What is vacation pay?

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While vacation pay is something that every employer will encounter, it is not as straightforward as many Canadians think. This is because each province has different rules and regulations when it comes to the amount of vacation pay and amount of time off each person is entitled to. So to save you some time googling “What is vacation pay,” we asked Knit People’s Senior Accounting Associate Guriqbal ‘Guri’ Singh to help us create a handy guide. However, please note that this guide refers to employers governed by provincial employment laws and not federal.

How much vacation pay/time are employees entitled to?

Let’s start with the basics. Every province and territory in Canada entitles an employee to vacation time after 12 consecutive months of employment. However, the amount of vacation time that an employer must grant their employee varies between the provinces and territories. This amount refers to the minimum amount prescribed under the employment standards legislation in each province or territory, yet companies can grant more vacation time if they wish. For example, an employee in Ontario is guaranteed to a minimum of two weeks of paid vacation time, but their employer can grant them three weeks if they choose to.

In terms of vacation pay, most provinces calculate vacation pay from the first day an employee begins working, to the day they leave the company. The exception to this rule is British Columbia and Newfoundland & Labrador, where vacation pay doesn’t start until the fifth day. From this time, employers calculate 4% (except in Saskatchewan where it is 6%) of each paycheque towards vacation pay, unless of course, they wish to give the employees more. It is also important to note that vacation pay is calculated from an employee’s earnings, therefore salaried workers are not paid vacation pay differently than hourly workers.

In most provinces, the amount of vacation pay also increases after an employee has been working for a certain amount of time. The differences between the vacation pay rates and annual vacation entitlements in each province and territory can be found in our Vacation Pay Rates & Annual Employee Vacation Entitlements table.

When can employees take vacation?

While employees are entitled to a minimum amount of vacation time, employers have the final say on when an employee can take that vacation. This is because an employer has the right to manage his or her business in the manner they deem best, and that includes setting the hours of operation and assigning vacation time. This means that while employees can request their preferred vacation time, ultimately it's the employer's decision if the employee can take vacation at that time unless there is a workplace policy stating otherwise. Of course, most workplaces will allow employees to choose their vacation days given adequate notice.

Because it is up to an employer when an employee takes his or her vacation, the employer can decide to shut down for a certain period of time (ie. a week in the summer or during Christmas) and require employees to take their vacation during that time. In these cases, it is important that employers give employees as much time as possible to make vacation arrangements.

Even if an employer has no restrictions on when an employee can take vacation time, it is important to note that some provinces have requirements on how vacation time is divided up. For instance, employees may only be able to take vacation in a two-week chunk or they may only be allowed to take it in one-day increments. In the case that an employee’s vacation overlaps with a statutory holiday, they are entitled to an extra day of vacation.

For more information about vacation pay and how to properly calculate deductions, visit the CRA’s guide to vacation pay and public holidays.

And for more guidance about common income types you may have to process in your business, visit our Ask An Accountant page that deals with overtime pay.