Updated for 2021:Understanding vacationable earnings legislation
Apr 05, 2021Resources
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Vacationable earnings are an important and complex portion of any organization’s payroll, regardless of the size of its workforce. An employee’s vacation entitlement is accrued throughout the vacation year, but not all of the employee’s earnings within that same period are considered vacationable earnings. In Canada, vacationable earnings also differ between provinces and territories; that means what may be a vacationable earning in one jurisdiction is not necessarily considered one in another region
Navigating vacationable earnings legislation is intricate, so we’ve consolidated everything you need to know about vacationable earnings – including a unified chart that shows the various types of vacationable earnings by province/territory.
First things first – here’s the terminology you need to know
Vacation pay is the remuneration an organization owes an employee because of their legislative right to vacation. The amount owed is calculated based on a percentage of the employee’s wage that correlates to the worker’s vacation entitlement.
For example, if an employee is entitled to three weeks of vacation, they would accrue 6% of their wages for their vacation pay.
It’s important for employers to note that an employee’s vacation pay can be accrued or paid out per pay period. In the event vacation pay is accrued and paid out at a later date (when the employee takes vacation), it’s the responsibility of the employer to ensure it meets the current employment standards minimums for their jurisdiction.
Vacation entitlement is a term that refers to the number of weeks employees are entitled to receive for vacation in a given 12-month period.
For example, in Manitoba employees must receive at least two weeks of vacation at 4% of their wages after one year of employment.
Legislation regarding vacation pay and vacation entitlement differ between provinces and territories. Employers should always refer to their respective employment standards legislation for the most up-to-date information for their workforce. To consult a consolidated resource for this info, visit https://www.payworks.ca/payroll-legislation/VacationPay.asp.
Vacationable Earnings refers to the specific type of earnings by which an employee is compensated, upon which vacation pay is calculated.
For example, all employees earn a percentage of their regular salary for their vacation pay. But not all employees in Canada earn a percentage of their overtime earnings towards their vacation pay.
Here’s why vacation pay is important to understanding vacationable earnings
All employees in Canada earn vacation pay alongside their wages, starting on their first day of work. Employees can view their current accrual and year-to-date under “Benefits and Accruals” on their pay statement. But how do employers determine what this vacation pay should be? In short, it’s determined based on a percentage of an employee’s earnings which calculates to amount to their overall vacation entitlement for a 12-month period. Vacationable earnings directly affect an employee’s vacation pay.
Do you know what earnings are used to determine those entitlements? When paying employees bonuses, allowances, commissions, director’s fees, taxable benefits, or termination payments, have those been taken into account for your employee’s vacation entitlement – and should they be?
Here’s where you can download a vacationable earnings chart
There are more than 30 different types of earnings to consider when calculating vacationable earnings, and whether or not those values are included differs between provinces and territories.
Payworks has a handy chart that outlines the various types of vacationable earnings in Canada, and which province/territory they’re applicable in.
Find it in the Payworks Payroll Guide: info.payworks.ca/en-ca/payroll-guide-for-canadian-business.