There is no legal requirement in California that an employer provide its employees with either paid or unpaid vacation time. However, if an employer does have an established policy, practice, or agreement to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation to provide vacation pay.

Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to 2 weeks (10 work days) of vacation per year, after six months of work the employee will have earned 5 days of vacation. Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination.

An employer can, however, place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. Moreover, unless otherwise stipulated by a collective bargaining agreement, upon termination of employment all earned and unused vacation must be paid to the employee at their final rate of pay.