In California, paid vacation and paid time off (PTO) are considered a form of wages that are earned while working. Generally speaking, employers in the state of California may adopt a leave donation policy. The California Labor Code does not restrict employees from voluntarily donating any unused vacation/PTO time to a co-worker who suffers a catastrophic event or medical emergency and who has exhausted all of his or her own available vacation/PTO time. However, it is important to keep in mind that because vacation/PTO time is considered a form of wages in the state of California, an employer may not institute a policy that would make donating unused vacation/PTO time a condition of employment, nor may an employer take any adverse action against an employee who refuses to donate his or her leave.
There are specific rules set forth by the IRS to avoid negative tax consequences for employees who choose to donate leave. For more information, see How to Create a Leave Donation Program.
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