Paid vacation in canada

Paid vacation is a block of time that employers give to employees to use throughout the year. When an employee uses a paid vacation day, they don’t have to work that day, but they will still receive the same pay as if they had worked. Paid vacation time works a little differently than something like sick days, which are usually unplanned. Vacation days are typically planned and requested off in advance and approved by a supervisor or manager.

Employers often describe paid vacation as a specific number of days or weeks. If your employer gives you three weeks of paid vacation, remember that this is usually “work weeks” and not calendar weeks. Three weeks of paid vacation time translates to 15 paid vacation days, not 21.

Who gets vacation pay?

Anyone can be eligible for paid vacation time. Whether you do or not is at the discretion of your employer. This often has to do with what type of employee you are, such as a full-time, part-time or seasonal employee.

Your employer will have a policy on who is eligible for paid vacation time. Refer to your employee handbook or reach out to the HR department for more specific information about whether you get paid vacation time and how much time you get if you are qualified for it. Sometimes the amount of vacation days you receive per year is based on how many years of tenure you have with the company.

Federal law doesn’t require an employer to provide any amount of vacation pay. However, not offering any paid vacation time makes the employer less competitive in the market. Some companies offer unlimited vacation time to attract top talent. In these cases, it’s up to employees to use vacation time responsibly and still meet the deadlines that their positions demand.

How are paid vacation days accrued?

There are a few different ways you can earn paid vacation time as an employee. The two most commonly used methods for determining paid vacation time accrual are per pay period and per year. Here’s how each of those scenarios works.

Employees earning paid vacation time per pay period will have a set amount of paid time off hours added to their bank of available hours each time HR processes payroll. You can determine roughly how much vacation time you earn per pay period. First, take the total number of vacation days you get in a year and divide it by the number of pay periods you have in a year. For example, those on a biweekly pay schedule will have 26 pay periods, and those on a semimonthly pay schedule have 24.

The other way vacation days are added to your available balance is in a lump sum. In this case, at the beginning of a set period, all of the vacation days you get in a year are added to your balance at once. For example, if you get 15 days of vacation time per year to use between January 1 and December 31, all 15 days would be available to use on January 1.

Negotiating paid vacation days

It’s also possible to negotiate for additional vacation days during the interviewing and job offer process. A great example of this scenario is when an employer and potential candidate reach the final stages of an offer but can’t quite agree on the salary. Having a few extra vacation days added to what you would normally earn could help you reach an offer everyone is happy with.

Several factors affect whether or not negotiating for extra vacation time is possible. The first is if the employer is even open to this kind of negotiation. Other factors include your overall experience, how many vacation days the potential employer already offers and how in-demand your skills are.

Rules for using vacation time

Each employer has their own set of rules for when and how you can use your paid vacation time. Here are three examples of rules an employer may have in place for vacation time at work:

Vacation time freeze for new employees

One common rule you may come across, especially for companies that use the lump sum style of vacation time dispersal, is a freeze for new hires. For example, you may not be allowed to use any paid vacation time for the first 90 days of employment. During the hiring process, find out if this is the case, especially if you have travel plans already booked in the near future. Your future employer could be more willing to bend those rules if you’re upfront with them about needing to use that time before the freeze period is up.

How to Calculate Vacation Pay for Hourly Employees

1. Decide how much vacation your employees can earn

An hourly worker in America with a year of experience averages 11 days of paid vacation a year, and 76% of small business employees receive paid vacation days, with most receiving either 5-9 or 10-14 paid vacation days.

Taking time off has been proven by researchers to increase employee productivity and decrease employee turnover—some of the biggest employment risks to small business owners’ revenue. Providing PTO (paid time off) can also give your business a competitive edge and help attract top talent.

So first questions first: how many paid vacation days are your employees able to earn per year? Are full-time hourly employees eligible to earn more compared to part-time employees?

In order to start tracking and calculating vacation pay, decide what works best for your business (and what you can afford) and work back from there.

2. Determine how employees receive their vacation time

Once you’ve determined how much paid vacation your employees can earn, the next step is to decide how you’ll hand out the time.

Some companies pay out vacation upfront at the beginning of each year, while others set PTO on an “accrual” basis, where employees earn vacation time as they work. Others don’t provide paid vacation benefits until workers continue to stay with the business anywhere from 30 days to 6 months.

If your business is built on hourly employees and you often experience high turnover rates, it may make more sense for your employees to accrue PTO gradually. That way, you aren’t handing over large chunks of vacation time at once, and you aren’t left hanging financially should you pay out an employee only to have them walk away.

3. Start digging into the math

Let’s say that you’ve decided to offer your full-time hourly employees two weeks of paid vacation per year, and they’ll accrue their paid vacation on an ongoing basis. How would you know the amount of paid vacation they’ve earned at any given time?

It’s simpler than you think. Try out this example: you have a full-time hourly employee, Anna, who is eligible for up to two weeks’ vacation pay. Anna’s total vacation time equals 80 paid hours per year, or roughly 4% of the max possible hours she could work over 52 weeks, sans overtime.

Why 4% per year? That’s Anna’s rate of vacation accrual. The key to calculating vacation pay is to let the numbers treat your employees like they’re working, even when they’re on vacation. If they’re getting paid for vacation, they’re using earned time whether they’re actually on the clock or not.

4. Use the vacation pay formula

First: divide Anna’s total hours of vacation pay per year (80) by the total number of hours she can expect to work per year.

Since Anna works a maximum of 40 hours a week and gets paid biweekly, that means she can reasonably work up to 2,080 hours per year.

80 hours divided by 2,080 hours equals 3.85%, rounded up to the 4% mentioned above. This is the formula for Anna’s rate of vacation accrual. That means that for every hour Anna works, she also earns 0.0385 hours of vacation. If Anna makes $15.00 in an hour, then she also makes $0.58 each hour in vacation pay.

Based on her rate of accrual, Anna should earn $1,200 in gross wages and about $46.15 in vacation pay per pay period.

To check your math, multiply your employees’ estimated vacation pay ($46.15) for the pay period by how many paychecks they receive per year (26). If the answer equals or is close to what their total paid vacation time is worth ($1,200 for 80 hours), then you’re on the right track.

Note: this is a popular vacation accrual formula for a typical employee scenario. What your employees will earn in vacation pay can ultimately depend on holidays, sick leave, and other factors throughout the year. To try out a few different scenarios, download our vacation pay spreadsheet.

5. Track Vacation Pay

If you’re not entirely sure what happened right there, you’re not alone. Calculating vacation pay can be time-consuming, even if you just have a single employee. Once you’ve calculated the vacation pay for your hourly employees, you also need a clear way to track the hours.

Below are a few options to make calculating and tracking a little easier.

Use a spreadsheet to track manually

If you’re an Excel enthusiast, try creating your own spreadsheet with functions based on the calculations above. You’ll need to include:

• Employee hourly pay
• Max vacation hours per year
• Max hours work-able per year
• Rate of vacation accrual
• Hours worked per pay period
• Vacation hours earned per pay period
• Vacation pay earned per pay period

There are also plenty of PTO accrual templates available online you can tweak to fit your company’s individual PTO plan.