Total and Partial Unemployment TPU 460.75

Vacation Pay, Sick Pay, Holiday Pay

There are potentially two major questions to be resolved on the issue of vacation pay:

  1. Are the vacation payments wages? If so -
  2. To what period should the vacation payments be allocated?

If it is determined that the vacation payments are not wages, then the question of allocation of the vacation payments is, of course, immaterial.

  1. Vacation Pay as Wages

    Section 1265.5 of the Code provides as follows:

    "Notwithstanding any other provision of this division payments to an individual for vacation pay which was earned but not paid for services performed prior to termination of employment, shall not be construed to be wages or compensation for personal services under this division and benefits payable under this division shall not be denied or reduced because of the receipt of such payment."

    Vacation payments may or may not be considered wages for UI purposes, depending on whether the payments are made as a result of a "termination of employment" as used in Code Section 1265.5.

    When an individual ceases work for the purpose of taking a vacation and is due back at work on a specific date following the vacation, no termination has occurred.

    When an individual receives vacation pay because of a quit or discharge which clearly terminates the employment relationship, the payment is not wages.

    When vacation pay is made as a result of a layoff, it must be determined whether there has been a termination of employment i.e. a break in the employment relationship.

    1. Fixed Layoff

      A fixed layoff with a specific recall date normally will not break the employment relationship, and no termination of employment occurs.

      Vacation payments resulting from a fixed layoff, whether in accordance with a collective bargaining agreement, employer policy, or at the claimant's request, will constitute wages under Section 1279.

      For example, in Precedent Benefit Decision 161, the employer found it necessary to shut down production operations and place certain of its production workers on a fixed four week layoff. Their terms of the collective bargaining agreement permitted the employer to require such workers to take at least two weeks of their vacation at that time unless they had made arrangements with the employer to defer their vacation to some other time. Since the claimant had made no such arrangement he was paid vacation pay during the first two weeks of the shutdown, and the employer continued in effect his medical and life insurance retirement plan, seniority, etc., for the entire period. In holding that the payments were wages, the Board said:

      "Under these facts we hold there was no "termination of employment" within the meaning of Section 1265.5 of the Code. Therefore, the payment made to the claimant constituted wages . . ."

      The primary factor to be clarified in determining whether an employment relationship has been broken is whether the layoff is for a fixed or indefinite period.

    2. Indefinite Layoff

      The question of when the termination of the employment relationship occurs has been considered by the courts and by the Board. The California Court of Appeals considered this question in Campos et al. vs. California Employment Development Department et al. (183 Cal Rptr. 637 1982)

      In this case, the claimants were seasonal employees who worked for a frozen food processor. The employer laid the seasonal employees off at the end of the season. At the time they were laid off, the employer did not give them a specific return to work date. The year-round employees continued to work. The laid-off employees filed claims for unemployment insurance benefits and were paid on the claims.

      The claimants were members of the Teamsters union and were covered by a collective bargaining agreement. Under the terms of the agreement, those members with most seniority were the last to be laid off and the first to be recalled

      On August 26, the union called a strike in a trade dispute connected with contract negotiations. The year-round employees who were working for the employer walked out and the union set up picket lines. Shortly after the strike began, the employer contacted the laid-off seasonal employees and recalled them to work.

      The seasonal employees declined to return to work since the jobs were open because of a trade dispute. The employer notified the Department that these individuals had refused an offer of work. The Department determined that since the individuals were seasonal employees who had a history of working for the employer and since they were on a "temporary" layoff and expected to be recalled at the beginning of the new season, the employees were still attached to the employer and there was no termination of the employment relationship. The Department denied benefits to the claimants under the provisions of Section 1262 since it held they were honoring the picket line.

      The claimants appealed. The Department's decision was affirmed by an Administrative Law Judge and by the Board. The claimants filed a writ of mandamus. The trial court affirmed the denial of benefits and the claimants appealed that decision. The Court of Appeals in its decision noted that at the time the employer laid off the claimants, the employer did not give the employees a specific date on which to return to work. The court stated: 'It is undisputed here that appellants had been indefinitely laid off in that there was no definite date of recall; . . . ."

      The employer and the Board argued that seasonal layoffs were temporary in nature rather than indefinite and that the offer of recall by the employer should therefore not be viewed as "new work "

      The court said '. . . where the employees have no contractual right to recall within any specified time period, the better approach is to treat such layoffs as indefinite, . . . .'

      The court held that the offer of recall was an offer of new work and that the claimants had good cause to refuse the offer under the provisions of Section 1259 of the UI Code since the positions offered were vacant because of a labor dispute.

