There are a number of common misconceptions regarding vacation pay and vacation time, and these pose a significant risk for employers. The Ontario government reported that vacation pay/vacation time was one of the top employment standards violations in 2024-2025. Employment standards legislation imposes fines and penalties on employers for breach of these requirements, directors and officers may be personally liable for outstanding vacation payments, and where there have been widespread errors in managing vacation an employer may be subject to a class action lawsuit.
There are three main components to vacation entitlements under employment standards legislation – vacation time, vacation pay and scheduling/timing of vacation. For more information about the specific requirements, see our post Vacation – 3 Rules for Compliance. When it comes to applying these requirements, there are some common missteps that can put employers offside the legislation.
1. Treating part-time employees differently from full-time employees
A common misconception is that part-time employees are not entitled to vacation time off, only to vacation pay. Employment standards legislation does not make a distinction between part-time and full-time employees. The minimum standards that apply in employment standards legislation across Canada apply to “employees” as that term is defined in the legislation. The definition of employee varies slightly from one jurisdiction to another but in all jurisdictions the definition of an employee includes both part-time and full-time employees. As an example, in Ontario, an “employee” includes:
- anyone who performs work or supplies services for wages
- some trainees – if the skill in which they are being trained is a skill used by the employer’s employees
- homeworkers – who perform work at their homes but not including an independent contractor.
Employment standards legislation generally provides that an employer must give an employee a vacation and must pay an employee vacation pay (note that some industries and occupations are excluded from these requirements, but in no case is there an exemption for part-time employees). This means that both part-time and full-time employees are entitled to both vacation time and vacation pay.
2. Only paying vacation pay on base salary
Another common misconception is that vacation pay is calculated on base salary. Typically, vacation pay is a percentage of “wages”. To understand how vacation pay must be calculated, you must look at the specific definition of “wages” in the Act.
Typically, wages are defined rather broadly. They are usually defined as including any monetary payment that an employer must pay to an employee under an employment agreement (written, oral, express or implied) and payments that an employer must make under the Act. Wages may also include amounts that must be paid in respect of room and board and some types of bonuses. In some jurisdictions specific payments are excluded from the definition of wages, such as tips and gratuities and bonuses that are completely discretionary.
If you are calculating vacation pay on base salary and not looking at the specific amounts that must be included in wages in each jurisdiction, you are likely underpaying your employees’ vacation pay entitlement. Over time, and over your entire workforce, this could add up to a significant liability.
3. Having a “use it or lose it” policy
It is not uncommon for employers to have what is referred to as a “use it or lose it” vacation policy. This is a policy that provides that if an employee does not use their vacation time within a certain period of time, their vacation is forfeit.
Use it or lose it vacation policies contravene employment standards legislation. The obligation is on employers to ensure that their employees take the vacation time that they have accumulated in accordance with the Act.
Vacation must be taken within a certain period of time after the employee has accumulated the vacation time. This time period varies considerably across Canada. For example, in New Brunswick and Prince Edward Island vacation must be taken within 4 months after the end of the 12 month period in which it was earned while in Alberta, B.C., Quebec and Saskatchewan it can be taken up to 12 months after the end of the period in which it was earned. Other jurisdictions impose a 10 month limit.
It is important to be aware of these time limits and ensure that your employees are taking their vacation within the required time period, or where applicable, ensuring that the employee has properly deferred or forgone their vacation (this can be done in some jurisdictions, although approval from the Ministry is often required).
4. Providing the same vacation time off to every employee
Another misconception is that the standard minimum vacation entitlement is 2 weeks. In most jurisdictions the minimum vacation entitlement starts at 2 weeks, but there are exceptions. In Saskatchewan an employee is entitled to 3 weeks vacation after completion of 1 year of employment. And in New Brunswick an employee is entitled to annual vacation of either 1 day for each month worked or 2 weeks vacation per year, whichever is less, if employed for less than 8 years of continuous employment.
In all jurisdictions, the minimum vacation entitlement increases with length of service. It is important to know when an employee becomes entitled to increased vacation time.
5. Not paying accumulated vacation pay on termination of employment
Employers must pay employees their accumulated vacation pay on termination of employment. Every jurisdiction provides that this must be paid within a certain period of time. It is important to review the specific requirements in each jurisdiction where you have employees. The exact requirements and timeline for payment can vary.
For example, in Alberta, vacation pay must be paid within 10 consecutive days after the end of the pay period in which the termination occurs, or 31 consecutive days after the last day of employment (employer’s choice). But in BC, the time for payment depends on whether employment was terminated by the employer or by the employee. Vacation pay must be paid to the employee within 48 hours after the employer terminates the employment; or within 6 days after the employee terminates the employment.
On termination of employment, be sure to review the specific requirements that apply.
Key Takeaways
Vacation rules can be challenging to understand, and there are many misconceptions which create significant risk for employers. When it comes to understanding and correctly applying vacation requirements, employers must:
- Carefully review the requirements in each jurisdiction where you have employees.
- Review all relevant definitions in the legislation – in particular, make sure you understand the definitions of “employee” and “wages”.
- Review your vacation policy and ensure that you are not treating part-time employees different from full-time employees. All employees must receive the minimum standards provided by legislation.
- Be sure you understand the compensation for each employee that falls within the definition of “wages” and ensure that their vacation pay is being calculated based on all amounts that must be included.
- Review your vacation policies and ensure that you do not have a “use it or lose it” policy.
- Review your vacation entitlements and ensure that all employees are receiving the correct minimum amount of vacation based on their length of service.
- On termination of employment, be sure to check the rules regarding pay out of vacation pay. Remember that the rules differ by jurisdiction so do not assume that what you have done before in one province will be applicable to an employee in another province.
Understanding all of these requirements across provinces is challenging. Compliance Works makes this easy – our easy to understand summaries are written by senior lawyers and pull together all of the information that you need in one place. With jurisdiction comparisons you can quickly create a chart showing your obligations across the country, and with real time updates our subscribers are notified as soon as a change in the law is introduced.
