Vacation time is not mandatory in California. State law does not require employers to offer vacation, paid or unpaid.1Division of Labor Standards Enforcement. Vacation What the law does require is this: if your employer chooses to offer vacation, every hour you accrue is treated as an earned wage. It belongs to you, it cannot be taken away, and it has to be paid out when you leave. That single rule drives almost every other vacation question in California.
One benefit that often gets confused with vacation is mandatory, though, so it’s worth clearing up before going further.
Paid Sick Leave Is Required. Vacation Isn’t.
Since January 1, 2024, California employers must provide at least 40 hours (five days) of paid sick leave per year to any employee who works 30 or more days within a year of starting.2California Legislative Information. California Code Labor Code 246 Under an accrual plan, employees earn at least one hour of sick leave for every 30 hours worked. Employers can also front-load the full amount at the start of the year.
Sick leave and vacation are treated differently at separation. Unused sick leave does not have to be paid out when you leave. Unused vacation does. If your employer combines the two into a single paid time off bank, though, the whole balance gets treated as vacation for payout purposes.
Once Offered, Vacation Is a Vested Wage
This is the rule that makes California unusual. Labor Code Section 227.3 requires that all vested vacation be paid as wages at your final rate of pay when employment ends, and it prohibits any policy that forces you to forfeit vested vacation.3California Legislative Information. California Code Labor Code 227.3 The California Supreme Court has held that vacation pay vests proportionally as you perform work, not when you actually take the time off.1Division of Labor Standards Enforcement. Vacation
What that means in practice: your employer decides whether to offer vacation, how much to offer, and when accrual begins. But once you start earning it, every hour is yours. It can’t be erased, reduced as discipline, or made contingent on staying employed through some future date.
What Employers Can and Can’t Do
Use-It-or-Lose-It Policies Are Illegal
Because accrued vacation is a wage, any policy that forces you to forfeit unused time violates California law. The classic example is the year-end deadline: use it by December 31 or lose it. That takes earned wages away, which Section 227.3 flatly prohibits.3California Legislative Information. California Code Labor Code 227.3
Reasonable Caps Are Allowed
Employers can cap how much vacation you can bank. A cap doesn’t erase time you already earned; it pauses future accrual once your balance hits the ceiling. You keep everything you have, and you start earning again after you use some and drop below the limit. The DLSE has historically considered a cap of roughly 1.75 times the annual accrual rate to be reasonable.1Division of Labor Standards Enforcement. Vacation So if you earn 10 days a year, a cap around 17 or 18 days would likely be defensible. There is no hard statutory number, and the DLSE evaluates caps case by case to make sure they aren’t designed to effectively deny the benefit.
Waiting Periods Before Accrual Starts
Employers can require a waiting period at the start of employment during which no vacation accrues, covering a probationary window or even the whole first year.1Division of Labor Standards Enforcement. Vacation The waiting period has to be genuine, though. If a policy says no accrual in year one, but the actual arrangement implicitly grants vacation during that time, the DLSE will treat the waiting period as a sham and require prorated payout if the employee leaves during it.
PTO Banks and Unlimited Vacation
Many employers combine vacation, sick leave, and personal days into a single PTO bank. California treats that PTO balance under the same rules as standalone vacation. It accrues day by day, can’t be forfeited, can be subject to a reasonable cap, and has to be paid out in full when employment ends.1Division of Labor Standards Enforcement. Vacation Relabeling vacation as PTO doesn’t change the payout obligation.
Unlimited PTO is trickier. Some employers adopt it assuming it eliminates the payout obligation. California courts have held that when an “unlimited” policy effectively limits how much time employees can realistically take, it can be treated as a standard vacation policy with a payout obligation under Section 227.3. To avoid that result, the policy generally needs to state in writing that PTO is not additional compensation for work performed, give employees a real opportunity to take time off, and be administered consistently. An unlimited policy that fails those tests can trigger the same payout and penalties as a conventional plan.
What You’re Owed When You Leave
However the job ends, your employer must pay out all earned and unused vacation at your final rate of pay.3California Legislative Information. California Code Labor Code 227.3 The only statutory exception is when a collective bargaining agreement provides otherwise. Final rate means your hourly rate (or salaried equivalent) on your last day, not some earlier rate from when the vacation was originally earned.
The payout is prorated on a daily basis. If you earn 15 days per year and quit 219 days into the year without having taken any time off, you’re owed roughly 60 percent of your annual entitlement.1Division of Labor Standards Enforcement. Vacation
When the payment is due depends on how you leave:
- Fired or laid off: all final wages, including vacation, are due immediately on your last day.4California Legislative Information. California Code Labor Code 201
- Quit with at least 72 hours’ notice: final wages are due on your last day.5California Legislative Information. California Code LAB 202
- Quit without 72 hours’ notice: final wages are due within 72 hours of quitting.5California Legislative Information. California Code LAB 202
If the Employer Doesn’t Pay
Late payment carries real penalties. If your employer willfully fails to pay final wages on time, including accrued vacation, your daily wages continue to accumulate as a penalty for up to 30 days.6California Legislative Information. California Code Labor Code 203 A worker earning $200 per day could be owed up to $6,000 in waiting time penalties on top of the unpaid vacation. “Willful” doesn’t require bad intent. It just means the employer chose not to pay. A good-faith dispute over the amount can be a defense; ignoring the obligation isn’t.
If your employer refuses to pay out accrued vacation, you can file a wage claim with the California Labor Commissioner (the DLSE). The process is free, no attorney required, and you can file online, by email, by mail, or in person.7Division of Labor Standards Enforcement. How to File a Wage Claim The office typically schedules a settlement conference, and if that doesn’t resolve things, a hearing officer decides.
Watch the deadline. For claims based on a written employment contract or policy, the statute of limitations is four years. For claims based on an oral agreement, it’s two years.7Division of Labor Standards Enforcement. How to File a Wage Claim The clock starts on the date the wages were due, not the date you realized they were missing. You can also sue in small claims or civil court instead of going through the DLSE, but the administrative route is usually faster and doesn’t require a lawyer.