A new California law will prohibit employers from requiring that an employee take earned vacation before receiving paid family leave (PFL) benefits.  Effective January 1, 2025, Assembly Bill 2123 amends the Unemployment Insurance Code, which previously allowed employers to require employees to exhaust up to two weeks of accrued but unused vacation leave as a condition of an employee’s initial receipt of these benefits.  For any period of disability commencing on or after January 1, 2025, an employer can no longer impose such a condition.

The state provides PFL benefits to eligible employees to care for seriously ill family members, bond with new children, or assist when a military family member is deployed to a foreign country.  The legislative history for AB 2123 indicates that the change is intended to simplify the PFL application process and remove “unnecessary barriers” for people seeking to access these benefits.

Previously, requiring employees to use some of their vacation time before receiving PFL benefits could minimize the risk of an employee taking a vacation shortly after returning from a family leave-related absence, allowing employers to better manage extended absences.  While this is no longer an option, as an alternative employers can instead encourage employees to use accrued vacation to “top off” their PFL benefits by paying an additional amount from accrued vacation to cover the difference between PFL and the regular wages or vacation that the employee might otherwise receive.  This could simplify the process of collecting employee contributions for benefits, such as healthcare, that employers are required to maintain.

Employees are permitted under PFL to “top off” their state benefits with company-provided benefits provided that the combined amount the employee receives does not exceed their usual pay.  If an employee chooses to supplement their PFL benefits during an absence, an employer could deduct from the vacation pay an employee receives an amount to cover the employee’s contributions in accordance with any written authorization for such deductions.  This could avoid the hassle of attempting to collect unpaid employee contributions through future payroll deductions or payments after the employee returns.

While of course this scenario will likely not occur every time an employee receives PFL benefits, it provides a silver lining to a change in the law that otherwise appears unfriendly to employers.  Regardless, as AB 2123 takes effect soon, it is imperative that employers review their policies related to leaves of absence, vacation, and benefit contributions to ensure compliance with the new law going forward.