In California, if an employer has 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 two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five 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. The DLSE has held that an employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. Upon termination of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay.

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