California Paystubs Don’t Have to Include Vacation or PTO Values – But Beware

The decision in Soto v. Motel 6 Operating, L.P. held that, although such amounts are “wages” under California law, an employer does not have to itemize the value of the balance due until the end of employment. To avoid any mistake, however, employers must be mindful that the California paid sick leave law now does require employers to list an employee’s available number of hours of unused PTO or sick leave.

In the Soto case, the plaintiff worked at a Motel 6 for a few years, terminating in January 2015. In May 2015, she filed a representative action, seeking civil penalties under the Labor Code Private Attorney General Act. Plaintiff claimed that her employer violated the pay statement requirements in Labor Code section 226(a) by “failing to include the monetary amount of accrued vacation pay in its employees’ wage statements.” The employer moved for dismissal. The trial court dismissed the claim, concluding that the law “does not require a wage statement to include the value of vacation or PTO wages accrued and earned.”

The California Court of Appeal agreed. Nothing in Labor Code section 226 expressly requires an employer to list the balance of available vacation or PTO hours, or the monetary value of such accrued time. The statute, which the Court of Appeal described as “highly detailed,” sets forth nine categories of information that an employer must include on itemized wage payment statements. The plaintiff argued that accrued vacation and PTO falls within the law’s “gross wages earned” and “net wages earned” categories. Not so, the Court of Appeal held. It concluded that the plaintiff’s argument reflected “a misunderstanding of the nature of an accrued vacation benefit.” California law holds that accrued vacation and PTO constitute “wages,” such that any unused balance must be cashed out upon the end of employment. However, in the meantime, it presently is not “wages” earned or due. Under the California Supreme Court’s seminal decision in Suastez v. Plastic Dress-Up Co., 31 Cal.3d 774 (1982), “paid vacation is a form of deferred wages for services rendered, similar to a pension or retirement benefit.” As a result, “unused vacation does not become a quantifiable vacation benefit until the employee separates from employment.” 

With the nature of accrued vacation and PTO so understood, no value need be assigned or listed on wage statements, the Court of Appeal concluded. In the final analysis, “(b)ecause unused vacation pay is not owed to an employee and is not paid to the employee until the termination of the relationship, and the monetary value of the unused vacation pay cannot be determined until the termination date, the requirement that an employer identify earned ‘wages’ logically does not extend to accrued vacation benefits.” Thus, California’s itemized wage statement provisions do not require an employer to include the monetary value of accrued vacation or PTO on the pay statement merely because it has accrued, but has not been used or paid.

This decision is good news for California employers, as it prevents what could be a burdensome requirement. It also forecloses another possible basis for claiming penalties under California’s itemized wage statements law. However, employers need to be mindful of two important points. First, if an employee uses vacation or PTO, or an employer cashes out vacation or PTO at the end of employment, the employer must list the number of hours paid and the applicable rate on the employee’s pay statement, as well as the category of the payment (e.g., vacation or PTO). A monetary value thus must be provided at that time. 

Next, although California does not require listing the balance of available vacation hours on an employee’s pay statement, California’s paid sick leave law now does require the employer to list the available balance of paid sick leave (or PTO, if used in place of a separate sick leave bank) on employees’ itemized payment statements. Alternatively, this information may be on a separate writing provided on an employee’s pay date. If the employer allows unlimited sick leave or PTO, an employer may list “unlimited” as the balance. While the number of available hours must be listed, an employer does not have to calculate the monetary value of the available paid leave at that time. Employers should review their practices for compliance with these requirements.