How AB 2123 Changes the Way California Companies Handle Employees' Vacation Time

As of January 1, 2025, California companies are not allowed to require employees to use their accrued vacation time before accessing their state-provided Paid Family Leave (PFL) benefits.

This new change – as introduced under Assembly Bill 2123 (AB 2123) – represents a significant shift in how employees can take leave. It also raises new implications for how workers can provide financial support during family-related absences.

Here’s a closer look at all the details related to AB 2123 – and their potential implications for small businesses.

California’s Paid Family Leave

California’s PFL program provides wage replacement benefits to employees who need time off to care for a seriously ill family member, manage qualifying military exigencies, or bond with a new child. Unlike traditional paid leave or employer-offered paid time off (PTO) policies, the PFL is funded through employee payroll contributions to California’s State Disability Insurance program.

The PFL currently gives eligible workers up to eight weeks of partial wage replacement. In the past – before the passing of AB2123 – companies could require that employees use their accrued vacation time before they could receive PFL benefits.

This policy often forced employees to use their accrued vacation days for what could be caregiving services and, in doing so, could leave them without any time for true vacations or personal time. AB 2123 now eliminates this requirement.

Why Was AB 2123 Passed?

The primary goal of AB 2123 is to provide greater flexibility and financial security for employees who need to take family-related leave. Many employees rely on their accrued vacation time for personal leave or even emergencies. Previous policies often left them with little and even no paid leave for these needs.

These past mandates also affected lower-income workers disproportionately since they may not have as much accrued vacation time and tend to rely on every paycheck for their financial stability.

AB 2123 seeks to ensure that employees can take leave without depleting their vacation balances first. It also is intended to remove unnecessary barriers to PFL benefits that may have existed in the past and allow these benefits to be used as originally intended.

Key Changes Under AB 2123

What does all this mean in practical terms? Here’s a closer look at the specific changes of AB 2123:

• PFL benefits remain unchanged and continue to offer partial wage replacement for up to eight weeks for eligible employees with qualifying conditions.

• Employees now retain control over their vacation time and can decide how to use it, including whether or not to use it before applying for PFL benefits.

• Employers must update their leave policies to clarify this change and comply with new requirements of AB 2123.

• Yet employers can allow workers to supplement PFL benefits with accrued vacation time or even PTO if employees choose to do so voluntarily.

By eliminating the mandatory use of vacation time before accessing PFL benefits, AB 2123 gives employees more control over their paid time. Such a change not only impacts how leave is managed but also raises new – and important – considerations for businesses navigating these new requirements.

Implications for Employers

Now that AB 2123 is in effect, employers must review and revise their leave policies, employee handbooks, and HR procedures to comply with the new law. Additionally, companies need to communicate these changes to employees to make sure they fully understand their rights.

It is important to remember that PFL only provides partial wage replacement, so many workers may still opt to use their vacation time or PTO to make up the difference. This means employers need to update their payroll systems to allow workers to supplement their PFL benefits with vacation time if they choose to do so voluntarily. Making sure payroll processes and systems are ready to handle these possibilities will help minimize confusion and potential administrative issues. 

To maintain compliance, employers should work with various HR and legal professionals to make sure all of this happens effectively. Failing to comply with AB 2123 could result in disputes, legal concerns, and possibly even fines or penalties. By proactively updating these policies and clearly communicating the changes, employers stand the best chance to plan for a smooth transition and reinforce their commitment to supporting employees’ leave rights.

The Outsourcing Option

Yet many small businesses may not have dedicated HR staff in-house, making it difficult to make all of these changes. If so, it is crucial to partner with experienced HR consultants or outsource compliance to experts who can ensure compliance with AB 2123.

Outsourced HR experts can make all of the changes described above, answer any questions employers or employees may have, and smoothly guide small businesses through everything that is required to achieve compliance with AB 2123.

By taking advantage of professional HR support, these small businesses can successfully navigate AB 2123’s requirements as well as other complex regulations to avoid legal risk and increase employee satisfaction.

AB 2123: Enhancing Paid Leave Flexibility

AB 2123 represents a positive shift for California workers and now gives them more flexibility and control when taking PFL and using their own vacation time. By eliminating past requirements to use accrued vacation before receiving PFL benefits, AB 2123 gives employees more options to manage their paid leave and maintain a better work-life balance.

As California continues to refine its rationale and approaches to paid leave, AB 2123 represents a significant step in supporting workers and developing family leave policies to better reflect the needs of today’s modern workforce.

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Frequently Asked Questions (FAQs)

What is Assembly Bill 2123 (AB 2123)?

AB 2123 is a California Assembly Bill that prevents employers from requiring their employees to use up to two weeks of accrued vacation time before accessing Paid Family Leave (PFL) benefits. This change went into effect on January 1, 2025, and now enables employees to use PFL benefits without using their vacation time first.

What is Paid Family Leave (PFL)?

The PFL program provides wage replacement for workers who take time off to care for a seriously ill family member, bond with a new child, or manage qualifying military exigencies. The program currently offers up to eight weeks of partial wage replacement to eligible employees.

What are the implications of AB 2123 for employees?

In the past, employers could mandate the use of vacation time before an employee could start to receive PFL benefits. This policy often forced workers to use their accrued vacation time for what could be considered PFL, leaving them without time off for their own personal or vacation time.

With AB 2123, employees won’t have to exhaust their vacation time before accessing PFL benefits. This means workers won’t have to choose between their accrued vacation time and being able to provide caregiver services for their family during times of need.

What are the implications for employers?

Employers need to update their leave policies, handbooks, payroll systems, and other processes to fully comply with AB 2123. They also need to clearly communicate all of these changes to make sure employees understand their rights related to vacation time and PFL benefits.

What if small businesses don’t have dedicated HR staff to help them comply with AB 2123?

If companies don’t have in-house HR staff, partnering with an outsourced HR service can help them navigate the many changes required to comply with AB 2123 and other regulations. Turning to an outside HR team member can be an effective way to update policies, communicate with employees, and make necessary payroll updates to meet new requirements and avoid potential legal missteps.