Can we change our vacation policies as a result of the employees not using their time during COVID-19?

This is a tricky question. Generally, however, employers do have control over their vacation policies subject to certain rules. Employers have a few ways to address their vacation policies while staying within compliance.

Accrual Caps

California law allows employers to set reasonable caps on vacation accruals. Accrual caps mean that the employee no longer accrues vacation time while they are at the cap.

Although there is no set standard on what a reasonable cap may be, commonly caps meet this requirement when they are no less than 1.5 to 2 times the annual rate for employees. This is because employees need to be provided a reasonable opportunity to take all the vacation that they earn within a year.

So, for example, an employee who accrues 40 hours of vacation a year should have a cap of no less than 60 hours before they stop accruing vacation.

Some employers who have already instituted caps may want to temporarily increase the cap as a benefit to the employee since there is little incentive to use vacation during a shelter-in-place order.

Employers may increase or decrease their caps, however, California prohibits “use it or lose it” vacation policies. For example, if an employee has a 200-hour cap, and the employer decided to temporarily increase that cap to 240 for the rest of year, the employer cannot take away any vacation hours in excess of 200 once the employer decides to return the cap to that level.

Cash-Out Policies

California law considers vacation hours to be vested wages. This is why vacation hours must be paid out along with final wages. California law allows employers to cash-out vacation hours; however, the cash-out must be paid at the employee’s current rate of pay.

Required Usage

Employers may require employees to take vacation at certain times of the year. However, internal Labor Commissioner guidance requires that employers provide reasonable advance notice of the requirement. The Labor Commissioner determined that 90 days would constitute reasonable advance notice.

In general, the Labor Commissioner will handle any vacation claims based on the principles of equity and fairness. So, where an employer wants to change its vacation policy, it should keep those principles in mind along with the rules under California law.

Read more about Vacation in the HR Library.

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