Key Takeaways
Everyone needs time off work — and when it's paid, it's even better. All Canadian employees (excluding student interns) at federally regulated workplaces receive a predetermined amount of vacation pay while using their vacation time off.
Here's what you should know about vacation pay rules across the country.
Vacation pay is a monetary benefit paid to employees while they are taking approved vacation time off from their jobs.
According to the Government of Canada Justice Laws Website, vacation pay is defined as the amount an employee is entitled to under section 184.01 of the Canada Labour Code.
The Canada Labour Code explains that during years 1 through 4, hourly employees are entitled to 4% of their wages in the form of vacation pay.
For those who have completed at least 5 consecutive years of employment, the amount increases to 6%. And, employees with at least 10 consecutive years of employment with the same employer earn 8% of their wages in the form of vacation pay.
Salaried employees are paid their regular salaried wages while on vacation.
When calculating wages, do not include tips, reimbursement for work expenses, severance pay, and compensation while the employee is serving in the Reserve Force or attending Canadian Armed Forces military training.
Employers offer vacation pay to their employees because it's the law. They must allow an employee to take vacation time off, with vacation pay, no later than 10 months following the completion of their first year of employment.
It's also an enticing benefit to those who relocate to Canada from an area that only allows for vacation time off, but doesn't offer vacation pay during the time off.
According to federal guidelines, Canadian employees in the private and public sectors are eligible to receive vacation pay after working their first full year of employment with a company.
This means they have been employed at the same company for 12 consecutive months since their date of hire. For example, if they were hired on June 10 last year, one year would be completed on June 10 this year. This time period is known as their vacation entitlement year, or the 12 months when they earn their vacation time.
In years 1 through 4, this employee is entitled to 4% of their salary in vacation pay per entitlement year. So, let's say they are a full-time hourly employee working 40 hours per week at the rate of $20 per hour on a contract for 50 weeks per year. This equates to 40 hours x $20 x 50 weeks = $40,000 annual pay. Four percent of that is $1,600 for vacation pay.
Vacation pay can be paid out to employees in three ways. These include:
While the employee is on vacation, they are still employed by their employer and able to accumulate benefits — including earning more vacation time to use in the future.
Yes, vacation pay is required by law in Canada. Thus far, we've discussed how much the payments are and how they are distributed. But what about an employee who is terminated or quits their job? What happens to their vacation pay?
By law, the employer must pay out any owed vacation pay to the employee within 30 days of their employment ending. This payment includes prorated vacation pay for partial years of employment completed.
As you build out your benefits — including a vacation policy — for your employees, it's best to consult with a legal advisor and your human resources administrator to ensure you're following all current federal and provincial guidelines.
You can also browse the list of provincial and territorial employment standards published by the Government of Canada to learn more about vacation pay regulations in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan, and the Yukon.
If you're new to the rules of vacation pay, consider using QuickBooks Online Payroll to quickly and easily calculate vacation pay for you.
There are two options: employers can either pay out vacation pay as part of the employee's gross pay each pay period, or let it accrue and pay it later in a lump sum payout.
Making sure that your vacation payments are accurate and follow provincial laws shouldn't be hard. Ensure accuracy and peace of mind by letting QuickBooks take on the calculations for you. Learn more about QuickBooks Payroll today.
Money movement services are provided by Intuit Canada Payments Inc.
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