      In Precedent Benefit Decision, P-B-430, the Board considered the question of when the termination of the employment relationship occurs. The claimant in this case was an intermittent employee of the Employment Development Department. The claimant worked last on November 25, 1981. She was laid off on that date as she had worked 1500 hours in the year and could not work any additional hours in that calendar year. At the time of the layoff the claimant was not scheduled to report to work on a specific date following January 1, 1982.

      The claimant filed a claim for benefits. At the time of her layoff the claimant requested three weeks vacation pay which the Department granted. The Department held that the claimant was only temporarily laid off as she was eligible for recall to work effective January 1 of the new year. The Department contended there had been no termination of the employment relationship within the meaning of Section 1265.5 of the UI Code since both the claimant and the Department anticipated that she would return to work in the new year. The Department allocated the vacation pay to the weeks for which the claimant requested the pay and the claimant was ineligible for benefits for those weeks.

      The Department cited Precedent Benefit Decision, P-B-161 in support of its position that a temporary layoff is not a termination of employment within the meaning of Section 1265.5.

      The Board rejected that argument and stated: "In the present case, unlike the situations in Appeals Board Decision Nos. P-B-161 and P-B-410 the claimant was given no definite date of recall following her layoff. The fact that she may have been placed on recall status is by itself of no consequence (Appeals Board Decision No. P-B-92) . . . . It is clear that the claimant was laid off for an indefinite period of time. Consequently, her employment was terminated within the meaning of Section 1265.5 of the Code and her vacation pay does not constitute wages."

      It is clear from these two cases cited above that when an employer lays off an employee and does not give the employee a definite date on which to report to work, the layoff is for an indefinite Period and there is a termination of the employment relationship within the meaning of Section 1265.5 of the UI Code.

      Partial Claims

      These principles would apply to Partial Claims also. The fact that an employer has issued a "Partial Card" to laid-off employees does not mean the employees are on a definite layoff. If, at the time of the layoff, the employer did not give the employees a definite date on which to return to work, the layoff is an indefinite layoff.

      PMA Partial Cards

      The above does not apply, however to claimants who are issued "Partial Cards" by the Pacific Maritime Association (PMA). The claimants are member of the Longshoremen's union. The collective bargaining agreement provides for worksharing rotational hiring procedures to ensure that each worker receives an equal number of assignments. The courts have held that union members who work under the provisions of the collective bargaining agreement have a continuing employment relationship with the employer. (Matson Terminals, Inc. vs. California Employment Commission (1944) Supreme Court, 151 p.2d 202; Barber and Crouse vs. California Employment Stabilization Commission (1954 130 Cal. App. 2d 7)

      The court in Matson stated that where the employee "has a legally enforceable right whereby the group is entitled to first call on the work and each longshoreman is entitled to his share . . . . The longshore work that each claimant regularly performed for the various member of the employers' association and to which he had an exclusive right {,} was 'his work' within the meaning of {former Section 56(a); currently Section 1262}."

      Conditional Return to Work Date

      On occasion, an employer may lay off employees and advise them at the time of the layoff to report to the company on a specified date to see if there is work to be performed. This is not a guarantee of work. The employer has not given the employees a definite date on which to return to work therefore, the layoff is considered to be for an indefinite period. Any vacation pay which is paid during such a period of layoff is not wages for unemployment insurance purposes.

    3. Vacation Pay During Trade Dispute

      In P-B-451, the claimant was locked out, due to a trade dispute, on June 1, 1985. Prior to the lockout, the claimant scheduled his vacation for the first two weeks in July. The employer required that the employees schedule their vacations at year's end and they could not thereafter be cancelled.

      The claimant was subsequently paid the vacation wages during the vacation period. In deciding that the vacation pay was wages, the Board said:

      "In Mark Hopkins, Inc. vs. California Employment Commission . . . , the court held that a strike does not terminate an employment relationship, it simply suspends it.

      As in Mark Hopkins, the situation before us involves unemployment resulting from a trade dispute.

      Although the claimant ceased performing services on or about June 1, 1985, that event was brought about by neither a voluntary leaving of work, a discharge, a lack of work, or anything other than a dispute regarding the terms and conditions of employment. Neither party had taken any affirmative action to sever the employment relationship. In fact, that relationship continued beyond the claimant's last day of work as evidenced by his receiving a wage payment in accordance with his scheduled vacation.

      Since there was no termination, such payment constitutes wages and must reduce the claimant's benefit entitlement in accordance with Unemployment Insurance Code Section 1252."

      Accordingly, vacation pay received by individuals who are still attached to the employer during the trade dispute and are expected to return to work at the end of the dispute is considered wages. This would include claimants who have taken strike action or have been locked out and claimants who have honored picket lines.

