The Ontario government reported that vacation pay/vacation time was one of the top employment standards violations in 2021-2022. This poses a significant risk for employers. 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 key issues when it comes to vacation:
- Time off
Vacation Time Off
Employees are entitled to a minimum amount of annual vacation, but they must earn that vacation time. Vacation entitlements differ from one jurisdiction to another, but they all provide that employees are entitled to a minimum amount of vacation after they have been employed for a minimum period of time.
For example, in British Columbia employees are entitled to a minimum of 2 weeks vacation after 12 consecutive months of employment. Vacation entitlement often increases after additional years of employment. In B.C., employees are entitled to a minimum of 3 weeks vacation after 5 consecutive years of employment.
This seems straight-forward, but there are important considerations when determining an employee’s entitlement to vacation:
1. What happens if an employee has been on a leave of absence?
Generally, the period of time that an employee is on a leave of absence will still count toward determining the employee’s vacation entitlement. The legislation in each jurisdiction deals with this differently. In some jurisdictions, the parts of the legislation dealing with vacation deal with this.
For example, in Alberta, the provisions dealing with vacation entitlement specifically state that when determining years of employment for vacation purposes, an employer must include any period of time when the employee was on a leave of absence.
Other jurisdictions deal with this in their leave of absence provisions. Many jurisdictions will include provisions stating that an employee is considered to be continuously employed when they are on a leave of absence (this may apply to all leaves or just some – it is important to check the legislation), and others will specifically state that the time an employee is on a leave of absence counts toward their vacation entitlement. For more on leaves of absence see our post: Guide to Leaves of Absence in Canada.
2. What does “consecutive employment” or “continuous employment” mean?
Many jurisdictions require an employee to be continuously employed for a period of time or for the employee to have a certain period of consecutive employment. What happens if an employee’s employment is interrupted? Some jurisdictions deal with this. For example, in Alberta a break in employment of less than 90 days is counted as continuous employment.
In jurisdictions that do not specifically deal with this, you need to consider any interruption in an employee’s employment and then look to the legislation to determine if that interruption is addressed in the legislation. If the interruption is a leave of absence, you need to determine if the legislation requires the employee to be treated as continuously employed while on the leave of absence.
3. What happens if an employer uses a calendar year for vacation, rather than basing it on each employees’ start date?
Most jurisdictions provide that an employer can set a recurring vacation period for all employees, such as a calendar year, In that case, employees are entitled to pro-rated vacation prior to completing the first full period of entitlement. Some jurisdictions have specific rules for determining eligibility and entitlement in those situations, so be sure to look at the legislation.
Vacation time and vacation pay are treated separately. Generally, the minimum amount of vacation pay that an employee must be paid is a percentage of the employee’s wages. The percentage may increase the longer the employee is employed. For example, in Ontario employees are entitled to 4% vacation pay if they have been employed less than 5 years and 6% vacation pay if they have been employed five years or more.
While this also seems straight-forward, you need to think about two things.
1. What is included in “wages” so that you are including all required amounts when calculating vacation pay?
Pay close attention to what is included in wages. “Wages” is a defined term in employment standards legislation, so start by making sure you understand the definition. Think about whether you need to include bonuses, time in lieu of overtime, commissions, the value of board and/or lodging or other non-monetary compensation etc.
Start with the definition of “wages” – just remember, it isn’t the same in every jurisdiction. Then determine if the vacation pay requirement modifies this. For example, in Manitoba, the vacation pay requirement specifically deals with an employee who receives board and lodging.
2. When to pay vacation pay?
The rules regarding when vacation pay must be paid also vary. Generally, it must be paid within a certain period of time before the employee’s vacation begins, but that ranges from 1 day before vacation to at least 14 days before vacation. There may also be requirements to provide vacation pay in a lump sum in some circumstances. Be sure to read these rules carefully to make sure you are both calculating and paying vacation pay correctly.
Vacation Scheduling and Timing
There are also specific rules regarding how and when vacation is to be taken. There are three main considerations.
1. Who determines when an employee can take their vacation?
Vacations can generally be scheduled by the employer, but in this case the employer must provide notice to the employee. The amount of notice ranges from 1 week to 4 weeks, depending on the jurisdiction. Some jurisdictions also require the employer and employee to first try to agree on when vacation will be taken.
2. Is there a deadline for taking vacation?
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).
3. Are there any rules about how vacation time must be taken?
Vacation must usually be taken in at least one unbroken period of time, but in some jurisdictions (not all), employees can request that their vacation be taken in shorter periods. Where this is permitted, employees usually need to make the request in writing.
How Compliance Works Helps HR Professionals
Understanding your employment law obligations means looking at a number of different sections of employment standards laws, including both the Acts and Regulations. It can be hard to know where to look, or to feel confident that you looked at everything.
Compliance Works makes it easy to identify all of your requirements by pulling together all of the related requirements from Acts and Regulations in an easy-to-read plain language summary that is always up to date, providing you with confidence that you have it all covered.