Not sure how much vacation pay to give your employees? Use our free provincial calculators below to get the right number in seconds, then read on for the rules behind the math.
If you are a Canadian business owner and plan to do payroll, learn paid vacation rules. You also need to calculate vacation pay for employees in your province or territory. While rules vary by state, employers must give employees a set amount of vacation leave each year. This helps meet employment standards. This is an important aspect of managing payroll and one that could get you in serious trouble if not done correctly.
Let's use our vacation pay calculator and apply it to some examples of employee entitlement and vacation pay.
Base Level Vacation Pay
How is BC vacation pay calculated?
Take a BC-based business owner whose employee has completed a full 12 months of work and earned $40,000 in eligible earnings:
- they are entitled to 2 weeks of vacation time, and
- their vacation pay, calculated at 4% (2 weeks x 2% = 4%), would be $1600 ($40,000 x 4% = $1600)
How is Saskatchewan vacation pay calculated?
The Saskatchewan Employment Act governs vacation entitlements in that province. If you're a business owner in Saskatchewan:
- That same employee earns 3 weeks of vacation time at their anniversary date.
- You would calculate vacation pay at 3/52 (5.77%) of their eligible earnings for each vacation week, and
- their vacation pay would be $2308 ($40,000 x 5.77% = $769.23 x 3 weeks = $2308)
How is Alberta vacation pay calculated?
In Alberta, the Employment Standards Code regulates vacation pay as a mandatory benefit.
For Alberta employees with less than five years of employment
- Vacation Time: Minimum of 2 weeks of vacation per year.
- Vacation Pay: 4% of the employee's total wages earned in the year.
- Their vacation pay, calculated at 4% (2 weeks x 2% = 4%), would be $1600 ($40,000 x 4% = $1600)
How is Manitoba vacation pay calculated?
In Manitoba, the Employment Standards Code regulates vacation pay as a mandatory benefit.
For Manitoba employees with less than five years of employment
- Vacation Time: Minimum of 2 weeks of vacation per year.
- Vacation Pay: 4% of the employee's total wages earned in the year.
- Their vacation pay, calculated at 4% (2 weeks x 2% = 4%), would be $1600 ($40,000 x 4% = $1600)
How is Ontario vacation pay calculated?
For Ontario employees with less than five years of employment
- Vacation Time: Minimum of 2 weeks of vacation per year.
- Vacation Pay: 4% of the employee's total wages earned in the year.
- Their vacation pay, calculated at 4% (2 weeks x 2% = 4%), would be $1600 ($40,000 x 4% = $1600)
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Vacation Pay for Extended Service
BC extended service
In most workplaces, employees earn more vacation days after a set number of years. In most provinces, vacation entitlements increase after a set number of service years.
Most provinces increase vacation entitlements after a set number of years of service. BC, Alberta, Manitoba, and Ontario set this threshold at five years. Saskatchewan requires ten years of continuous employment before the higher entitlement kicks in.
In British Columbia, annual vacation leave rises from 2 weeks to 3 weeks after five years. Employers then calculate vacation pay at 6% each year, not 4%. This is because 3 weeks times 2% equals 6%.
Saskatchewan extended service
In Saskatchewan, vacation entitlements after ten years of continuous employment are as follows:
- Employees are entitled to four weeks of vacation time each year.
- Vacation pay is calculated at 8% of the employee's gross wages for the year.
- Their vacation pay, calculated at 8% (4 weeks x 2% = 8%), would be $3200 ($40,000 x 8% = $3200)
Alberta extended service
In Alberta, employees with five years or more of employment:
- Vacation Pay: 6% of the employee's total wages earned in the year.
- Vacation Time: Minimum of 3 weeks of vacation per year.
- Their vacation pay, calculated at 6% (3 weeks x 2% = 6%), would be $2400 ($40,000 x 6% = $2400)
Manitoba extended service
In Manitoba, employees with five years or more of employment:
- Vacation Pay: 6% of the employee's total wages earned in the year.
- Vacation Time: Minimum of 3 weeks of vacation per year.
- Their vacation pay, calculated at 6% (3 weeks x 2% = 6%), would be $2400 ($40,000 x 6% = $2400)
Ontario extended service
In Ontario, employees with five years or more of employment:
- Vacation Pay: 6% of the employee's total wages earned in the year.
- Vacation Time: Minimum of 3 weeks of vacation per year.
- Their vacation pay, calculated at 6% (3 weeks x 2% = 6%), would be $2400 ($40,000 x 6% = $2400)
Paying Vacation Pay Each Pay Period
There are two main ways an employer can pay vacation pay. The employer can pay it each pay period. Or the employer can pay it as a lump sum when the employee takes time off. Paying it out each pay period works well for part-time, hourly, or seasonal workers whose hours vary. Accruing and paying as a lump sum works better for full-time salaried employees.