      Claimants who are laid off prior to or during a trade dispute, without a fixed return-to-work date at the time of layoff, are considered to be on an indefinite layoff. An indefinite layoff severs the employer-employee relationship. Consequently, vacation pay received by such claimants during the trade dispute is not considered wages.

      During the course of the trade dispute the claimant's employer-employee relationship may be changed by other actions, such as: voluntary quit, discharge, permanent replacement, plant closure, etc. If the change severs the employer-employee relationship, any vacation pay paid after severance is not considered wages even though the trade dispute continues.

    4. Vacation Pay - Hourly Payments

      Labor organizations, particularly those in the construction trades, commonly have contract provisions which specify a certain amount of "vacation pay" for each hour worked. The following examples illustrate how vacation payments are handled under the three most common types of bargaining agreements.

      Example A

      The worker's hourly wage is $7. Of this, the employer holds back twenty-five cents an hour which is deposited to the worker's credit in a vacation trust fund. In this case the "vacation pay" is wages allocable to the period earned. Consequently, part-total earnings must be reported at the worker's gross pay rate of $7 per hour.

      However, later receipt of the accumulated funds from the vacation trust fund raises no wages issue, as the worker is merely taking delayed delivery of a portion of his prior wages.

      Example B

      The worker's hourly wage is $6.50. Because the worker will take no "paid vacation" in the traditional sense, the employer augments this wage by fifty cents and pays him $7 per hour to compensate for the lack of an actual vacation. Unlike the above example, that portion of his pay labeled as "vacation pay" is not held back but is paid to the worker at that time

      Consequently, the payment is wages allocable to the period earned. In the event of a "termination", the mere labeling of a part of the pay as "vacation" does not bring it within the provisions of Section 1265.5.

      Example C

      The worker's hourly wage is $10.50. The collective bargaining agreement requires the employer to contribute specified amounts for various fringe benefits. For example, the agreement may specify that the employer will contribute $0.75 for each hour worked into the vacation fund; $1 per hour for medical and life insurance, etc.

      The vacation pay is deposited in a trust fund administered by the union. The collective bargaining agreement provides that the members will not take vacation time off and that the union will pay the members any accumulated vacation pay once a year by a specified date.

      The employer contributions into the vacation fund do constitute wages. The California Supreme Court stated in Suastez vs. Plastic Dress-up Co. "It is established that vacation pay is not a gratuity or a gift, but is, in effect, additional wages for services performed." The Court stated that many other courts had taken the view that vacation pay is an alternate form of wages which are earned at the time of other wages but whose receipt is delayed.

      Should the payment of the vacation pay coincide with a period in which the claimant is on a definite layoff, the vacation pay is wages but would be allocable to the period when earned. Since the claimant cannot take vacation time off, the vacation pay would be allocated to the period when the individual earned the vacation not to the period of the layoff.

      In this example, the claimant's gross hourly wages while performing services are $11.25, not $10.50. This figure is arrived at by adding the hourly wage, $10.50, to the hourly vacation contributions, $0.75, required by the collective bargaining agreement.

      The employer contributions for medical and life insurance are not wages for unemployment insurance purposes as provided in Section 931 of the UI Code. This section provides, in part, as follows:

      "'Wages' does not include the amount of any payment, including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any payment, made to or on behalf of an employee . . . under a plan or system established by an employer which makes provision for his or her employees generally . . . on account of any of the following:

      (a) Sickness or accident disability . . .

      (b) Medical or hospitalization expenses in connection with sickness or accident disability.

      (c) Death."

      Therefore, the contributions made by the employer for health and welfare benefits such as medical, dental, vision and life insurance, etc., are not wages for unemployment insurance purposes and cannot be used to establish a claim, clear a lag, purge a disqualification, etc.

      The contributions into the vacation fund, as stated above, are wages for unemployment insurance purposes and can be used to establish a claim, clear a lag, purge a disqualification, etc.

    5. "Pro Rata Vacation Pay"

      This type of vacation pay is paid for a portion of a full vacation period. It is generally paid to an individual who is terminated or laid off through no fault of his/her own and who would have otherwise qualified for annual vacation pay had he/she remained in employment.

      For example, an employer-employee agreement provides that all employees who have worked for one full year shall receive two weeks annual vacation pay. Generally, such an agreement also provides that an employee who only works half of a year and is terminated through no fault of his/her own shall receive one week vacation pay. Because this pay is for a portion of the year, it is called "pro rata" vacation pay.

      It should be noted that where pro rata vacation pay is paid upon termination. it would not be considered wages.

    6. Vacation Pay - State Intermittent Employees

      See discussion of P-B-430 in item 2 above. When a State intermittent employee is laid off due to budgetary considerations and does not have a definite date of recall, the employee shall be considered to be on an indefinite layoff and terminated for purpose of Section 1265.5, even though the employee has not been terminated from State service. Accordingly, vacation pay requested during such periods of layoff shall not be considered wages.

