January 4, 2021
Most employees are used to receiving sick leave, vacation time, and paid holidays. However, some employers also offer “floating holidays.” Unlike standard holidays, such as Christmas, New Year’s Day, etc., floating holidays are not tied to a specific day or holiday. Instead, they “float,” and employees can choose to take them whenever they wish. If this sounds the same as normal vacation time, that’s because it is.
During employment, the difference between vacation time, paid holiday time, and floating holiday time might not present a problem. However, when employment ends, things can get tricky when figuring out what should, and should not, be paid out to employees in their final paychecks.
Pursuant to California Labor Code section 227.3, whenever the employment relationship ends, for any reason whatsoever, and employees have not used all of their earned and accrued vacation, the employer must pay the employees at their final rate of pay for all earned and accrued and unused vacation days. Because paid vacation benefits are considered wages, such pay must be included in employees’ final paychecks. [Lab. Code § 227.3.] Standard paid holiday time, however, is not paid out to employees at the end of their employment.
If an employee is discharged, the wages earned and unpaid at the time of discharge are due and payable immediately. [Lab. Code § 201(a).] If an employee quits, wages are due and payable within 72 hours. [Lab. Code § 202(a).] If an employer willfully fails to pay any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced, up to 30 days. [Lab. Code § 203(a).] “Wages” includes all benefits to which an employee is entitled as part of his compensation, including vacation pay. [Singh v. Southland Stone, U.S.A., Inc. (2010) 186 Cal.App.4th 338, 362-364.]
It is therefore important for employers to know if they should pay employees for any unused floating holiday time, so that they do not incur liability for failure to pay wages (and the penalties associated with that).
“Floating holidays,” if treated generally like vacation time by the employer (i.e., they can be taken at any time and are not tied to any specific day), are considered “vacation” under California law. “[L]eave time which is provided without condition is presumed to be vacation no matter what name is given to the leave by the employer. Such an enforcement policy insures that leave policies which are nothing more than vacation policies under a different name are not instituted as subterfuges to defeat the provisions of Labor Code § 227.3 and the conclusions of the California Supreme Court in Suastez.” [Division of Labor Standards Enforcement Policies and Interpretations Manual (Revised), 2002 Update, § 15.1.12 (emphasis in original); see also Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774; Paton v. Advanced Micro Devices, Inc. (2011) 197 Cal.App.4th 1505, 1519 (“[Vacation time] is paid time off that accrues in proportion to the length of the employee’s service, is not conditioned upon the occurrence of any event or condition, and usually does not impose conditions upon the employee’s use of the time away from work. (See DLSE Opinion Letter dated 1990-09-24 <http://www.dir.ca.gov/dlse/OpinionLetters-byDate.htm> [as of Jul. 26, 2011] ‘Leave time which is provided without condition is presumed to be vacation no matter what name is given to the leave.’)”).]
Therefore, if employers offer floating holidays, those must be paid out to employees at the end of their employment. Failure to do so can result in costly consequences for employers.
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This article is based on the law as of the date posted at the top of the article. This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.