California Signed Law Easing Repayment Rules for PTO
Business owners in California can now recoup advanced time off and adjust bonus structures starting in 2027.
Updated on Oct. 5, 2026 in Human Resources
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Governor Gavin Newsom signed Assembly Bill 1697, which allows employers to recoup advanced paid time off from departing employees and modifies bonus offering requirements. The new provisions take effect for contracts entered into on or after January 1, 2027.
Why it matters
The law grants employers greater operational flexibility to offer retention and relocation incentives to current staff without restrictive contract hurdles. These changes aim to modernize how businesses structure compensation packages while maintaining specific guardrails for employee protections.
The law caps recoupable advanced paid time off at 40 hours and permits a maximum retention period of 2 years for repayment proration. Businesses must also provide employees at least 5 business days to consult with legal counsel before signing these compensation agreements.
The players
Gavin Newsom
The Governor of California who holds final sign-off authority on state legislative enactments.
The details
To utilize these provisions, employers must draft a separate agreement distinct from the primary employment contract for any qualifying payments. The law explicitly exempts specific compensation agreements for securities broker-dealers, insurance providers, and investment advisers. While existing agreements under previous legislation remain enforceable, any new contracts executed after January 1, 2027, must incorporate the notice of the right to consult counsel.
Timeline
September 30, 2026: Governor Newsom signed AB 1697 into law.
January 1, 2027: Compliance requirements for the new law begin.
Market Landscape
This legislation builds upon the framework established by AB 692, which previously set the standards for stay-or-pay contract enforceability in California. The new law marks a targeted adjustment to how firms manage retention incentives within the state's existing labor regulatory regime.
Operators should review their standard offer letters and retention packages to ensure they align with the new, separate contract requirement before January 1, 2027. Consult with qualified counsel to update templates for relocation or retention bonuses to ensure compliance with the new notice periods.
The takeaway
The law provides a mechanism to protect investments in employee retention, provided firms implement the required five-day counsel review period. Business owners should calendar the January 1, 2027, effective date to audit all new compensation contracts for compliance.
Further reading
For more on managing employee agreements and compensation, visit Human Resources.
Live Poll
Do you support laws that limit how employers collect repayment for bonuses or training?
