Cash out vacation time in California – Here’s how to do it

In California, you can “cash out” vacation time when you’re discharged, or even while you’re still working.

Once vacation time is accrued, your company owes it to you as a form of wages. Because vacation time is a form of wage, you are entitled to it upon discharge.

While employers can cap how much vacation time you can accumulate, “use it or lose it” policies are forbidden.

In this article I answer frequently-asked-questions about cashing out vacation time in California. Also listen to our informative podcast:

How can I cash out my vacation pay in California?

If you have vacation time, you can cash it out while on the job or when you leave your job. This is sometimes called a “PTO cash out“. Because vacation time is a form of wage under California state law, you are entitled to receive unused vacation days if you quit. The payout has to come in your final paycheck. Many employers pay out for unused vacation time, or let you cash it in at certain times of the year.

There are 2 times when you can cash out your vacation time:

• at the time of your discharge, resignation, or termination, or
• while still working for the employer.

You are entitled to a payout for any unused paid time off (PTO), including vacation time, when you leave your job.¹ The payment amount has to be at your final rate of pay.² You are entitled to this payout because California treats vacation time as a form of wage.³ Employers are legally required to pay you any wages that you are owed. You are entitled to this payout, regardless of whether you:

• quit,
• resigned,
• got fired, or
• were laid off.

The payout has to be made in your final paycheck. This paycheck covers your last pay period, up to the time of termination. The payment has to be made immediately, if you were terminated or resigned with at least 72 hours of notice. If you quit without adequate notice, payment generally has to be made within 72 hours.⁴

If these final wages are not paid promptly, the employer can be liable for a waiting time penalty. This penalty is equal to

• your daily pay for each day that the final wages are late,
• up to 30 days.⁵

If you are subject to a collective bargaining agreement, the agreement controls how unused PTO is paid out.

You and your employer can also arrange how to pay out or cash out accrued vacation time while you are still on the job. These arrangements are often outlined in the employment contract. In some workplaces, it is only an option at the end of a calendar year. In other workplaces, it can happen at any time.

Regardless, you are entitled to payment for your accrued vacation time. They are a form of wage that you have earned. Employers are forbidden from taking vacation time back. They also cannot take away vacation time as a punishment for other workplace misconduct. Vacation time in California also does not “expire.” This means that “use it or lose it” vacation policies are forbidden in the state.⁶

If an employer does any of these things, you can file a lawsuit under California’s wage and hour laws to recover your unpaid wages.

What if I quit or was fired?

If you quit or were fired, you are entitled to a payout that covers any accrued PTO. This includes vacation time. The compensation for the accrued PTO has to be made in your final wages, and at your final rate of pay.

The only difference between being fired and quitting is when the final paycheck has to be provided:

• if you were fired or otherwise terminated by your employer, you are entitled to an immediate payment after the termination of employment,
• If you quit or resigned and provided at least 72 hours of notice, you are entitled to an immediate payment, and
• If you quit or resigned without adequate notice, you are entitled to your last paycheck within 72 hours after you leave.⁷

If the employer fails to provide the last paycheck within these timeframes, they can be liable for a waiting time penalty.

When do vacation days accrue?

California labor laws state that vacation days accrue on a pro-rata basis throughout the year.⁸ This means that, if an employer provides 12 vacation days per year, they do not all accrue at the end of the year. Instead, you are entitled to one every month.

This is often important for calculating how much compensation you are entitled to receive for your accrued vacation time after being discharged.

Are vacation days required in California?

No, employers are not required to provide vacation time under California employment law. While vacation benefits are not mandated by law, many employers in California offer them, though. They do this to attract better workers and keep their staff happy and healthy. Many also offer other forms of PTO, like personal days.

The only types of paid time off that are legally required in California are:

• meal breaks,
• rest breaks, and
• sick leave or sick time.

Can my employer cap the amount of PTO I accumulate?

Yes, employers are legally permitted to cap the amount of paid time off that you accumulate. This includes the amount of vacation accrual. The only time an employer cannot put accrual caps on PTO is if it would be discriminatory.

Some common limitations that California employers use in a PTO policy are:

• a maximum number of vacation days that you can accrue,⁹
• a minimum advance notice period before using vacation days,
• different PTO plans for managers, full-time workers, and part-time workers, including eligibility limitations,
• restrictions on when PTO can be used, like a “blackout” for especially busy times of the year when all workers need to be on hand, and
• limitations on how many vacation days you can use in a row.

These limitations can be significant. While California law does not let employers take your vacation time back, like in a “use it or lose it” policy, employers can stop the accrual of vacation pay by capping the amount of leave that you can earn. The employer’s policy for its California vacation accrual rate is usually set out in the employee handbook.

However, some limitations have been found to be unfair and will not be enforced by the California Division of Labor Standards Enforcement (DLSE). One of these unfair policies is to mandate that all vacation time be used in the year it was earned.¹⁰ Another unfair policy would be to require you to use any vacation time you could carry over from the prior year of employment before accruing any new vacation time.¹¹

Additional Resources

For more in-depth information, refer to these scholarly articles:

• The effect of paid vacation on health: evidence from Sweden – Journal of Population Economics.
• Vacation Pay: Theory vs. Practice – The CPA Journal.
• Work Hours, Wages, and Vacation Leave – ILR Review.
• Economic Analysis on Attributes of Workers and Method to Take Annual Paid Vacation – Journal of Human Resource and Sustainability Studies.
• Vacation Pay: Theory vs. Practice – Compensation & Benefits Review.