Vacation pay is calculated on an employee's wages for a year of employment or portion of a year which includes all, salary, commission, earned bonuses and any other monetary compensation for work or services for being at the disposal of an employer. Vacation pay also includes overtime, public holiday pay, previously paid vacation pay and pay instead of notice.
Most employees are entitled to vacation pay, no matter what hours they work or how they are paid.
There are two options for paying out annual vacation:
- Paying employees going on annual vacation; and
- Paying employees not taking annual vacation within 11 months of the vacation time entitlement.
In some circumstances, employers and employees will agree to have the vacation pay paid on each cheque – although not provided for under the Act, as long as there is a mutual agreement, an employer can pay vacation pay this way. It is important for the employer to maintain good records of the payment and ensure that it is separately identified on the employee’s pay stub. When paying vacation pay on each cheque, it must include all wages including overtime, commissions, etc. and the vacation pay earned during the pay period are used in the calculation.
Salary for pay period: $1,200.00
Commission for pay period: $300.00
Total wages: 1,200.00 + 300.00 = $1,500.00
Vacation pay on total wages: $1,500.00 x 3/52 = $86.54
Vacation pay on vacation pay: $86.54 x 3/52 = $5.00
Vacation pay on cheque: $86.54 + $5.00 = $91.54
In this example, vacation pay of $91.54 would be payable on the employee’s pay cheque. It is assumed that the employee will save vacation pay over the course of the year and use the money when going on vacation leave.
1. Paying Employees Going on Annual Vacation
The vacation pay calculation is designed to give employees their average wage while away on annual vacation. As a result, all wages including overtime, commissions, and bonuses are used in the calculation.
During the first nine years of employment, vacation pay can be calculated by multiplying the employee’s wages for the given 12-month period by 3/52 (approximately 6%). During year 10 and beyond, vacation pay can be calculated by multiplying the employee’s wages for the given 12-month period by 4/52 (approximately 8%). Vacation can be paid on either the employee’s normal payday or at the employee’s request before going on vacation leave.
For example, an employee is entitled to three weeks of vacation. The 12-month calculation period is May 1 to April 30. The following August, the employee takes three weeks vacation leave. The calculation is:
Salary (May to April): $12,000.00
Total Wages: 12,000.00 + 3,000.00 = $15,000.00
Vacation pay on total wages: $15,000.00 x 3/52 = $865.38
In this example, vacation pay of $865.38 would be payable for the August vacation, either on the employee’s normal pay day, or at the employee’s request before going on vacation leave.
2. Paying Employees Not Taking Annual Vacation Within 11 Months of the Vacation Time Entitlement
When an employee does not take vacation, vacation pay is payable within 11 months of the day they became entitled to vacation. Vacation pay can be calculated the same way as above and paid on either the employee’s normal payday or at the employee’s request.