Vacation Pay in British Columbia – What You Need To Know…
Employers must comply with the standards under BC’s Employment Standards Act (the “ESA”). The ESA governs how employers must pay their employees. It also describes the benefits that employees are entitled to, including vacation pay.
Employees become eligible for vacation pay after they have completed five calendar days of employment. Employers should start calculating, or accruing, this vacation time when the employee first starts.
After one year of continuous service, employees are entitled to two weeks of paid vacation. When the employee enters their second year of employment, they should already have two weeks of vacation available to them to take.
Once an employee has completed five years of continuous service with an employer, they will be entitled to three weeks of paid vacation.
Employers can offer greater vacation benefits than the minimum required by the ESA. This also means that they can offer a vacation benefit to employees while they are in their first year of employment. However, if such arrangements exist, the ESA will enforce the rules based upon the higher amount that was agreed upon. This includes the number of vacation days, as well as the agreed upon compensation rate.
Example – Sara started working with XYZ Company on February 1, 2018. Her employer has not offered any special vacation benefits, other than those listed in the ESA. On February 1, 2019, Sara is now entitled to two weeks of vacation that she earned during her first year of employment.
Let’s say that XYZ Company offered Sara two weeks of vacation in her first year of employment. Sara requests to take her two weeks of vacation, starting on November 1, 2018. When she completes her first year of employment, Sara will still be entitled to two weeks of vacation, starting on February 1, 2019. However, if XYZ Company had intended to offer the two weeks as an advance of the vacation time and not additional time, the employee would not be eligible for two weeks’ vacation in their second year of employment. The employer must ensure that this agreement is clearly documented and acknowledged by the employee in writing. If such documentation does not exist, the XYZ Company may be required to honor and compensate Sara for the two weeks’ vacation in the second year of employment, as the vacation taken in year one would be considered more of a bonus.
Vacation pay is calculated at 4% of the gross wages paid to an employee during the immediately preceding year. Once an employee has completed five years of service, vacation pay increases to 6%.
Example – Continuing our example above, Sara’s wages from February 1, 2018 – January 31, 2019 was $20,000. When Sara takes her vacation during her second year, her vacation pay would be $800, or 4% of $20,000. If Sara were entering her sixth year of employment, she would be entitled to 6% of $20,000, or $1,200.
When calculating gross wages, this includes the salary or hourly payments made to an employee. This will also include other forms of payment, such as commissions, holiday pay, vacation pay, and bonuses.
WHEN TO PAY
According to the ESA, vacation pay becomes payable to an employee at least seven days before their scheduled vacation. However, employers are able to pay out vacation time on each paycheck. If such arrangement exists, it must be in writing and acknowledged by the employee.
WHEN AN EMPLOYEE LEAVES
Earned, but unpaid, vacation time must be paid to an employee when they leave. An employer is required to pay vacation time as follows:
- Terminated Employee – Must be compensated for unpaid vacation time that is due to them within 48 hours of their termination
- Voluntary separation – Employees that voluntary leave a company must be compensated for their unpaid vacation time that is due to them within six days of separating.
When dealing with employees and vacation pay, there are always nuances that will arise. Below are some common questions that employers may have around vacation pay.
Can an employee take compensation in lieu of vacation?
Under the ESA, employers are required to ensure that an employee is compensated for and take the minimum two weeks of vacation once it has been earned. Bottom line – as an employer, you need to make sure the employee takes their time off.
If an employee takes a leave of absence, how does this work when determining eligibility for vacation?
Any authorized leave of absence is does not constitute an interruption in the “continuous service” requirement. For example, if Jenny starts working for ABC Company on March 1, 2018 and then takes three months of maternity leave starting on October 1, 2018, she would still be considered “employed” when determining her eligibility for vacation. As long as the leave is approved, she would be eligible for two weeks of vacation starting on March 1, 2019.
If I give an employee an advance on their vacation during their first year of employment, can I deduct this if they leave before the completed the vacation requirement?
It depends. To deduct unearned vacation time from an employee’s check, an employer must have a written assignment whereby the employee authorizes this amount to be withheld. If no such written document exists, an employer would not be permitted to deduct unearned vacation time from an employee’s final check.
As an employer, it is important to understand the rules that govern vacation time and pay for your employees. The ESA provides employees with a minimum requirement of two weeks paid vacation after one year of continuous service, paid out at 4% of your gross wages for the prior year. After five years of continuous service, the employee is entitled to three weeks of paid vacation, compensated at 6% of gross wages.
As an employer, you can provide vacation benefits that are greater than what the ESA provides, however any modifications that you make are enforceable under the ESA. It is always recommended that agreements governing your vacation policies and benefits be in writing and signed by both parties.
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