      The above principle applies whenever there is an indefinite layoff as described above, irrespective of whether the intermittent employee has reached the 1500-hour limitation.

  2. Allocation of Vacation Pay

    Once it is determined that the vacation pay at issue is wages, then the question of the allocation of the vacation pay must be resolved. The question of allocation is immaterial if the vacation pay is not considered wages.

    1. Authority to Allocate Vacation Pay

      The Department has the final authority to determine the proper allocation of vacation pay after consideration of all the information obtained. This was the Board's findings in P-B-40. This was a 1967 case involving a claimant who received pro rata vacation pay upon termination. (In 1967, the UI Code provided that all vacation payments were considered wages, whether or not the employee was terminated.) Section 19 of the collective bargaining agreement spelled out the conditions under which an employee became eligible for vacation pay. Included in Section 19 was the following provision:

      (3) For purposes of this Section 19, all pro rata vacation pay shall be allocated to the period worked and not the period when Paid.

      This provision was specifically included in the contract because union members who receive pro rata vacation pay could not immediately receive unemployment insurance benefits upon layoff. In rejecting the allocation provided in the contract, the Board said:

      "When an individual, in receipt of vacation pay from a former employer files a claim for unemployment benefits, the Department of Employment is obligated to designate the period to which the vacation is to be allocated. This is true because it is the statutory duty of the Department of Employment to determine a claimant's eligibility for benefits (see Section 1328 of the Unemployment Insurance Code).

      The State Legislature has seen fit to permit the Director of Employment to delegate certain of his responsibilities; for example, in Subsection (b) of Section 1253 of the Code, the Director of Employment may approve places other than a public employment office as a place where an unemployed individual may register for work. The legislature has not permitted the Department of Employment to delegate its authority to determine a claimant's eligibility for benefits. Therefore, we conclude that regardless of the desires of an employer or the terms of a union contract, when an unemployed individual files a claim for unemployment benefits, the Department of Employment must determine the individual's eligibility for benefits and if such individual is in receipt of vacation pay or pro rata vacation pay at the time the claim is filed the Department of Employment is the only agency which may allocate such payments."

      The Board went on to conclude that since other sections of the contract provided that the pro rata vacation pay was earned in a prior period and was realizable only upon termination, the only logical and reasonable allocation of such pay was to the period following termination.

    2. General Rule for Allocation of Vacation Pay

      While the Department has the final authority to decide on the allocation of vacation pay the Appeals Board, in PD 160 has recognized that:

      "As a general rule, the employer has the inherent authority to designate a vacation period for its employees and to allocate any vacation payment. This right may be limited by a collective bargaining agreement, in which case, generally the allocation must be in accordance with the terms of the agreement. Vacation payments will be allocated to the extent possible to the period when a vacation actually is taken."

    3. Employer Authority on Allocation

      As indicated above, subject to the limitations under a collective bargaining agreement, the employer has the inherent authority to designate vacation periods for its employees. This is evidenced by contract language such as the following:

      Vacation requests must be submitted to the employee's supervisor at least three weeks in advance for approval. Final approval rests with the Managing Director.

      Vacations are to be scheduled so as to cause the least inconvenience in a department and at times approved by the department foreman.

      Vacations are to be scheduled consistent with the efficient operations of the employer's business.

      If production schedules require, all vacations within a given department can be rescheduled by the employer.

      In BD 5521, the collective bargaining agreement provided that vacations are taken, with management's approval, between April 1 to December 31 of each year. On January 23, 1947, the employer posted a notice for its employees stating there would be a two-week plant shutdown period between August 16, 1947, and September 2, 1947, and that it expected its employees to take their vacations at this time. On May 14, 1947, the employer again posted a notice providing this same information. In addition, the notice indicated that employees could request permission from their foreman to take time off at some other time. On August 15, 1947, immediately prior to the shutdown, the claimant was issued a week's vacation pay. He refused to accept it as he wanted to take a week's vacation during the deer hunting season in October. He had not previously made such a request. In holding the vacation pay was allocable to the week ending August 23, 1947, and denying benefits for this period, the Board said:

      "Although the agreement gave an option to employees to select their vacation time, with the management's approval, between a prescribed period, we cannot find in its terms where the employer contracted away its prerogative, which we believe was inherent in it, to allow vacations to its employees at a time of its own choosing, should it wish to exercise the right. In exercising the right in the instant case, the employer did not act arbitrarily or capriciously in designating a vacation period for its employees. Ample notice was given to its employees, including the claimant, that the shut down period necessitated by an electric power changeover, over which the employer had no control, would be the vacation period for them. The employees who were not satisfied with this designation could use the grievance procedure set up between the employer and employees whereby an adjustment as to vacation period could be sought and adjudicated. A number of employees used this procedure and some were successful in obtaining the desired adjustment. The claimant herein did not seek to have an adjustment made in his particular case.

