Understanding Vacation Pay and Vacation Time in Canada

Dorothy Chong | February 20, 2018

Learn about the benefits and how the payouts differ in each province and territory

Ontarians had a great cause for celebration on January 1, 2018. The minimum wage for the central province jumped from $11.40 to $14, an increase of almost 20%. Alberta, Quebec and Prince Edward Island are expected to do the same by the end of 2018. The minimum wage is more than just the hourly rate of employment, nor is it the only factor in deciding employment. In Canada, perks like vacation pay and vacation time are intricately linked to one’s wage. Not sure what’s involved? Read on and find out.  

What is vacation pay?

It is important not to confuse vacation pay for statutory holiday pay. Vacation pay is defined as “a percentage of wages of an employee during the year of employment in respect of which the employee is entitled to the vacation”. Statutory holiday pay refers to the pay rules and rates applicable to an employee when they work on specific holidays. Vacation time or annual leave, on the other hand, is typically accrued after the first year of employment.⍆ Vacation pay is earned the moment employment begins. Not sure what’s applicable? Here’s the summary of the current provincial vacation pay and annual leave entitlements. 

When do employees receive their vacation pay?

An employee will typically receive vacation pay within 14 days prior to the commencement of a vacation. It is ultimately an agreement between the employee and the employer. Upon termination of employment, the employer must pay any vacation pay owed for the partially or completed year of employment.  

How do employers issue the vacation pay?

Employers can opt to pay the lump sum once the employee has completed the entitlement year, prior to the employee taking a vacation, or add the applicable amount of earnings to every paycheque. It’s ultimately between the employer and employee.  

The accrual of vacation time or annual leave

Since it is illegal to give the “use it or lose it” ultimatum to employees, many employers face the other extreme by allowing their employees to accrue vacation time to a point where employers are not able to fulfill their end of the bargain. To prevent this, have a clear cap on vacation time accrual. And plan the workload in advance to allow your employees the time off they deserve.  

Why it matters

The employment standards are put in place to ensure employees can work in fair and productive environments. Neither employer or employee can waive or give up the rights under the ESA. But both employers and employees have the opportunity to improve the workplace by creating a winning culture through open dialogue and cooperation, which will significantly impact all aspects of the business for everyone involved.  

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This does not mean employees do not get any leave during the first year of employment. Instead of being allocated whatever their leave entitlement is at the start of a new year, new employees will earn as they go instead.*The calculation uses the total wages of an employee and not just the base salary. So this may include base pay, commissions, non-discretionary bonuses, overtime pay, holiday pay, termination pay, allowances, etc. which will include all salary, overtime, annual holiday pay, public holiday pay, commision and bonus. Employers often make the mistake of not paying vacation pay when they issue bonuses and this creates a risk of liability.Disclaimer: TSheets does not provide human resources, tax, legal or accounting advice. This material has been prepared for informational purposes only and was accurate at the time of publication. It is not intended to provide, and should not be relied on as, legal advice. Please consult your own advisors before engaging in any transaction.
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