At a Glance
How to Calculate Vacation Pay for Salaried Employees in Canada
Every employee in Canada is entitled to paid vacation time, and for salaried employees, calculating vacation pay involves understanding both the minimum entitlements set by your province's employment standards legislation and how the vacation pay formula applies to an annual salary.
This guide covers the vacation pay rules for salaried employees in British Columbia, Ontario, Alberta, and Quebec, with worked examples showing exactly how the math works for each province.
The Basic Vacation Pay Formula
Vacation Pay = Total Wages Earned in the Year × Vacation Pay Rate
For most provinces: 4% after 1 year of employment, 6% after 5 years.
For a salaried employee earning $60,000/year:
- At 4%: $60,000 × 0.04 = $2,400 vacation pay
- At 6%: $60,000 × 0.06 = $3,600 vacation pay
Vacation Entitlements by Province
| Province | After 1 Year | After 5 Years | Additional Notes |
|---|---|---|---|
| British Columbia | 2 weeks (4%) | 3 weeks (6%) | — |
| Ontario | 2 weeks (4%) | 3 weeks (6%) | — |
| Alberta | 2 weeks (4%) | 3 weeks (6%) | — |
| Quebec | 2 weeks (4%) | 3 weeks (6%) | 1 day/month in first year; 3 weeks after 3 years (not 5) |
| Federal | 2 weeks (4%) | 3 weeks (6%) | 4 weeks (8%) after 10 years |
Important note: These are minimum entitlements. Many employers offer more generous vacation packages, particularly for senior employees. Employment contracts or collective agreements may provide additional vacation above these minimums.
Need help avoiding vacation pay errors?
LedgerLogic's payroll services handle vacation accrual calculations, compliance with provincial employment standards, and year-end vacation pay reconciliations.
How Vacation Pay Works for Salaried Employees in BC
Under BC's Employment Standards Act, salaried employees earn vacation pay at a rate of 4% of total wages after completing one year of employment, increasing to 6% after five consecutive years with the same employer.
For salaried employees, "total wages" includes the base salary plus any overtime, statutory holiday pay, bonuses that are considered wages, and commissions. It does not include expense reimbursements or non-wage benefits.
Worked Example — BC Salaried Employee
Employee details: Annual salary of $75,000, employed for 3 years in BC.
- Vacation pay rate: 4% (less than 5 years of service)
- Vacation pay entitlement: $75,000 × 0.04 = $3,000
- Vacation time: 2 weeks (10 business days)
If this employee is paid bi-weekly at $2,884.62 per pay period ($75,000 ÷ 26), their regular pay during vacation weeks will equal their normal pay. The $3,000 vacation pay is built into their regular salary payments.
After 5 years of service:
- Vacation pay: $75,000 × 0.06 = $4,500
- Vacation time: 3 weeks (15 business days)
How Vacation Pay Works for Salaried Employees in Ontario
Ontario's Employment Standards Act, 2000 provides the same minimum entitlements as BC: 4% / 2 weeks after one year, and 6% / 3 weeks after five years. The calculation method is identical.
Worked Example — Ontario Salaried Employee
Employee details: Annual salary of $85,000, employed for 7 years in Ontario.
- Vacation pay rate: 6% (more than 5 years of service)
- Vacation pay entitlement: $85,000 × 0.06 = $5,100
- Vacation time: 3 weeks (15 business days)
How Vacation Pay Differs in Alberta
Alberta follows the same structure: 4% after one year, 6% after five years. However, Alberta's Employment Standards Code specifies that vacation pay is calculated on "vacation pay earnings," which includes all regular wages, overtime, general holiday pay, and termination pay.
Quebec's Different Rules
Quebec stands apart from other provinces in two ways. First, the increased vacation entitlement kicks in after three years of continuous service (not five). Second, employees in their first year of employment earn one day of vacation per completed month of service, up to a maximum of two weeks.
| Years of Service | Vacation Time | Vacation Pay Rate |
|---|---|---|
| Less than 1 year | 1 day per month worked | 4% |
| 1 to less than 3 years | 2 weeks | 4% |
| 3 years or more | 3 weeks | 6% |
Vacation Payout on Termination
When a salaried employee is terminated (with or without cause) or resigns, the employer must pay out any accrued but unused vacation pay. This is calculated on all wages earned since the employee's last vacation entitlement year.
Worked Example — Vacation Payout on Termination
Employee details: Annual salary of $60,000, employed for 2 years in Ontario, terminated on September 30 with no vacation taken in the current year.
- Wages earned in the current vacation year (Jan 1 - Sep 30): $60,000 × (9/12) = $45,000
- Vacation pay rate: 4%
- Vacation pay owing: $45,000 × 0.04 = $1,800
This amount must be paid as part of the employee's final pay.
Common Questions About Vacation Pay for Salaried Employees
- Is vacation pay calculated on gross or net salary?
- Vacation pay is always calculated on gross wages (before deductions). The resulting vacation pay amount is then subject to normal income tax, CPP, and EI deductions when paid out.
- How does vacation pay work for salaried employees versus hourly employees?
- The calculation method is the same — both use the percentage-of-wages formula. The key difference is that salaried employees receive the same pay during their vacation weeks as during working weeks, while hourly employees receive a separate vacation pay amount (since they do not earn hourly wages while on vacation).
- When does vacation pay increase from 4% to 6%?
- In most provinces, the increase occurs after five consecutive years of service with the same employer. In Quebec, the threshold is three years. For federally regulated employees, vacation pay increases to 6% after five years and 8% after ten years.
Frequently Asked Questions
What is the standard vacation pay rate in BC?
In British Columbia, the standard vacation pay rate is 4% of gross wages for employees with less than 5 consecutive years of employment. After 5 years, it increases to 6%.
Does vacation pay accrue on overtime pay?
Yes, in most provinces (including BC, Ontario, and Alberta), vacation pay is calculated on "gross wages," which includes overtime pay, statutory holiday pay, and commissions. It usually does not include discretionary bonuses or expense reimbursements.
Can unused vacation pay be forfeited?
Generally, no. Vacation time might be subject to "use it or lose it" policies depending on the province (though many require it to be taken), but earned vacation pay is wages that belong to the employee. It must be paid out if not taken as time off.
How is vacation pay taxed?
Vacation pay is taxed as employment income. It is subject to the same deductions as regular salary, including Federal and Provincial income tax, CPP (Canada Pension Plan), and EI (Employment Insurance).
Do part-time salaried employees get vacation pay?
Yes. Part-time employees are entitled to the same vacation pay rates (4% or 6%) as full-time employees. The dollar amount will be lower simply because their gross wages are lower.
What if my employment contract says "no vacation pay"?
Employment standards legislation sets the minimums. An employment contract cannot provide less than the legal minimum. A clause stating "no vacation pay" would likely be void, and the statutory minimum (e.g., 4%) would apply.
Seb ProstCPA, Ex-CRA
Licensed CPA with 10+ years of experience, including work with the Canada Revenue Agency. Founder of LedgerLogic, a cloud accounting firm serving Canadian SMEs. Xero Certified Advisor.