      We conclude on all of the facts herein that the tender of vacation pay to the claimant by the employer was tantamount to a payment thereof to him and was in an amount greater than that to which he would have been entitled as unemployment insurance benefits; therefore, he was not 'unemployed' during the calendar week August 17 through August 23, 1947, when he was in receipt of such payment."

      In BD 5571, the collective bargaining agreement provided that preference on vacation dates would be given according to seniority ". . . as reasonably as possible." Early in the year, the claimant had arranged to take two weeks vacation in July and actually did go to a resort area during this period. However, beginning June 15, 1949, the claimant left his work, due to a trade dispute, involving his union and remained on strike until October 2, 1949, when the TD ended. The employer considered vacations suspended during the TD and did not issue vacation checks during this period. When the TD ended, the claimant was temporarily laid off and thereupon filed a claim for benefits. At the time of the layoff, the claimant was paid two weeks vacation pay which the employer considered allocable to the period October 3, 1949, through October 14, 1949. In sustaining the employer's position, the Board said:

      "Under the contract in effect between the claimant's union and the employer, it appears clear that it was within the province of the employer to specify the period of vacation subject to the provisions of the contract regarding seniority. Although the claimant in this case, prior to the commencement of the trade dispute, had tentatively arranged for his vacation during the last two weeks of July, it is our conclusion that this tentative agreement was not binding on the employer, as the employer, having the basic right to set the period of vacation in the first place, had the right to change such period under altered circumstance."

      On the other hand, it should be noted that where the facts indicate the employer's allocation is arbitrary, the Board has not supported the employer's position. In BD 6263, the collective bargaining agreement provided that vacation periods extended from May to November of each year and the employer had the right to specify when vacations would be given. The employer designated a certain week in July and another in October as the vacation weeks. The claimant took the scheduled week in July and, by arrangement with the employer, took his second week in August. In deciding the issue of allocation, the Board said:

      ". . . the claimant was given one weeks vacation in August and the employer paid him at that time. In our opinion, this action can only be construed as allocating the vacation pay to that week. As the employer has already allocated the vacation pay due the claimant to a period in August, we find that the employer cannot now reallocate this pay to a period in October."

    4. Collective Bargaining Agreement

      Where there is a collective bargaining agreement covering the payment of vacation pay, the allocation should normally be in accord with its provisions. A collective bargaining agreement will normally contain the specific time parameters during which an employee may request and be granted vacation time off. In BD 6658, the claimant was laid off due to lack of work on May 5, 1961, and paid vacation pay for the vacation year which ended April 30, 1961.

      The claimant contended the vacation pay should be allocated to May and June of 1960, when he took a three-week vacation without pay. The Board held that:

      "The union agreement provides that an employee cannot take a vacation with respect to any vacation year until after the computation date. Since the computation date of the vacation year, April 24, 1960, to April 30, 1961, was April 30, 1961, the (vacation) check can not be allocated to May and June 1960."

      The Board then concluded the vacation payment was allocable to the two-week period following termination. (At this time, the UI Code provided that vacation pay paid after termination was considered wages.)

    5. Allocation to Period Vacation Actually Taken

      While bearing in mind the employer's authority to designate vacation periods and the provisions of a collective bargaining agreement governing scheduling of vacations, to the extent possible, vacation payments should be allocated to the period the vacation is actually taken or scheduled to be taken. It is only reasonable that vacation pay, i.e., "pay" for a "vacation" be applied to an actual vacation from employment.

      In PD 160, which involved a DI claim, the claimant was disabled and filed for DI from April 13, 1973, through August 12, 1973, when he returned to work. Thereafter, he went on his scheduled four-week vacation beginning September 3, 1973. On June 10, 1973, the employer made vacation payments to all its employees and, consequently, the Department allocated the payments to the period beginning June 10, 1973. In allocating the vacation payments to the period the vacation was actually taken in September, instead of the date the payments were made, the Board said:

      ". . . although the claimant was paid the vacation pay on June 10, 1973, while he was off work because disabled, his vacation had then been scheduled to begin September 3, 1973, and in fact, the claimant did begin his vacation as scheduled. We do not consider the mere fact that the claimant was paid on June 10, 1973, determinative of the allocation issue when all other employees were paid their vacation pay at the same time without regard to their vacation schedules. In our opinion the referee correctly allocated the vacation pay for the four weeks to the period when the claimant actually began his previously scheduled four-week vacation."

