Vacation Pay and Vacation Time – They Aren’t One and the Same

The weather has finally turned in our favour and the air lingers with the scent of cut grass, the sound of birds chirping and finally leaves back on our trees. Sigh. If you’re anything like me, this change in seasons gets you thinking about a summer getaway to the lake or a road trip with the kids. Some planned time away from your business to enjoy the summer weather is in order.

But guess what? You’re not the only one thinking this. I bet it’s fair to say that the majority of your employees are also planning their summer getaway at the lake or the road trip with the kids. Maybe the summer season is a relatively quiet time in your business or perhaps it’s the craziest time of your business cycle. Every business is different. What is certain however is that your business needs continuity in the heyday of vacation planning. The upcoming season of vacation planning and subsequent vacation absences presents a smart opportunity to review some key components of vacation as it applies to your business.

It’s important to remember that per the Employment Standards Act, 2000, Vacation Time and Vacation Pay are not one and the same. Within the Act, employees earn a minimum of 2 weeks of vacation time for every complete 12month “vacation entitlement year”. Technically, since vacation time is only earned after completion of the 12month period, an employee isn’t entitled to vacation time during their first 12 months of employment. Whether or not an employee can take vacation time off during their first year of employment is discretionary. However, employees are entitled to receive a minimum of 4% of the gross wages they earn regardless of tenure.

Some things to consider when planning your vacation policy:

  1. Vacation pay is calculated on gross wages, including base pay, commissions, non-discretionary bonuses, overtime pay, holiday pay, termination pay, and allowances for room and board. It does not include tips and gratuities or discretionary bonuses and expenses.
  2. Employees are entitled to take 2 weeks off within ten months after their first 12 months of employment.
  3. Your business can’t have a “use it or lose it” vacation policy regarding statutorily required vacation. However, you can have a “use it or lose it” policy for any entitlement to vacation that you are providing beyond the statutory minimum.
  4. As the employer, you can chose when employees take vacation as long as it is reasonable and consistent with the Employment Standards Act, 2000. Employers often become frustrated because employees bank their vacation time and then either hope to be paid out their vacation pay in lieu of time off or plan an extended period of vacation time that can be difficult for the business. Remember that you have the option to elect when your employees schedule their vacation. However, try to accommodate your employees vacation requests as much as possible.
  5. Vacation minimums do not increase with years of service.
  6. When a public statutory holiday coincides with an employees scheduled vacation, the employees is entitled to another paid day off or pay in lieu of the holiday time off (if they agree in writing).
  7. During a leave of absence, vacation time and vacation pay continue to accrue.
  8. If there is a time of year when you really do need to have all hands on deck, put this into your vacation policy so that it’s clear and upfront for everyone.
  9. Try to schedule vacations as much in advance as possible so that you can cover absences as much as you can with the least amount of impact on your business.

Smart vacation policies can be a key component of your total compensation program as well as your attraction and retention strategy. A concise and well-executed vacation policy is one way to help ensure that you work towards meeting the needs of your business and the individual needs of your employees so that when you finally go on that road trip, you can have the vacation you deserve.

Don’t open yourself up to unnecessary risk. Caerus HR Consulting can work with you to be compliant with human resources related legislation and support your team. We’ll make sure you’ve thought through your various HR policies to ensure that you are not only compliant with legislation, but that your policies reflect your culture, goals and the needs of your team.

Caerus HR Consulting provides HR consulting services to small and medium-sized businesses. For more information on creating an HR strategy through organizational culture and leadership, contact Ramona Packham, Owner & HR Business Partner, at 613-220-9005 or at for more information. People Business for Business People.

Caerus HR Consulting Inc.

Ramona Packham CHRL, MBA