Vacation pay for salaried employees; Statutory deductions on outstanding vacation pay paid on termination; Automobile standby charge when employee takes vacation
Vacation pay for salaried employees
Question: Can we pay our salaried empoyees their regular weekly wages as vacation pay?
Answer: Employers must be careful about doing this. Labour standards legislation in all Canadian jurisdictions requires employers to pay employees a specified minimum percentage of their earnings for vacation pay (for example, four per cent, six per cent).
The earnings included when calculating vacation pay may or may not be the same as the employees’ regular weekly pay since vacationable earnings may include payments such as: call-in pay, overtime pay, commissions, shift premiums and statutory holiday pay, among other payments.
As a result, the amount of vacation pay owing to an employee may be higher than the employee’s regular weekly wages.
The types of payments that must be included when calculating vacation pay vary from jurisdiction to jurisdiction so payroll would be advised to check.
Statutory deductions on outstanding vacation pay paid on termination
Question: One of our employees has resigned. We are paying the employee outstanding vacation pay upon termination of employment. What are the requirements for statutory deductions?
Answer: The statutory deductions requirements for vacation pay depend on whether the employee is physically taking the vacation time and when the vacation payments are made.
Vacation pay paid to an employee for a period of leave taken is subject to regular deductions for Canada/Quebec Pension Plan (C/QPP), employment insurance (EI), Quebec Parental Insurance Plan (QPIP) and income tax.
Vacation pay not paid for a period of leave, for example, on termination, is also pensionable, insurable and taxable.
If the vacation pay is paid separately, the fixed contribution percentage rate is applied for C/QPP (the 2015 CPP rate is 4.95 per cent and the QPP rate is 5.25 per cent), provided that the employee has not reached the maximum C/QPP contribution for the year ($2,479.95 for CPP and $2,630.25 for QPP).
For EI and QPIP, premiums are calculated by multiplying the vacation pay amount by the current fixed premium percentage rates for EI (1.88 per cent for employees outside of Quebec and 1.54 per cent for employees in Quebec) and for QPIP (0.559 per cent), provided that the employee has not reached the annual maximum premium.
(The maximum employee premium for 2015 is $930.60 for employees outside of Quebec and $762.30 for employees in Quebec. The maximum employee premium for the QPIP for 2015 is $391.30.)
The income tax is calculated using the bonus method of taxation.
Automobile standby charge when employee takes vacation
Question: We provide some employees with company automobiles. When calculating the standby charge for their automobile taxable benefit, can we exclude periods when they are away on vacation if they leave the car and the car keys at their home while they are away?
Answer: No, you have to include the time the employees are away on vacation. It is the Canada Revenue Agency (CRA)’s position that the time must be included since the vehicle is still available to the employee because the keys are in the employee’s house, not at the employer’s place of business.
The CRA’s view is an automobile is available to an employee if the employee has access to or control over the automobile.
Access ends only when the employee gives all of the automobile keys to the employer.
If an employee leaves the keys with the employer while away on vacation and this is clearly documented, the CRA would allow the employer to exclude the vacation period when calculating the standby charge.