      It should be noted that, in the above case, the claimant's September vacation was taken with the employer's permission and was in accord with the provisions of the collective bargaining agreement governing the scheduling of vacation periods.

    6. Vacation Payment Made, No Scheduled Vacation to Date

      As previously stated, to the extent possible, vacation payments should be allocated to the period the vacation is actually taken. However, in some cases, at the time vacation payments are made, a claimant may not have arranged a scheduled vacation as yet. Under these circumstances, to what period should the allocation be made?

      In BD 6756, the claimant was laid off due to lack of work in April 1964 and was thereafter unemployed for 10 weeks, and was recalled to work on July 6, 1964, at which time he was paid two weeks vacation pay. The claimant filed a claim in April 1964 and the department allocated the vacation payment from June 28 through July 11, 1964. Under the collective bargaining agreement, the claimant could arrange to take a two-week vacation sometime during the 12-month period between July 1, 1964, through June 30, 1965, or could continue to work without taking a vacation, in which case the vacation would be considered a bonus in lieu of vacation. At the time he was paid the vacation payment, the claimant had not yet arranged a scheduled vacation for the next vacation year. In deciding on the allocation of the vacation payment, the Board said:

      "There is no evidence that (the claimant) had selected a vacation period, or requested and obtained approval of such leave from his foreman . . .

      Under these circumstances, we hold that the vacation pay is allocable only to such period or periods as the (claimant) may actually take a vacation; if (the claimant does) not take a vacation, the payments will be considered as a bonus in lieu of vacation."

      HOWEVER, although an individual may not have arranged a vacation period, it is possible that under the provisions of a collective bargaining agreement, the employer may have the option of designating a specific vacation period for its employees and may have done so. In PB 161, there was a four-week plant shutdown effective July 2, 1973. The employer exercised its option, under the contract, of requiring its employees to take their vacation during this shutdown period, except that the contract also provided that the employees could make a special request to take their vacation at some other time. The Board held that the claimant's vacation pay was allocable to the shutdown period.

      The Board found that the claimant had not made any other arrangements with the employer and that the employer's designation of the shutdown period as the vacation period was fully in accord with the provisions of the collective bargaining agreement.

    7. Date of Vacation Payment Not Necessarily Controlling in Allocation

      In PD 160, the employer computed and paid vacation payments to all its employees on June 10, 1973; however, the employees were scheduled to take their vacation periods at various dates during the ensuing 12 months. The claimant in PD 160 took his actual four weeks' vacation, as scheduled, in September 1973. The Board found that the fact the claimant was paid on June 10 was not determinative of the allocation issue. It then allocated the payment to the period the vacation was actually taken in September.

  3. Pay In Lieu of Vacation

    This is a payment for vacation credit earned with no scheduled vacation time off taken. It is, in effect, a bonus for working and not taking a vacation. Accordingly, since it is in the nature of a bonus, it is allocable to the period earned.

    Example:

    An employer in a seasonal industry normally operates from March 1 through November 30 of each year. The employees are expected to work continuously during the period the plant is open. The collective bargaining agreement provides that vacation credit is earned based on seniority and the hours worked during the prior calendar year. The employer computes the amount of the vacation pay and on February 1 makes the vacation payment to its employees; however, the contract makes no provisions for the actual taking of a vacation. The payment made is considered to be a pay in lieu of vacation payment.

    As indicated by the above example, this type of plan may be found in a seasonal industry where the employer has a plant closure of a relatively long duration. In other instances, a pay in lieu of vacation provision may be included in a contract whereby an employee may actually take a vacation for part of the vacation credit earned and take a "pay in lieu of vacation" for the remaining period. In some cases, a collective bargaining agreement may give the employer the authority to cancel an employee's planned vacation, usually due to economic conditions, and the employee is then paid his vacation but continues working.

    Sick Pay

    Section 1265.7 of the Code provides, in pertinent part, as follows:

    ". . . payments to an individual for sick pay which is earned but not paid for services performed prior to termination of employment, shall not be construed to be wages or compensation for personal services under this division and shall not be denied or reduced because of the receipt of such payments."

    Accordingly, as in vacation pay, the critical factor on whether or not sick pay is wages is whether the claimant has been terminated from employment. "Termination" in this context means a leaving of work due to an indefinite layoff, quit, discharge, etc. The same criteria used in vacation, as discussed earlier in this section, applies to sick leave pay in determining whether or not there has been a termination of employment. If there has been a termination of employment then the sick pay would not be considered wages.

