What is vacation pay?

Vacation pay is a fundamental part of employment standards in Canada, designed to ensure that employees are fairly compensated for their time away from work. More specifically, it’s a statutory benefit provided to employees, ensuring they receive compensation during periods of entitled vacation leave.

Under federal and most provincial/territorial employment standards, employees typically earn a minimum of 4% of their gross wages as vacation pay, which increases with longer service in some provinces (such as 6% after five years). Employers can either pay this amount when employees take their vacation or include it in each paycheque, depending on company policy and local regulations.

Eligibility for vacation pay

Most employees in Canada become eligible for paid vacation pay after completing a specific period of employment, typically one year. Eligibility requirements can vary depending on the employer, industry or terms outlined in a collective agreement or employment contract.

Annual vacation pay is typically granted after the first year of employment; however, some employers may offer previously paid vacation pay or additional vacation entitlement based on years of service or company policy. It’s important for employees to review their employment contract or collective agreement to understand their specific vacation entitlements and ensure they receive the paid vacation they have earned.

Vacation pay entitlements by province or territory

Vacation pay is usually a percentage of the gross wage. The vacation entitlements listed below represent the minimum vacation time required by law in each province or territory. Employers must provide at least the minimum required vacation pay and time as set out by provincial regulations. Below is a breakdown of provincial vacation entitlement in Canada:

Alberta, British Columbia and Manitoba

For these provinces, employees receive two weeks of vacation pay after their first year of employment. After five years of employment, employees are entitled to three weeks’ vacation. Vacation pay accrues based on the number of weeks of vacation the employee is entitled to, with a rate of 4% for the first five years and 6% thereafter.

Northwest Territories and Nunavut

For these regions, employees are entitled to two weeks of annual vacation during the first six years of employment and three weeks of annual vacation after six years of employment. Vacation pay for these two provinces is the same as that of Alberta, British Columbia, and Manitoba. The employee receives 4% of the vacation pay for the first five years of employment and earns an additional 2% after five years of service.

Ontario and Quebec

Workers in these areas earn 4% vacation pay for the first five years on the job and a 2% increase after five years of employment. In Ontario, employees are entitled to two weeks’ vacation after their first year of employment. In Quebec, employees receive two weeks of paid vacation for the first five years and three weeks after five years of employment.

New Brunswick and Nova Scotia

Employees in these regions earn 4% vacation pay for their first eight years of employment. The amount increases to 6% after that. The law mandates that employers should guarantee two weeks of vacation time for the first eight years.

Alternatively, the employer can give the employee a day for every month the employee works during the first eight years of employment. The employee also receives three weeks of annual vacation after working for eight years, equivalent to 1¼ days of vacation for every month worked after eight years.

Prince Edward Island

Employees in this region receive 4% of their vacation pay for the first eight years of employment and 6% thereafter. They also get two weeks of annual vacation for the first eight years and three weeks after the eight years have elapsed.

Yukon

Yukon employees are entitled to two weeks of paid vacation after their first year of employment, at a rate of 4% of their regular wages. Vacation entitlement in Yukon is based on continuous employment with the same employer, including periods of approved leave such as maternity leave.

Newfoundland & Labrador

Employees in Newfoundland and Labrador are entitled to 4% of their vacation pay for the first eight years and 6% thereafter. The employee’s length of service determines when vacation entitlement increases, with longer service resulting in greater benefits. They also take two weeks of annual vacation for the first 15 years and three weeks afterward.

Saskatchewan

In Saskatchewan, employees receive three weeks of vacation time for the first nine years of employment and four weeks thereafter. The entitlement to increased vacation time applies to employees with continuous service with the same employer. They also earn 6% pay for the first nine years and 8% thereafter.

How to calculate vacation pay for employees

Calculating vacation pay involves determining the correct amount based on the employee’s gross earnings, which include overtime, sick pay and other components. When calculating vacation pay, employers must also include all hours worked. In some cases, they may use the average number of days or hours worked to determine the employee’s vacation entitlement.

Here is how you can calculate vacation pay for salaried employees:

• Calculate the employees’ wage rate by dividing their yearly salary by the number of hours they worked in the employment year.
• Calculate the employees’ vacation time by adding their days off and multiplying the figure by the number of hours in their usual workdays.
• Multiply the employees’ hourly wage by the number of hours they get for vacation.

Special circumstances affecting vacation pay

If a public holiday falls during an employee’s vacation, special rules may apply for pay and time off. The employer determines the method of payment, and vacation pay may be paid as a lump sum or as part of regular payroll, depending on whether the employer pays it out directly or includes it in each pay period.

Vacation pay calculations may differ if the employee is on medical leave or has taken general holidays, and holiday pay and overtime pay may be included or excluded depending on the jurisdiction. A written agreement may be required for specific vacation arrangements, such as substituting vacation time or adjusting pay periods. Other gratuities, such as tips, are generally excluded from vacation pay calculations. In multi-employer arrangements, such as with another employer, vacation pay calculations may follow different rules.

When to pay vacation pay

Employers are required to pay vacation pay to employees at specific times, as outlined in the employment contract, collective agreement or company policy. Vacation pay is often paid out either in a lump sum before the vacation period begins or included in the employee’s regular pay cheque during each pay period.

The amount is calculated based on the employee’s gross wages earned during the year of employment and the number of weeks of vacation to which the employee is entitled. Employers are required to verify that vacation pay is calculated accurately and paid on time, whether it’s before the vacation period or as part of regular payroll, to comply with employment standards and keep employees informed about their vacation pay.

Requesting statements of vacation records

Employees have the right to request statements of their vacation records at any time. These statements should include details about vacation time employees have taken, vacation pay earned and any remaining balances for the current year of employment. Employers are obligated to provide this information promptly, helping employees keep track of their vacation entitlements and plan their next vacation with confidence. By regularly reviewing vacation records, both employees and employers can ensure that vacation pay and time off are managed accurately and following employment standards.

What happens to vacation pay when employment ends

When employment terminates, whether an employee quits or is let go, employers must pay out any vacation pay that is still owed. This includes any accrued but unused vacation time, as well as any vacation pay calculated up to the end of the employment period. Termination pay must include all outstanding vacation pay, and employers are required to provide this payment within a specified timeframe following the termination of employment. This process ensures that employees receive all the vacation pay they have earned during their employment, regardless of how or why their employment ends.

Why vacation pay matters

Vacation pay is a mandatory requirement in each province and territory, so it’s essential to provide your employees with at least the minimum number of days off. Vacation time also ensures that employees have time to rest and pursue their personal interests. Employees who use their vacation time often feel less stressed and return to work feeling motivated. Satisfied and motivated employees are more likely to stay with your company, potentially reducing turnover.