What Is California Labor Code §227.3: Unused Vacation Payout?

Unless otherwise provided by a collective bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served, provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination.

What does Labor Code 227.3 require about unused vacation?

If your employer’s own policy offers paid vacation, every vested day you have not used turns into money owed the moment your job ends.

California does not force any employer to offer vacation in the first place. The Division of Labor Standards Enforcement (DLSE) confirms that once a policy, or even just a regular, established practice, does offer it, each day vests, or is earned, the same way a paycheck is earned, bit by bit, as you work. What the law forbids is a policy that cancels that earned time, often called a “use it or lose it” rule. What it allows is a cap, a ceiling that simply pauses further accrual once you reach a set amount, which is not the same thing as canceling days you already have. A combined paid-time-off bucket that mixes vacation with sick time gets this identical protection, since the whole balance is earned day by day.

This protection covers every California employee whose employer, by written policy or by regular practice, offers paid vacation. The reason your job ended makes no difference under this statute. Whether you were laid off, let go for performance, resigned on your own, or your employment happened to end in the middle of a workers’ compensation claim, every vested day you have not used is still owed to you.

Does it matter that you were on medical leave or restricted duty when your job ended?

No. What you are owed is fixed by the vacation balance on the books on your last day, not by whether you were actively working that day.

Some workers assume that time spent off work on a claim, or on a light-duty schedule, somehow freezes or shrinks their vacation balance. It does not. Once a day of vacation has vested under your employer’s policy, it stays vested, whether you spent that month at your desk or at physical therapy. The one date that matters is your separation date, since that is the snapshot the payout is measured against. Keep your final pay stub and an earlier one showing an accrued-vacation balance, in case the two numbers do not line up.

How much are you owed, and when is it due?

Your unused days are prorated at a daily rate and paid at your final rate of pay, on whichever final-pay deadline applies to how your job ended.

Section 227.3 does not set its own payment deadline; it borrows the deadline from the rest of your final pay. If you were fired or laid off, the payout is due immediately, the same day. If you quit, it is due within 72 hours, or on your last day worked if you gave 72 hours’ notice first. The amount itself is prorated on a daily basis and paid at the rate you were earning on your last day, even if that rate changed during the year. This page walks through a worked example of the math.

What if your employer calls it “use it or lose it,” or folds vacation into one PTO bucket?

A forfeiture deadline is illegal in California no matter what it is called; a cap on future accrual is legal; a combined PTO bucket gets vacation’s own protection.

DLSE treats a “use it or lose it” policy as unenforceable, since it cancels days you already own. A cap works differently: once your balance hits the ceiling, you simply stop earning more until you use some down, but nothing already earned disappears. Where sick leave and vacation are merged into one general paid-time-off program usable for either purpose, DLSE treats the entire mixed balance as earned, capped, and paid out at termination exactly like ordinary vacation.

How does this connect to a workers’ compensation claim, and who enforces it if you are not paid?

Your vacation payout and your workers’ comp benefits are two separate pots of money, and an unpaid payout is a wage claim, not a comp claim.

A temporary disability check is a workers’ compensation benefit, not a wage; Labor Code section 4650 puts it on its own 14-day payment clock that has nothing to do with this section. Your vacation payout is wages, governed here instead, and an open claim neither speeds it up nor slows it down. Losing the job, for any reason, does not end a workers’ comp claim either; see how a claim can continue after employment ends. If you believe the real reason you were let go was the claim itself, rather than the vacation dispute, that is a separate legal question under Labor Code 132a, covered on our retaliation page and on this page about losing your job during an open claim. An unpaid vacation balance by itself, with no retaliation angle, is enforced by the Labor Commissioner through a wage claim, not through a workers’ comp filing.

If your employer withheld vacation pay around the same time as a layoff or firing tied to a work injury, two separate questions can be in play at once: whether the vacation math itself was done correctly, and whether the real reason for the separation was your claim. Eman Yazdchi looks closely at that second question, the workers’ compensation side of what happened. Call (661) 273-1780 or use the contact form to walk through the timeline. The firm reviews each matter individually.