    Holiday Pay

    1. Applicable Code Section

      Section 1265.6 is the Code section which governs eligibility with respect to holiday payment. It states:

      "Notwithstanding any other provision of this division, payments to an individual for holiday pay for any holiday occurring in a week during which the individual was unemployed shall be deemed wages received for the week in which the individual returns to work, if holiday pay is not paid until the individual returns to work from a definite period of layoff. Payments to an individual for holiday pay for any holiday occurring in a week during which the individual was unemployed shall be deemed wages received for the week in which the holiday falls, if holiday pay is paid prior to the individual's return to work from a definite period of layoff. However, payments to an individual for holiday pay which was earned but not paid prior to an indefinite layoff, or termination of employment, or commencement of unemployment caused by disability, as the case may be, shall not be construed to be wages or compensation for personal services under this division and benefits payable under this division shall not be denied or reduced because of the receipt of these payments."

    2. Major Considerations in Resolving Holiday Pay Issue

      As with vacation pay, there are two major considerations when determining how receipt of holiday pay affects benefit eligibility.

      a. Whether holiday pay is wages

      b. Allocation of holiday payments

      - Whether Holiday Pay is Wages

      As with vacation pay, termination from employment is the critical factor which determines whether the holiday pay is considered wages. If there has been a termination of employment then the holiday pay would not be considered wages. The same criteria used in vacation pay applies to holiday pay in determining whether or not there has been a termination of employment.

      Benefit Decision 6346, considered the case of a claimant who had worked for an employer on an intermittent basis, subject to call when her services were needed. In deciding that the claimant had been indefinitely laid off by the employer, the Board stated:

      ". . . (Since) the claimant completed her work assignment on April 30 with no assurance when (if ever) she would be called to work, we hold that the claimant's employment terminated on that date due to lack of work . . . ."

      If the claimant had received holiday pay in this case, which was fully earned prior to termination, it would not have been considered as wages because of the (complete) termination of employment. On the other hand, had the claimant been on a fixed layoff, the payment would have been considered as wages.

      The Board made the distinction in Precedent Benefit Decision 161 between the receipt of payment considered as wages when the claimant was in receipt of vacation pay for a period during which he was laid off due to a regularly scheduled shutdown of production at the plant where he was employed, in which it stated:

      ". . . the claimant was not laid off for an indefinite period, but was laid off for a definite period. His layoff was in accordance with an employer-union working agreement under which vacations could be scheduled during the layoff period . . . .

      . . . the employer maintained contributions or otherwise continued in effect various medical, life insurance, and retirement benefits, and seniority for the employees off for the entire period of time. Upon these facts we conclude that there was no "termination" of employment.

      Therefore, the payment made to the claimant was wages . . . ."

      Although this case dealt with vacation pay, the concept discussed in the case would apply to holiday pay.

      - Change of Layoff Status During Layoff Period

      There may be instances where a claimant on indefinite layoff is subsequently told to return to work on a fixed date. In this situation, the layoff is still considered an indefinite layoff for purposes of determining whether or not the holiday pay should be considered wages. For example, the claimant was initially laid off effective Monday, May 19, for an indefinite period. After two weeks, on June 2, the employer called and told him to return to work the following Monday, June 9. On June 4, the claimant was paid holiday pay for Memorial Day, May 26. Even though the claimant was called back to work on a fixed date, it does not change the original layoff status. The recall to work is considered an offer of new work. The holiday pay the claimant received on June 4 is not considered wages.

      On the other hand, a claimant placed on a fixed layoff may later be placed on an indefinite layoff. In such a situation, the resolution of the holiday pay issue will depend on whether the claimant is paid for the holiday prior to or after the notification of the indefinite layoff.

      Once the notification is made, the employer-employee relationship is considered severed at that point. Accordingly, if the claimant is paid prior to the notice, the employer-employee relationship has not been severed at that time and, therefore, the payment is considered wages. If he is paid after the notice, the holiday pay is not considered wages, because the claimant has already been terminated at the time the holiday payment was made.

      For example, the claimant was laid off on July 2 with a fixed return to work date of July 16. However, because the company lost a contract, the claimant was notified on July 9 that he would be placed on an indefinite layoff. On July 11, the claimant was paid holiday pay for July 4. Even though the claimant was initially laid off for a definite period, he received the notice of indefinite layoff prior to the date of payment for the holiday and, therefore, the holiday pay is not considered wages. The employer-employee relationship was terminated when he received the notice of indefinite layoff.

      - Allocation of Holiday Payments

      Once it is determined that the claimant is on a definite layoff and, therefore, that the holiday pay is wages, allocation of these wages must be made. Section 1265.6 states in part, ". . . payments . . . for holiday pay for any holiday occurring in a week during which the individual was unemployed shall be deemed wages received for the week in which the individual returns to work, if holiday pay is not paid until the individual returns to work . . . for the week in which the holiday falls, if holiday pay is paid prior to the individual's return to work . . . .

