The California employment law landscape is not intuitive and does not allow employers to skate by on common sense. Employers must be diligent, informed, and proactive as they navigate hiring, employing, and terminating employees working in California. One critical area where California is quite particular is paid time off. The following is a summary of the California requirements for employers implementing paid time off programs.
In California, paid time off is provided to employees in three main ways:
- Paid Sick Leave;
- Vacation; and
- Paid Time Off (PTO), a policy that combines both paid vacation and paid sick leave.
Further complicating the California paid time off landscape, vacation and PTO can be provided under an Unlimited or Flexible Time Off policy.
Paid Sick Leave (“PSL”)
All employers with employees who have worked at least 30 days in California must provide those employees with at least the minimum paid sick leave required by state law., including employees that work remotely within California for non-California employers.
Employers may comply with the law by providing paid sick leave in one of two methods: accrual or front-loaded.
Employers using the accrual system must allow an employee to accrue a minimum of 1 hour of PSL for every 30 hours worked. Employers can limit the maximum paid sick leave balance that employees can accrue provided that the so-called “cap” is no less than 80 hours. Accrued paid sick leave must carry over year to year subject to the cap. For purposes of accrual, exempt employees are presumed to work 40 hours per workweek, unless the employee’s normal workweek is less than 40 hours, in which case accrual is based on the employee’s normal workweek. We recommend caution in basing the accrual of exempt employees on a workweek of less than 40 hours because exempt employees are paid a fixed salary to perform their job duties and employers generally should not be tracking their hours of work.
Employers using the front-loaded or “lump sum” method of granting paid sick leave must provide California employees with a minimum of 40 hours or 5 days of PSL per year, whichever is greater. In other words, an employee who regularly works ten hours per day must be granted 50 hours of PSL per year, rather than 40 (representing five full days of work), while an employee who regularly works only 30 hours per week must be granted 40 hours of PSL. Employers may use the calendar year, fiscal year, the employment year based on the employee’s start date, or another defined 12-month period when determining the applicable 12-month period.
Front-loaded paid sick leave may not be pro-rated and must be provided up front at the beginning of the designated 12-month period. When an employer hires an employee in the midst of a designated 12-month period, however, it can satisfy its obligation to provide paid sick leave by granting at least 24 hours or three days of paid sick leave available for use by the 120th day of employment and 40 hours or five days of paid sick leave available for use by the 200th calendar day of employment. Employers must allow employees to use paid sick leave once they have completed 90 days of employment.
Employers are required to provide itemized wage statements to employees each pay period, which must include the amount of available paid sick leave hours. For unlimited or flexible paid time off policies that are providing the employee’s statutory paid sick leave, the word “unlimited” must appear on the employee’s itemized wage statement.
Some cities and counties have adopted their own paid sick leave laws that provide more generous benefits to employees than California’s state law. Employers must follow the paid sick leave requirements that provide the most paid sick leave to the employee based on the employee’s work location. Additionally, employers using the front-load method should be aware of local laws that require the carry over of paid sick leave from year to year.
Employers must allow employees to take PSL, for any of the statutorily mandated reasons, including but not limited to, for the care, diagnosis, treatment, or preventative care for the employee or the employee’s family member or a designated person, and other reasons specified by law, such as jury duty. Notably, employers may not ask for a note from the employee’s health care provider, if the employee has provided a valid reason for the leave.
Sick leave that is granted to non-exempt employees pursuant to California state law must be paid at the employee’s regular rate of pay, which can differ from the base hourly rate. For more information regarding regular rate of pay calculations, contact your Lathrop attorney.
Vacation
No employer in California is obligated to provide paid vacation. However, if an employer chooses to provide paid vacation to California employees, then there are certain requirements that must be met.
California considers accrued vacation to be a form of wages, so vacation cannot be provided on a “use-it-or-lose-it” basis. In other words, once vacation has accrued, it is not subject to forfeiture.
Employers should implement a cap of vacation accrual to limit how much vacation an employee can accrue and avoid the possibility of owing a substantial vacation payout to employees when they depart. Any cap on vacation accrual must be “reasonable.” Generally, a multiplier of 1.5-2 times the annual accrual amount is considered reasonable. Accrued but unused vacation must carry over to the next year (subject to the reasonable cap).
Employers who have not instituted a cap on accrual may wish to force use of vacation to alleviate the liability on the books. To force use of vacation, employers generally should have a written policy regarding such forced use and in most circumstances must provide proper notice of at least 60 days. When forcing use of vacation, employers should contact their Lathrop attorney to understand the risks.
When non-exempt employees use vacation, the time off work in hours is deducted from the accrued vacation balance. Similarly, when an exempt employee takes time off work for vacation, employers may deduct from the exempt employee’s accrued vacation hours. However, if an exempt employee is absent for a partial day for personal reasons, the employer may deduct from the exempt employee’s accrued vacation balance, but if no vacation is available the employer may not deduct from the exempt employee’s salary.
Unused, accrued vacation must be paid at the conclusion of employment to the employee with final wages. For involuntary terminations, employees must be paid accrued, unused vacation on the final day of employment. For voluntary resignations, employees must be paid for any accrued, unused vacation within 72 hours of resignation, unless at least 72 hours’ notice is provided, then the employee is paid on their final day.
Paid Time Off (“PTO”)
PTO provides paid time away from work for both vacation and sick leave. This combined policy replaces separate vacation and paid sick leave policies. A PTO policy must comply with the requirements of both vacation and paid sick leave laws.
Additionally, to meet the employers paid sick leave obligation, PTO must meet a minimum accrual of 1 hour for every 30 hours worked. Accrued but unused PTO must carry over year to year subject to a “reasonable” cap, discussed above, and must be paid out at the end of employment, even though it includes sick leave.
Unlimited or Flexible Time Off
Unlimited or flexible time off policies are sometimes used in place of vacation or PTO policies. Often employers choose unlimited or flexible time off policies because these policies do not provide for accrual of paid time off and therefore do not require payment of unused balances at the end of employment.
In California, to get this non-accrual benefit, the unlimited or flexible time off policy must be:
- In writing;
- State that time off does not accrue, and is not additional compensation but a part of a flexible work schedule;
- Actually unlimited, allowing sufficient opportunity for the employee to take time off; and
- Administered fairly, such that it does not result in inequity between employees.
Employers using an unlimited policy to provide paid sick leave must include the word “unlimited” on the employee’s paycheck stub as their available paid sick leave balance.
One major benefit of an unlimited time off policy is that vacation and PTO accruals are not accruing on the employer’s books as a liability. However, these policies must be implemented and administrated fairly, or a court may find that time off did accrue.
Best practice is to use this type of policy only for vacation (not paid sick leave) and only with exempt salaried employees.