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Under California law, vacation plans may not have a “use it or lose it” provision. The California Labor Commissioner has stated that a vacation policy may establish a cap on the amount of vacation that may accrue, if not taken.
In the interest of meeting the “reasonable cap” criteria, employers cap accrual at one-and-one-half or two times the annual earning rate. For example, if the employee earns 40 hours of vacation each year, the employer may cap the total amount of vacation that can be earned at 60 hours.
Whatever the amount an employer establishes as an earnings cap, however, the employee must have a reasonable period to get below the cap. During that period, the employee would continue to earn vacation.
Read more about Vacation in the HR Library.