A Primer on Paid-Time-Off – Sean Erenstoft

California’s new laws have set mandatory minimums so that employees are given adequate time off from work without penalty.  Here’s a primer:

Sick Time:

In California, once an employee works 30 days, an employer is required to provide an employee with at least one hour of sick leave for every 30 hours worked. This is known as the 1:30 ratio.

Although employees may accrue more than three days of paid sick leave under the one hour for every 30 hours worked under an accrual method, the law allows employers to limit an employee’s use of paid sick leave to 24 hours or three days during a year.  The law also allows an employer to limit (cap) an employee’s total accrued paid sick leave to no more than 48 hours or six days.

No accrual or carry-over is required if an employer provides the full amount of sick leave at the beginning of each year, allowing the employee to take sick leave before he or she would have otherwise accrued it. An employer is also not required to allow an employee to accrue a total of paid sick leave in excess of 48 hours, or six days.  Employees are able to use paid sick time for preventive care for themselves or a family member.

An employee who uses sick leave is entitled to compensation for his or her sick day at his or her standard hourly rate; employees who earn commissions must have those commission payments factored into their sick leave payment. An employer is not required to pay out the sick leave upon termination.

Vacation Accrual

In general, vacation accrues over time as an employee works. For example, if a vacation policy gives an employee ten days of vacation each year, he or she will accrue five days of vacation after working for six months.

Employers can designate a waiting period at the beginning of employment before vacation starts to accrue, though. The waiting period often correlates with the 90-day introductory period, but can be as long as the first year of employment.

Employers can also give vacation to certain groups of employees but not others, as long as they don’t discriminate based on a protected characteristic, such as race or gender.  For example, employers may give vacation only to full-time employees or only to managers.

Reasonable Cap on Vacation Accrual:

This is a touchy area. Some of us don’t take advantage of all the time we accrue.  We don’t get sick or simply limit our vacations.  However, unlike some other states, California does not allow “use-it-or-lose-it” vacation policies.  Under a “use-it-or-lose-it” policy, accrued vacation must be used by a certain date – usually by the end of the year – or it is forfeited.  Because accrued vacation is considered earned wages, use-it-or-lose-it policies are seen as illegally withholding wages owed to employees.

Employers can, however, place a cap on vacation accrual. In other words, once employees reaches a certain number of days, they will stop accruing vacation until they use some of their vacation.  This allows employers to maintain some control over vacation accrual and prevent employees from racking up unreasonable amounts of vacation time.

While there’s no set number for a permissible cap, the California Department of Labor Standards Enforcement (DLSE) – the agency that enforces California wage and hour laws – has provided some guidance.  In the past, the DLSE has held that a vacation cap could be no less than 1.75 times the annual accrual rate. However, the DLSE has since withdrawn that bright line rule and instead states only that the cap must be “reasonable.” While a 1.75 cap is probably still the safest ratio, a 1.5 cap may also be within legal limits. The example below shows how the vacation cap works.

Example: Erenstoft, Inc. provides all full-time employees with ten days of paid vacation each year. Erenstoft’s vacation policy has a cap of 1.75 times the annual accrual rate, or 17.5 days (1.75 × 10 days).  An employee’s vacation will roll over year to year, but once he or she reaches 17.5 days, no more vacation will accrue until the vacation bank falls below that amount.

Notably, upon termination, un-used vacation time must be reimbursed by the employer at the rate of the employee’s last rate of pay.

I hope this primer provides you and your employees some basic information about PTO. Interestingly, this is one of the most-queried topic I receive as I begin to consult with companies about their human resource policies.

Sean Erenstoft is a business consultant working in Los Angeles, California.  Sean is also an active civil rights lobbyist.  He also launched a blog-site entitled: superiorcourtblog.com

Sean Erenstoft can be reached at (310) 613-8887.