CalPERS tells school employers vacation pay counts only when time off is taken; circular and phased start planned
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Summary
CalPERS officials clarified that vacation payouts are pensionable only when used to cover scheduled work time that the employee was excused from; lump‑sum cash‑outs and prorating vacation across non‑scheduled days are not reportable. Staff said a circular with examples is coming and compliance is expected to begin in fiscal year 2026–27.
Ken Noss, manager of CalPERS’ audit compliance and resolution unit, told the employer advisory committee that vacation pay for classified school members is reportable to CalPERS only when it compensates for time excused from a member’s normal working hours. “Vacation pay is reportable only when it's time excused from work,” he said during the CEAC webinar.
Noss walked through common misreporting practices that CalPERS has flagged: adding vacation payouts to contract days and prorating them over the year, spreading lump‑sum cash‑outs into regular pay, and reporting vacation to increase a member’s regular schedule beyond their contracted hours. He said such practices can create late fees, require corrections, and in some cases create employer liabilities under the Public Employees’ Retirement Law.
The agency emphasized practical steps for employers: report vacation hours only when the employee actually takes time off from their normal scheduled hours; ensure reported hours do not exceed contracted hours; publicize and align pay schedules so reported compensation matches published schedules.
During Q&A, an employer asked whether a district being operational during spring break affects reportability. Noss said the controlling factor is the position’s work calendar, not whether buildings are open: if the employee is scheduled to work and is excused and uses vacation, the time is pensionable; if the break is part of the normal schedule and the employee is not scheduled to work, it is not.
CalPERS said it will publish a circular letter with statutory citations and examples; staff told attendees the circular is in review and is expected to be published soon. On implementation timing, Noss said CalPERS does not expect employers to retroactively rework past years but is asking for immediate rectification going forward; the expectation is to begin formal compliance in the 2026–27 fiscal year (effective 07/01/2026) to allow employers time for bargaining and operational changes.
Several payroll professionals voiced concern that stopping the long‑standing practice of reporting certain vacation payouts could reduce members’ service credit and complicate recruitment. In the webinar an attendee said the practice had been accepted for decades and warned of impacts on retirement outcomes. CalPERS responded that consistency with statutes and regulations motivated the change and that the agency has built a review process and support channels (including a compensation compliance analysis request feature in myCalPERS) to assist employers.
CalPERS urged employers to review payroll and reporting practices now and to submit questions or compensation compliance documents through the new myCalPERS “request compensation compliance analysis” option for documented guidance.
The agency will issue the circular and examples and follow up with employers and the CEAC as questions arise.
