As payroll professionals, we have overseen a process whereby there are literally hundreds of different earning, deduction or benefit terms that describe potential elements of employee pay
By Alan McEwen
Often, before asking me the question of what earnings are vacationable, people have found a list or chart of earnings for vacation pay, but the earning in question isn't specifically mentioned.
This situation is our own fault. As payroll professionals, we have overseen a process whereby there are literally hundreds of different earning, deduction or benefit terms that describe potential elements of employee pay. Given the wide variety of terms used, it's not reasonable to expect any one chart or list to cover them all.
To answer these questions, the best way is to consult the applicable legislation. This isn't really as difficult a process as you might think. In part, this article is designed to help payroll professionals become more comfortable with it. For this purpose, this question is a good one since the answer is based on the definition of basic terms like “wages” or “work.”
All that's required is a careful look at the words used. Here we will use British Columbia as an example, but just about any other jurisdiction would do equally well.
In B.C., vacation pay is owing on employee “wages” (Employment Standards Act, section 58). You and I might have our own ideas about what “wages” mean, but it's important to recognize that such words are often used in a special or particular way. Such terms are usually defined in legislation right at the start, in a section explicitly labelled definitions.
In B.C., the definition of “wages” has three parts — a list of specific inclusions, a list of specific exclusions and a word that tells us how these inclusions and exclusions are related to the overall definition itself.
In B.C., the specific inclusions are:
1 — salaries, commissions or money, paid or payable by an employer to an employee for work
2 — money that is paid or payable by an employer as an incentive and relates to hours of work, production or efficiency
3 — money, including the amount of any liability under section 63, required to be paid by an employer to an employee under this act.
The best way to understand the first of these items is to break it down into parts:
•salaries, commissions or money
•paid or payable by an employer
•to an employee
All of these elements have to be present for an earning to be vacationable.
For example, a signing bonus is not vacationable because it is not “for work.” A signing bonus is a typically a payment for agreeing to the terms of a collective or individual contract of employment. Similarly, any requirement in B.C. to pay a minimum of two or four hours as call-in or reporting pay is not vacationable, since these hours are not “work.”
Or, more specifically, if an employee starts work on a day but is sent home before these minimums are met, in B.C. any actual work is vacationable, but the top-up to the minimum is not. Similarly, on-call time in B.C. is “work” where the time is spent at a place required by the employer, unless that place is the employee's home, meaning any wages for such on-call time are vacationable.
“Paid or payable” also requires that what passes between employer and employee be in the form of money or cash, so taxable benefits aren't vacationable if they are given in kind as goods or services. Further, “paid or payable” always refers to gross amounts, not the net after any deductions. Employer contributions to a third party administrator of an employee benefit, savings or pension plan are not vacationable, since they are not paid directly to employees. Cash sales awards, paid to retail store employees by third party manufacturers are not vacationable if they are paid directly by the third party. If the third party remits these to the employer who in turn pays employees, they become vacationable.
The next two items on the list above are easier to explain. The second item refers to cash bonuses, sales commissions, piece rate work or any other form of incentive. However, this second item has to be read together with the similar exclusion discussed below. The third inclusion simply means any payment to an employee, required under B.C. employment standards, including vacation pay itself, is vacationable.
In B.C., the specific exclusions are:
•money that is paid at the discretion of the employer and is not related to hours of work, production or efficiency
•allowances or expenses.
The term “gratuity” also includes tips, such as those received in the hospitality sector. Note, in the last exclusion, the form of payment — as either an allowance or a reimbursement — does not matter. It also does not matter whether the allowance or expense is for personal or business purposes. In other words, the source deduction treatment of the payment has no bearing on the fact that allowance or expense payments are not vacationable in B.C.
As mentioned above, you have to read the second inclusion item together with its related exclusion. Taken together, they mean any form of incentive payment related to hours of work, production or efficiency is vacationable, unless it's paid at the discretion of the employer. Any employee services or duties of employment are “hours of work, production or efficiency.”
This means a bonus paid to staff for meeting departmental quotas is vacationable, unless it's paid at the employer's discretion. Discretion means the employer controls either how the payment is calculated or whether the payment is made at all. In other words, if an incentive payment is provided for in a contract of employment, it's vacationable in B.C.
The last thing to look at is how these inclusions and exclusions are linked to the overall definition of “wages” itself. Exclusions are always absolute. If an earning is listed in the exclusions from “wages,” that's it. You don't have to consider it any further. By contrast, for inclusions, there are two possibilities. In B.C., wages “include” earnings in the first list above. In other jurisdictions, such as Ontario, the term used is “means.”
The difference is whether we have to look beyond the actual words used in legislation. Where we find “means,” we only have to consider the actual list of inclusions or exclusions.
In B.C., the ordinary meaning of “wages” remains. It's just that the B.C. legislation adds or subtracts from what you and I would otherwise consider as wages. This means if an earning is considered to be wages, for normal payroll purposes, it's vacationable in B.C., even if it's not on the list of specific inclusions (so long, of course, as it's not among the exclusions). In Ontario, where “means” applies, this is not true. In Ontario, an earning is only vacationable if it's found in the list of specific inclusions.
Alan McEwen is a payroll consultant and freelance writer with 20 years' experience in all aspects of the industry. He can be reached at firstname.lastname@example.org, (905) 401-4052 or visit www.alanrmcewen.com for more information.