Pay & Salary

What Is Paid Vacation and How Does It Work?

July 2, 2021

Employers provide various employee benefits to attract the best candidates. Every company has policies on vacation time and paid time off. Understanding paid vacations in general terms can help you be better prepared when discussing or negotiating with your employer. In this article, we discuss what paid vacation is and how it works, and answer frequently asked questions about paid vacations.

What is paid vacation?

Paid vacation refers to time off from work where you receive pay but don't have to work. Vacation pay refers to the compensation you receive while taking time off from work. Employers may define paid vacation using the number of days or weeks. If they specify this time off from work in weeks, remember that this implies work weeks, not calendar weeks. For example, two weeks of paid vacation refers to 10 vacation days, not 14. Unlike sick days or bereavement days, you typically plan paid vacation time and request it in advance for a supervisor or manager to approve.

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Who gets vacation pay?

As an employee, you are legally entitled to a vacation every year. Whether you receive pay during your time off from work is at your employer's discretion. For example, employers in Alberta aren't legally required to provide vacation pay to certain professionals, such as extras in video production and registered salespersons of real estate and securities.

Review your employee handbook and reach out to the human resources department to find out more about company policies on paid vacation. Some employers offer unlimited vacation time as a strategy to find the best candidate. If you discover you have unlimited vacation time, it's up to you to use this time off responsibly to meet deadlines and targets.

What is the duration of vacation time?

The duration of vacation time is two weeks for each year of employment. A year of employment is a period starting on the day you gained employment and ending 12 consecutive months later. After five consecutive years of employment, your employer legally needs to increase your vacation time to three weeks. Also, after 10 consecutive years with the same employer, you are eligible for four weeks of vacation.

As an employee, you may interrupt your annual vacation for other leaves, such as paternity, compassionate care, critical illness, or bereavement leaves. You may also decide not to go on annual vacation or receive vacation pay for a specified year of employment. You need to request this in writing.

How do employers calculate vacation pay?

Employers calculate your vacation pay based on a percentage of your net wages during a year of employment. Wages refer to payment for work completed. This remuneration may be monetary or non-monetary, such as room and board. Room and board refer to the meals and room provided. Wages don't include tips.

If your agreement with your employer states you'd receive vacation pay for two weeks of vacation time, expect a minimum of 4% of your yearly earnings. Where your vacation entitles is three weeks, vacation pay is 6% of your yearly earnings. If you have four weeks of vacation time, vacation pay is 8% of your yearly earnings.

Example of how to calculate vacation pay

Review this example of how to calculate remuneration during time off from work:

John works as a baker and receives $15.99 per hour. His yearly wages are $50,383 per year. After negotiating with his employers, he agrees to receive the basic vacation entitlement during his two-week time off from work. During his first four years, he receives 4% of $50,383 each year, which is $2,015.32 as his vacation pay. On his fifth year of employment, the bakery owners increase his annual vacation time to three weeks. During this period, he receives 6% of $50,383, which is $3,022.98.

When can an employer provide vacation pay?

You typically receive vacation pay 14 days before your vacation starts. In some organizations, you may receive vacation pay during or immediately after your vacation. Confirm the standard practice for vacation pay with your employers.

Canada Labour Standards Regulations require employers to provide vacation pay owed for a previously completed year of employment to terminated employees. These employees are also eligible for vacation pay for any partially complete year of employment before.

Related: How To Write a Termination Letter With Template

Negotiating paid vacation days

During the final stage of the hiring process, you may negotiate for additional vacation days. For example, if you can't quite agree on the salary for a management position, you can request a few extra vacation days. Always ask whether your potential employers are open to negotiating this employee benefit. Also, consider how many paid vacation days your potential employer already offered and whether your skills are in-demand before starting negotiations.

Read more: How To Negotiate Salary (With Examples)

Rules for using vacation time

Here are some of the common rules employers have for vacation time:

Vacation freeze for new employees

Typically, you may take a vacation at your employer's discretion or a mutually agreed upon time between you. However, employers may set a vacation time freeze for new hires. For example, your agreement may not allow you to use your paid vacation during the first 90 days of employment. Make sure you ask about any vacation time freeze during the final stages of the hiring process.

Vocation notice to employers

If you choose a vacation period, you need to give at least two weeks' notice. You typically need to submit this notice in writing via email. Explain when your annual vacation starts and how many days you expect to be away from work.

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The duration of any time off

Your employer may also have rules on how many days of your paid annual vacation you can take at a time. For example, many employers prefer employees take two weeks or fewer to ensure the company meets all targets and deadlines. Before sending a request for a paid vacation, consider the number of employees in the department already on paid vacation. Keep the communication lines and show commitment to your organization when determining how many days to take for each paid vacation.

FAQs about paid vacation

Review these answers to frequently asked questions about paid vacation:

Can an employer deny paid vacation requests?

Employers can legally deny paid vacation requests due to operational reasons. Operational reasons relate to the company's economics, work structure, undertaking, services, or business. If there's a disagreement about your vacation time, your employer can also deny your paid vacation and ask for discussions.

What happens if a general holiday falls during a vacation?

If a general holiday falls during a vacation, you can take the first scheduled working day after the vacation. Alternatively, you can take any day before your next annual vacation that is a workday. Regardless of the option you choose, ensure you inform your employer of your decision in advance.

Can an employer reduce vacation pay?

Employers can reduce your vacation pay. However, they legally need to notify you before the period in which the reduced vacation pay starts. Employers can't legally reduce your vacation pay below the minimum required standard. Also, employers can reduce vacation pay yet to be paid, but not any payment owed. Some employers reduce the vacation pay of employers who are frequently absent from work without notice.

What is the difference between paid vacation time and sick days?

Many employers differentiate sick days from vacation time. Sick days refer to time away from work when you are too ill to perform your job duties. Consider using this time off when necessary to show your dedication to the company's mission and goals. Other employers may include sick days as part of your paid vacation. In such situations, you can expect to receive a portion of your vacation pay when you're too ill to come to work.

Can you split your paid vacation?

You can request to split your annual vacation time by writing a letter or email. Whether you legally can use split paid vacation is at your employer's discretion. If your employer approves your request, they legally must pay the portion of your vacation pay that applies to the time you take. For example, if you decide to use five out of your 10 vacation days during your first year of employment, your employers must pay 2% of your total yearly earnings.

What happens to unused paid vacation time?

Employers have different policies for unused paid vacation. While some allow rollover to the next annual vacation, others don't allow you to take unused paid vacation time. Contact a human resources professional to confirm the policy for unused paid vacation time at your company.


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