertainty and miscommunication and sets expectations for employees.
  • Employers can cap the amount of vacation time an employee can accrue if the cap is reasonable, and employees have been given sufficient opportunity to use their accrued vacation time. What constitutes a “reasonable cap” has not been established by the courts or the Division of Labor Standards Enforcement (DLSE). Employers often set the accrual cap at 1.5 to 2 times the annual accrual rate.

Unlike many areas of employment, vacation policies aren’t heavily regulated by the state. California employers can establish different vacation policies for their employees so long as the differences are not based on illegal reasons or do not adversely affect a protected group. Ideally, if challenged, companies can explain the reasons they have chosen to adopt different policies for different groups.

Column based on questions asked by callers on the Labor Law Helpline, a service to California Chamber of Commerce preferred members and above. 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

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Sharon Novak joined the CalChamber in 2021 as an employment law expert. She previously practiced employment law in firms in Montana and Chicago, served as employment counsel for a national company based in California, and assisted employers as a director of workplace solutions. Her employment law practice included trial work, professional support to human resources departments, and workplace investigations. She also has developed and conducted seminars on critical employment law issues, including sex and age discrimination, sexual harassment, wage and hour practices, and wrongful terminations. She holds a J.D. from Gonzaga University Law School.