Editor's Note
California Vacation Games
In California, vacation time accrues as the employee works. When an employee leaves, the employer has to pay out any earned but unused vacation time. Vacation time is considered wages that are owed to employees as the time accrues.
Employers do not like employee vacation time building up on their books. It can become a huge liability (for which officers of the company can be personally liable if it's not paid). So employers are always looking for ways to encourage or force employees to use up their vacation time.
One of those ways has been to make employees use up any paid vacation as part of taking FMLA, which is usually unpaid (although disability benefits are sometimes available).
That is going to end because California passed a law that said employers can't force employees to use up their vacation as part of taking FMLA.
This is the right thing. Employees should be able to choose how they want to handle their personal paid leave. And the truth is, whatever the reason you are taking FMLA, it's probably no vacation.
One approach is to just pay out unused vacation time each year. Some employees like this because the check comes in January and helps cover those extra holiday expenses. The drawback is that when people have to choose between taking time off and actually getting a break and money, they often pick money. That means no break and more burn out. Vacations are good for humans.
My favorite approach is to cap the amount of vacation time that can be accrued and rolled over from year to year. This encourages people to actually take vacations and allows them to save up some extra time as a cushion or for a longer trip. But it also limits overall liability for the employer.
- Heather Bussing
A new California law will prohibit employers from requiring that an employee take earned vacation before receiving paid family leave (PFL) benefits. Effective January 1, 2025, Assembly Bill 2123 amends the Unemployment Insurance Code, which previously allowed employers to require employees to exhaust up to two weeks of accrued but unused vacation leave as a condition of an employee’s initial receipt of these benefits. For any period of disability commencing on or after January 1, 2025, an employer can no longer impose such a condition.
The state provides PFL benefits to eligible employees to care for seriously ill family members, bond with new children, or assist when a military family member is deployed to a foreign country. The legislative history for AB 2123 indicates that the change is intended to simplify the PFL application process and remove “unnecessary barriers” for people seeking to access these benefits.
Previously, requiring employees to use some of their vacation time before receiving PFL benefits could minimize the risk of an employee taking a vacation shortly after returning from a family leave-related absence, allowing employers to better manage extended absences. While this is no longer an option, as an alternative employers can instead encourage employees to use accrued vacation to “top off” their PFL benefits by paying an additional amount from accrued vacation to cover the difference between PFL and the regular wages or vacation that the employee might otherwise receive. This could simplify the process of collecting employee contributions for benefits, such as healthcare, that employers are required to maintain.
Employees are permitted under PFL to “top off” their state benefits with company-provided benefits provided that the combined amount the employee receives does not exceed their usual pay. If an employee chooses to supplement their PFL benefits during an absence, an employer could deduct from the vacation pay an employee receives an amount to cover the employee’s contributions in accordance with any written authorization for such deductions. This could avoid the hassle of attempting to collect unpaid employee contributions through future payroll deductions or payments after the employee returns.
While of course this scenario will likely not occur every time an employee receives PFL benefits, it provides a silver lining to a change in the law that otherwise appears unfriendly to employers. Regardless, as AB 2123 takes effect soon, it is imperative that employers review their policies related to leaves of absence, vacation, and benefit contributions to ensure compliance with the new law going forward.
