Vacation, Paid Time Off and Holidays

Vacation and paid time off (PTO) are benefits that you can choose to offer your employees. Both are considered a form of wages that employees earn as they work. Under California’s wage and hour laws, vacation and PTO must accrue and must be paid out at termination. The only exception is where the benefit is provided through an Employee Retirement Income Security Act (ERISA) qualified plan.

Because vacation and PTO are considered wages, accrued and unused time needs to be paid out at termination.

Vacation is typically used by employees to pay for time away from work for their own personal use and enjoyment.

PTO typically combines sick leave and vacation allowances into one block of time. The employee can use PTO for personal reasons, vacation or sick leave. For more information about sick leave, see Paid Sick Leave.

While there is no requirement that your employee handbook contain information about benefits such as vacation and paid time off, such policies are recommended. Moreover, a PTO policy that includes mandatory paid sick leave should be communicated to employees. You can include eligibility requirements, conditions for scheduling time off, any requirements for prior approval of vacation or paid time off, and other issues related to time-off benefits.

CalChamber’s Employee Handbook Creator® can help you easily create an employee handbook that contains these policies.​