Paying what you owe each pay period is the most convenient approach. This is especially true for hourly, part-time, seasonal, or casual workers. It also helps when hours vary from week to week.
When you pay out what employees earn each time they get paid, you eliminate the need to track and accrue fluctuating amounts. Including these amounts on every paycheck means employees get no extra vacation pay during time off. You will not need to track and match time off with their entitlement. The calculation is straightforward to manage every pay period, and it puts the responsibility in the employee's hands when it's time to fund their time away from work.
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Let's talkAccruing Annual Vacation Pay
If you have full-time, salaried employees, you may find accruing vacation pay on an earnings or time basis makes more sense than paying it out every pay period.
How to accrue based on earnings
You can accrue an employee's vacation pay based on their eligible earnings by tracking:
- their accrued vacation pay at the beginning of each year,
- the vacation pay they earn as the year progresses, and
- the vacation pay is paid out to them each time they take vacation leave
How to accrue based on hours
You can also accrue vacation entitlement based on the employee's vacation pay hours each pay period.
For example, an employee who works 40 hours a week and earns 2 weeks of vacation annually (2 x 40 = 80 hours) accumulates 84.5 vacation hours by year's end when you accrue 3.25 hours each bi-weekly pay period (3.25 x 26 = 84.5 hours).
- the vacation hours that the employee earns each pay period,
- the rolling balance of vacation time they’re entitled to take, and
- the amount of paid time they actually take
You should also note that you can carry over an employee's vacation entitlements to the following year. Not every company allows vacation carryovers, but employers must pay any unused vacation when an employee leaves.
Use-it-or-lose-it clauses appear in some businesses. They are written into employment contracts. These clauses explain employee vacation entitlements. But those contracts must meet all the minimum standards in your jurisdiction’s Employment Standards Act.
About Enkel
Vacation pay regulations can be complex, especially if you're managing payroll for the first time. Managing these calculations can take time. Learn when it makes sense to hire a professional in our guide to hiring a bookkeeper.
At Enkel, our back-office team makes payroll easy. We ensure your employees are paid accurately and on time. We do it without the hassle. Whether you're located in Vancouver, Edmonton, Mississauga, or Toronto, we can help! Contact us today for more information.
Here's the FAQ ready to copy and paste:
Frequently Asked Questions (FAQ)
Here are answers to the most common questions Canadian employers have about calculating and paying vacation pay.
How is vacation pay calculated in Canada?
This entitlement is calculated as a percentage of an employee's eligible wages earned during their 12-month vacation entitlement year. In most provinces, the minimum is 4% for employees with less than five years of service, which equals two weeks of paid vacation. The exact percentage varies by province and years of employment.
Can an employer pay vacation pay each pay period instead of when vacation is taken?
Yes. An employer can pay vacation entitlements as a percentage added to each paycheque rather than accruing and paying it as a lump sum when the employee takes time off. This approach works well for part-time, hourly, or seasonal workers whose hours vary from week to week.
What happens to vacation time earned if an employee is terminated?
When an employee leaves your organization, you must pay out any vacation time they earned but have not yet taken as part of their termination pay. This applies whether the employee resigned or was let go. You calculate the amount owed based on accrued vacation at termination.
What is a 12-month vacation entitlement year?
A 12-month vacation entitlement year is the period employers use to calculate how much vacation time and pay an employee has earned. It typically runs from the employee's hire anniversary date to the next one, though some employers use a fixed calendar year instead — provided it meets the minimum employment standards in their province.
Does vacation pay change after long-term employment?
Yes. Most provinces increase vacation entitlements after a set number of years of continuous employment. BC, Alberta, Manitoba, and Ontario employees receive three weeks of vacation and 6% after five years of service. Saskatchewan sets the threshold at ten years, at which point employees receive four weeks and 8%.
Is vacation pay included in termination pay in Canada?
Yes. When an employee leaves your organization, employers must include all outstanding vacation pay in the final termination pay. This covers any vacation time earned but not yet taken during the current entitlement year, as well as any carried-over balances depending on your company's vacation policy and the employment standards in your province.
What is the difference between accruing and paying out vacation pay each period?
When you accrue vacation pay, you track the amount owing and pay it out as a lump sum when the employee takes their vacation. When you pay it out each pay period, you add the percentage directly to every paycheque. Canadian employment standards allow both options. Accruing works best for salaried full-time employees. Paying each period suits workers with variable hours.
