To get perspective – even in California, vacation benefits are optional for employers. Vacation can be granted as paid or unpaid as decided by the Company. Also, vacation pay doesn’t have to be at the same rate of pay as the employee’s regular compensation. An employer is also permitted to determine which classifications of employees are eligible to receive vacation. They are also permitted to specify a time of year that vacation may be taken or not taken.
Keep in mind that if you give paid vacation in California it is considered accrued compensation. That means you cannot impose a “use it or lose it” policy and employees must receive pay for their unused accrued paid vacation upon termination of employment.
It is a best practice to impose a cap on vacation accrual so that employees don’t accrue vast amounts of unpaid vacation. A cap of vacation means that once the cap has been reached the employee stops accruing further vacation until they take some of it. If an employee quits with a large amount of unused paid vacation on the books, they are entitled to receive pay for that amount of vacation time. That large amount of pay for vacation payout can be a financial liability to the Company. In fact, the Company needs to carry that number on their balance sheet.
California changed the cap requirement in 2017 to “reasonable” instead of a hard and fast number. The upshot is that the employer must allow employees to rollover some of their vacation or impose a cap of at least the annual rate of accrual.
Once you decide to give your employees vacation, the policy that addresses the details must be communicated to all employees in writing. The policy should be worded in plain language and include: details if the vacation is paid or unpaid, employee eligibility, the amount of vacation in both the number of days and hours, if there is a length of time of employment for tiers of vacation, how employees are to request vacation and who is to approve it, when vacation is given, if there other details such as if employees may not or must take it in a given part of the year, a statement that vacation will not be considered as time worked in calculating overtime, etc. This may not be everything but you get the idea.
The best place for your vacation policy is going to be your Employee Handbook. If you don’t have one, I recommend you put one in place since it’s the best way to keep mandatory and optional employment policies. If you need help, let me know.