Vacation pay is the percentage of earnings an employer must pay employees for vacation time, set by provincial employment standards, commonly 4% or more of gross wages.
Provincial employment standards require employers to provide vacation pay, typically a minimum of 4% of gross earnings (equivalent to two weeks), rising to 6% after a set number of years of service in many provinces. It can be paid out as employees take vacation or accrued and paid on each cheque, depending on the arrangement and provincial rules.
Vacation pay is part of an employee's wages and is subject to normal source deductions. It is a real liability that accrues as employees work, so businesses should track accrued vacation pay rather than treating it as an afterthought at year-end.
An employee earns $50,000 in a year with a 4% vacation entitlement. They are owed $2,000 in vacation pay, either paid as they take time off or accrued and paid out, and it is subject to normal payroll deductions.
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