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For Now, Dollar Value of Accrued Vacation Isn’t Required on Paystubs

California employers don't have to include the monetary value of accrued but unused vacation time on wage statements until the payment is due, according to a recent California Court of Appeal decision. But that could change if the state legislature decides to react to the decision.

In Soto v. Motel 6 Operating LP, a former motel employee sued her employer under the state Private Attorneys General Act (PAGA), asserting a labor code violation for failing to include such information on wage statements.

Under PAGA, employees can bring lawsuits on behalf of themselves and other workers, seeking penalties for alleged labor violations—including wage statement errors.

As employers in the state are likely aware, California Labor Code Section 226 lists nine items that must be identified on each wage statement issued to employees with their paychecks on payday.

Other statutes require additional items to be reported on payday statements. For example, another section of the labor code requires employers to provide the statements semimonthly or each time employees are paid.

California law also provides that vacation time must accrue and vest like wages, and any accrued but unused vacation time must be paid as part of final wages when the employment relationship ends. Accrued vacation time cannot be forfeited because it is considered wages earned as "time worked."

However, the monetary value of accrued vacation time isn't included in the labor code's list of items that must be identified on wage statements.

In Soto, the state appellate court sided with the employer, finding that under existing California law, vacation pay cannot be fairly defined as "gross wages earned" or "net wages earned" until the termination of the employment relationship.

The "courts have recognized that although vacation time vests as labor is provided, unused vacation time does not become a quantifiable vacation wage until the employee separates from the employment," the court of appeals ruled.

This means that, for now, periodic vacation time reporting is not required. However, that may not be the end of the story. The California legislature could decide to change the law in its next session.

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Reprinted with permission. SHRM. ©2016. All Rights Reserved.