Distinction between vacation time and vacation pay
Question: Does the time an employee spends on paid or unpaid leave count as time served for the purpose of earning vacation? Can an employer have a policy specifying that it doesn’t?
Answer: Across Canada, provincial employment standards legislation sets out the minimum vacation employees are entitled to, and how vacation is earned. For employees in federally-regulated industries, these entitlements are set out in the Canada Labour Code. While vacation entitlements are similar across Canadian jurisdictions, employers should check the applicable legislation before making a decision about vacation.
Employment standards statutes draw a distinction between vacation time and vacation pay. Vacation time is earned based on the employee’s length of continuous service with the employer. In most Canadian jurisdictions, employees are entitled to a minimum of two weeks’ vacation per annum after completing the first year of employment, and then three weeks’ vacation per annum after five years of employment.
Statutory vacation pay is calculated as a percentage of annual wages. Most Canadian jurisdictions set minimum vacation pay at four percent of total annual wages during the first five years of employment, and then six percent of total annual wages after five years of employment.
Because the minimum statutory vacation time and vacation pay entitlements are calculated differently, they are impacted by a leave of absence in different ways.
In British Columbia, employees continue to earn vacation time during a statutorily protected leave, such as a parental, compassionate care, or bereavement leave. Similar provisions exist in New Brunswick, Ontario, Saskatchewan, Quebec, and the Yukon. In other jurisdictions, however, such as Alberta, Manitoba, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, the Northwest Territories, and Nunavut, employees do not earn vacation time during a statutory leave.
For non-statutory leaves, the terms in the employment contract or collective agreement will determine whether vacation time is earned. It is common for such an agreement to provide that the amount of vacation time or pay is calculated based on the time that an employee has been “continuously employed” or “in service.” Absent language to the contrary, such a provision will generally mean that a leave of absence will be counted toward service for the purpose of entitlement to vacation.
For workplaces in which vacation pay is calculated as a percentage of wages, an unpaid leave of absence will have the effect of reducing the vacation pay an employee is entitled to, even in the case of a statutory leave. However, if the employer provides vacation as a specified number of weeks of paid time off instead of as a percentage of wages, the employee will continue to earn paid vacation while off on leave, unless the employment agreement or employment contract specifies otherwise. Again, statutory leaves are protected in many jurisdictions, such that paid vacation continues to be earned while the employee is on leave.
