Palm Springs, Palm Trees, and PTO: Summer Compliance Tips for California Employers

By Brittanie Young posted 07-09-2025 08:00 AM

Recommend

Summer is here, and PTO requests to paradise are coming in fast! This is a perfect time for California-based employers to fine-tune their vacation and PTO policies to align with California’s complex labor laws and to avoid costly disputes. While paid vacation/PTO is not required by law, there are still many rules to abide by that differ from other states. That is why employers should pay careful attention to how they structure their policies to ensure full compliance.

One big factor for employers to keep in mind is deciding whether to separate vacation and sick time into two different accrual banks or create one PTO policy. A PTO policy combines both vacation and sick time into one bank, where all hours are considered vested and must be paid out. Separate vacation and sick banks only pay out vacation hours. California-based employers who choose to create one PTO bank must ensure that the PTO accruals are compliant with both state paid leave laws and local ordinances.

Here are some other considerations to keep in mind:

Under California law, vacation time is considered a form of “wages,” so it’s earned as labor is performed and must be paid out upon termination.

“Use-it-or-lose-it” vacation policies are prohibited under California law. Therefore, policies that require all vacation time to be taken “in the year it is earned” or in a limited time period following accrual cannot be enforced.

Employers are permitted to place a reasonable cap on vacation accruals that stops employees from accruing any vacation time when the cap is reached but resumes when the cap decreases.

Create an accrual cap of at least 1.5 or two times the annual accrual rate to give employees a reasonable amount of time to take vacation.

Due to the topic being such a gray area under California law, it’s important for employers to be extra cautious of the potential wage and hour implications of unlimited PTO polices. California law doesn’t take a vacation, and neither should your policies. If you would like to have your vacation or PTO policy reviewed by our California Legal Services team, don’t hesitate to reach out to us at CAinfo@employerscouncil.org.