      The first consideration is whether the claimant was unemployed during the week of the holiday. If the claimant was fully employed or had excessive earnings during that week, then the holiday pay is allocated to that week. If the claimant was not fully employed or did not have excessive earnings during that week, then it depends on when the holiday pay is paid relative to the date the claimant returns to work. If the holiday pay is paid after the claimant returns to work, the holiday pay is allocated to the week in which he or she returns to work. If the holiday pay is paid prior to the date the claimant returns to work, it is allocated to the week in which the holiday falls.

      Example:

      The claimant filed a claim effective December 21 when he was temporarily laid off due to a plant shutdown caused by a drop in work orders. He last worked Friday, December 19, and was scheduled with other employees to return to work on Monday, January 5.

      The payroll period ended on Friday and the company paid weekly on Tuesday. The company policy also provided for holiday pay for December 24, 25, and 31 and for January 1. The company issued paychecks on December 30 for the payroll period ending December 26 and on January 6 for the payroll period ending January 2. The paycheck issued on December 30 included the holiday pay for December 24 and 25, and the check issued on January 6 included the holiday pay for December 31 and January 1.

      Since the claimant was on a definite layoff, the holiday pay is wages. The claimant was also unemployed during the week of the holidays. The holiday pay for December 24 and 25, was paid prior to the claimant's returning to work and is therefore allocated to the week in which the holidays occurred, i.e., the week ending December 27.

      On the other hand, the holiday pay for December 31 and January 1, was not paid until after the claimant returned to work and therefore is allocated to the week ending January 10. Full benefits are payable for the week ending January 3 provided that the claimant is otherwise eligible.

    3. Holiday Pay - Intermittent State Employees

      Holiday pay issues on claims filed by State intermittent employees are resolved in the same way as discussed above. Holiday pay is not wages if the individual is on an indefinite layoff.

      The amount of holiday pay to which a State intermittent employee is entitled depends on the number of hours worked during the month of the holiday. The holiday pay is paid in the month following the occurrence of the holiday. For EDD employees, this occurs around the 10th day following the beginning of the month. For purposes of resolving the holiday pay issue for State intermittent employees, the "pay day" for the holiday shall be considered to be the day the check is received by the employing unit of the claimant and is thus available for issuance to the employee. It may be necessary to contact the office of the employing unit to obtain this date.

      a. Floating Saturday Holidays

      For most State agencies, when a holiday falls on a Saturday, qualified State employees are entitled to take a floating holiday on a workday prior to the end of the State fiscal year June 30. If, however, November 11 falls on Saturday, the preceding Friday, November 10, will be celebrated as the holiday.

      The amount of the floating holiday pay to which a State intermittent employee is entitled depends on the number of hours the employee is on pay status during the month in which the Saturday holiday falls, and not the month in which the floating holiday is actually taken.

      As is true with payment for other holidays, the pay for the floating holiday is paid in the next pay period following the month in which the floating holiday is actually taken. With this in mind, the following basic considerations should be noted in resolving the issue of floating holiday payments:

      1) Do not consider the Saturday holiday as the date of the holiday for purposes of resolving the holiday pay issue. The floating holiday which is actually designated by the employee should be considered as the date of the holiday for purposes of resolving the holiday pay issue.

      2) The amount of the floating holiday pay can be computed even though the employee has not yet been paid inasmuch as the number of hours worked during the month of the Saturday holiday is already known.

      Example:

      The claimant, a State intermittent employee, worked 160 hours in July and therefore was entitled to payment for the July 4 Saturday holiday. He was laid off effective Monday, August 17, for two weeks. He was scheduled to and did return to work on August 31. The claimant then designated August 19, as the floating holiday for July 4 and was paid for the holiday on September 11. Since the designated date of the holiday was August 19 in a period when the claimant was on a definite layoff, the holiday pay is wages. It is allocated to the week ending September 5 because the claimant returned to work in that week and the holiday pay was made after he returned to work.

      b. Personal Holiday

      State intermittent employees are entitled to a personal holiday during the calendar year. The amount of the personal holiday depends on the number of hours worked during the month the personal holiday is taken. However, in cases where the supervisor may be unable to allow an intermittent employee to take a personal holiday during the pay period in which it is requested due to heavy workload, the employee may then be required to take the personal holiday during another pay period. In such cases, the amount of the holiday pay is based on the number of hours the employee is on pay status during the month the personal holiday was originally requested. In resolving the personal holiday pay issue, the date the personal holiday is actually taken shall be considered as the date of the holiday.

      Once the date of the personal holiday is determined, the issue of payment for personal holiday will be resolved in the same way as other kinds of holiday pay.

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Benefit Determination Guide