We often get questions about wages due for vacation time. In general, California law does not require employers to provide vacation pay to their employees. However, if an employer has a vacation policy, whether written or oral, accrued vacation benefits are considered earned wages, and they are earned by the employee on a pro rata basis for each day of work.
Vacation is a form of deferred compensation, and it vests as it is earned. Employers can defer the accrual of vacation benefits (i.e., saying that you begin to accrue 1.2 vacation days per month once you've been employed for six months), but cannot declare that vacation pay is earned in lump sums (i.e., you get no vacation for six months, but at the beginning of your seventh month, you get one week of vacation, and then begin to accrue further vacation benefits).
Vacation pay that has been earned cannot be forfeited. Thus, a use-it-or-lose-it vacation policy is unenforceable. See Suastez v. Plastic Dress Up (1982) 31 Cal.3d 774. However, reasonable caps upon further accrual of vacation benefits are lawful. Boothby v. Atlas Mechanical (1992) 6 Cal.App.4th 1595. Therefore, an employer cannot, for example, tell you that your 12 days of accrued vacation must be used by December 31, or your "bank" of vacation time will be reduced to 7 days on January 1. On the other hand, an employer can enforce a rule that says an employee who has 15 days of unused vacation time cannot continue to accrue more time until he or she uses some of those 15 days.
When one's employment ends, all earned but unused and unpaid vacation benefits must be paid immediately. Labor Code §§ 201, 202, 227.3.