It’s No Picnic to Deal With Canada’s Vacation Pay Laws


Vacation pay laws vary among Canada’s 10 provinces and three territories despite some commonalities, and payroll professionals overseeing operations in the country must recognize differences among the provinces to maximize compliance, a payroll association principal said May 18.

“Vacationable earnings” is the term used in Canada to denote the amount of an employee’s compensation over a 12-month period used for calculating the vacation pay due to that employee when the employee is on vacation, said Steven Van Alstine, vice president of education at the Canadian Payroll Association.

Each province and territory has specified the percentage or fraction of vacationable earnings due to an employee as vacation pay and changes to the applicable percentage or fraction based on length of service, Van Alstine said at the annual American Payroll Association Congress in Orlando, Fla. The types of payments recognized as vacationable earnings vary among the provinces and territories, he said.

All 13 jurisdictions, except the province of Saskatchewan, specify that employees are entitled to 4 percent of their vacationable earnings when they are on vacation, although the percentage may be higher based on length of service, according to the Canadian Payroll Association’s report, Canadian Payroll: A Comprehensive Overview, available in Bloomberg BNA’s International Payroll Decision Support Network. Among the 12 jurisdictions other than Saskatchewan, all except the province of Ontario and the Yukon territory entitle employees to 6 percent of vacationable earnings as vacation pay after a threshold length of service is completed, which ranges from five years to 15 years among these jurisdictions.

In Saskatchewan, employees generally are entitled to 3/52 of their vacationable earnings as vacation pay, and after 10 years of service are entitled to 4/52 of their vacationable earnings as vacation pay.

Regular wages and salaries, including call-in pay, shift premiums, retroactive pay and commissions paid to a route salesperson or on the employer’s premises are counted as vacationable earnings in all 13 jurisdictions, as are work-related bonuses tied to hours of work, production or efficiency, although other types of pay are not counted as vacationable earnings by each jurisdiction. For example, overtime pay is counted as vacationable earnings in all the jurisdictions except the provinces of Alberta and Manitoba and sick pay is counted as vacationable earnings only in the provinces of British Columbia, New Brunswick, Nova Scotia, Prince Edward Island, Québec and Saskatchewan, and the Yukon territory.

“It’s really important in your system when you’re setting up earnings codes that the system recognizes what is vacationable earnings and what is not so proper reconciliations can take place,” Van Alstine said.  

Each employer has the liberty to choose how it defines a 12-month period for recognizing accumulated vacationable earnings upon which vacation pay is based, Van Alstine said. Among the choices for defining the applicable 12-month period are a calendar year, a 12-month period that starts on an employee’s anniversary date or a 12-month period that starts relative to a vacation period specific to the employer, he said.

The applicable 12-month period an employer chooses must be consistently applied to all of its employees, Van Alstine said.

“It’s better, from a best-practices perspective, to bring new employees in line with a calendar year, as that’s the most common way vacationable earnings are treated in Canada,” Van Alstine said. “It’s easier to keep track of vacationable earnings accumulations when all the employees are accruing based on a calendar year.”

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