The nationwide implications of California vacation law

With the goal of keeping employees happy and productive, many employers choose to provide vacation time to their workers. Details such as when paid vacation time begins to accrue—and how and when it may or must be used—vary by employer, which is why it's important as a business owner or human resources director to understand the various options concerning vacation time policies.

California's paid vacation law is notable not because it requires employers to provide any paid vacation time or paid time off, or PTO, to employees—it doesn't—but rather because it requires that if an employer does choose to do so, it must follow specific rules regarding that time. When devising an employee vacation policy for a small business, then, you may find helpful guidance in the paid vacation law of California—even if you aren't located in the Golden State.

Why employers need good vacation policies

Before delving into California's paid time off law, let's talk about the benefits of offering employees vacation time. The Harvard Business Review has shared the results of a study by the U.S. Travel Association, which found that, for employees, "taking more vacation results in greater success at work as well as lower stress and more happiness at work and home."

Of course, "greater success at work" is a positive outcome for employers, and it's one of the best reasons to provide your employees with vacation time. Moreover, happy employees tend to translate into a lower turnover rate, which also can help keep your business running smoothly and thriving as well.

If you're concerned that offering PTO could backfire on your business financially, however, you're not wrong, which brings us to some ideas for protecting both your enterprise and your employees as you devise a vacation time policy that works for everyone.

The accrual of vacation time

Let's turn to how paid time off works. In California, accrued, unused vacation time is considered a wage, which means employers must pay employees for that time, regardless of whether or not employees use it for vacation. In other words, California does not permit any business to employ a "use it or lose it" vacation policy, through which employees must either take vacation time by a certain date (often by the end of December) or forfeit those paid days. Generally, in California, all accrued unused vacation time must be paid to the employee when they leave employment for any reason.

Practically speaking, then, if a California employee accrues a vast amount of unused paid vacation time, the employer could be facing a huge financial hit when it comes time to pay out, upon an employee's retirement, for example.

There are several ways businesses can help guard against a situation such as this, including the following:

• Limit vacation by class of employee. An employer may not discriminate on the basis of race, sex, gender, religion, disability, or any other protected class, but they may choose to offer paid vacation time only to certain levels of employees, such as management. You also may choose whether to grant vacation days to full-time employees only or, if you do decide to give vacation time to all employees, you may choose to have a separate part-time employee vacation policy with different parameters.
• Defer and/or stagger the accrual time. Employers may choose to give employees vacation days at certain intervals of employment. For instance, an employee may gain five days of vacation after six months at the company and then additional days for every month thereafter.
• Limit the total accrual. Even in California, employers have the right to limit how many vacation days an employee may accrue so long as it is "reasonable." With such an accrual cap, an employee who has reached a specified amount of accrued vacation days would have to begin using some of them before continuing to acquire more.

Managing your employees' vacation requests

Another simple vacation policy consideration for businesses involves requiring employees to request their vacation days a certain period of time in advance. This procedure better enables owners to manage the number of personnel on hand at any given time.

An employer also may choose to disallow vacations during specific time periods, such as around particularly busy times—such as the holidays, for those in retail.

Note that sick days and personal days are generally separate from vacation days. In fact, in California, employers must provide at least three days of paid sick leave per year, which are handled separately from vacation days.

In any event, remember that it's always a good idea to include all provisions that directly affect your employees' work time and pay in a comprehensive employee handbook to protect both your employees and your business's best interests.

Because labor laws vary by state, you should always be sure you are complying with your jurisdiction's statutes when devising vacation policies for your employees. Overall, though, as you decide what will work best for both your enterprise and your employees, do keep in mind that happier employees perform better—and that is always good for business.