Value of Vacation on a wage statement

Nov 10, 2016
Value of Vacation on a wage statement


Value of Vacation Doesn’t Need to Be on Wage Statement

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California employers must provide employees with an accurate, itemized wage statement, also known as a pay stub, when wages are paid. Under Labor Code section 226, specific information is required on the pay stub.

The pay stub is more than a piece of paper — failure to put the right information on the pay stub has led to lawsuits. Some of these lawsuits have been filed as representative-action lawsuits under California’s Private Attorneys General Act (PAGA), and this type of lawsuit has the potential for staggering liability if a large number of employees become part of the action.

Employees continue to file lawsuits claiming that employers didn’t put the right information on their pay stubs.

Monetary Value of Vacation Balances

Recently, a Motel 6 employee sued under PAGA alleging that the motel failed to include the monetary value of accrued paid vacation time or paid time off (PTO) on pay stubs. Motel 6 sought to have the case dismissed before trial, arguing that the Labor Code doesn’t require an employer to itemize the monetary value of vacation balances (Soto v. Motel 6 Operating, L.P., 2016 WL 6123927 (2016)).

The employee argued that the pay stubs should have included vacation because vacation/PTO is considered a “wage” under California law, and employers must itemize “wages earned” on the pay stub (Lab. Code sec. 226(a)(1),(5)).

The California court of appeal rejected this argument and dismissed the employee’s case.

The court ruled that employers do not have to include the monetary value of accrued paid vacation time on the wage statement unless and until the accrued vacation is paid out when the employment relationship ends.

First, the court noted that Labor Code section 226 is “highly detailed” and lists nine separate categories of information that must appear on the pay stub. Accrued paid vacation is not identified anywhere in this detailed list.

Second, the court rejected the argument that vacation falls within the definition of “gross wages earned” and “net wages earned” which must be listed on the pay stub.

Under California law, vacation time is a form of “deferred wages” that is not payable until employment ends.

Although the employee has vested rights to paid vacation during the time of his/her employment, the employee is not entitled to receive the monetary value of these wages until employment ends (Suastez v. Plastic Dress-Up Co., 31 Cal.3d 774 (1982)). In addition, the employer cannot ascertain the value of vacation time until separation. This is because “an employee is entitled to obtain the value of unused paid vacation at his or her ‘final rate.’”

Accordingly, the court ruled that “although vacation time vests as the labor is provided, unused vacation time does not become a quantifiable vacation wage until the employee separates from employment” and does not need to be included on the wage statement until employment ends.

Paid Sick Leave is a Separate Requirement

One cautionary note: This case did not address the requirement to report paid sick leave on the pay stub. If you provide mandatory paid sick leave through your PTO policy, you will need to provide the PTO balance on your pay stub.

Labor Code Section 246(h) requires that employers notify employees each pay period of the amount of paid sick leave they have available for use. Employers can include the balance on a wage statement or on a separate written document provided to employees when they are paid.

Employers with unlimited paid sick leave or PTO policies can comply by stating “unlimited.”

Best Practices

  • Review the requirements for information that needs to be included on the wage statement.
  • Keep in mind the separate requirements for reporting paid sick leave and information for piece-rate employees.
  • Remember that a wage statement must contain all the required information on its face. A wage statement is not complete if an employee must refer to another document to get the required information.
  • When an employee separates from employment, make sure that the final pay stub includes any vacation or PTO that is paid out to the employee.
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