Vacation pay rules by province and how to set them up in payroll software

In Canada, minimum vacation time and vacation pay are set by each province and territory's employment standards law, and by the Canada Labour Code for federally regulated employers. The common pattern is two weeks and 4% of wages after the first year, rising to three weeks and 6% after a set number of years (five in many jurisdictions, three in Quebec), with some jurisdictions adding a further step later; Saskatchewan starts at three weeks. Payroll software must apply the right rule to each employee by jurisdiction and years of service, accrue or pay out the vacation pay, and handle the payout on termination. Getting this wrong is one of the most common sources of employment standards complaints.

This guide is part of the payroll software selection checklist. The table summarises minimums as commonly stated; employment standards change and include exceptions, so confirm with the official source for each jurisdiction where you employ people.

Minimums in the main jurisdictions (check before relying on them)

Jurisdiction	First step	Next step(s)	Status of this summary
Federal (Canada Labour Code)	2 weeks, 4%, after 1 year	3 weeks, 6%, after 5 consecutive years; 4 weeks, 8%, after 10	Verified in ss. 184 and 184.01 of the Code
Ontario	2 weeks, 4%	3 weeks, 6%, after 5 years	Verified in ESA ss. 33 and 35.2
British Columbia	2 weeks after 12 months; 4% vacation pay from 5 calendar days of employment	3 weeks, 6%, after 5 consecutive years	Verified in ESA ss. 57 and 58
Alberta	2 weeks, 4% after 1 year	3 weeks, 6%, after 5 years	Verified in the Employment Standards Code ss. 34 and 34.2 (monthly-paid staff get a week's wages per week instead)
Quebec	2 weeks, 4%, after 1 year	3 weeks, 6%, after 3 years	Not verified here (official site not reachable); check CNESST
Saskatchewan	3 weeks (3/52 of wages) after 1 year	4 weeks (4/52) after 10 years	Check saskatchewan.ca
Manitoba	2 weeks after 1 year	3 weeks after 5 years	Check gov.mb.ca
Other provinces and territories	Usually 2 weeks, 4%	Varies	Check the local employment standards office

Several jurisdictions also have rules on when vacation must be taken (for example within a set number of months after the entitlement year), how vacation pay is paid (before the vacation, on each cheque with written agreement, or on request), and what counts as wages for the percentage. Those details belong in your software's rules, not in someone's memory.

How payroll software handles vacation pay

There are two common methods, and many employers use both for different groups:

Method	How it works	Fits	Watch out for
Accrual (bank)	Vacation pay accrues each pay period into a balance, paid when the employee takes vacation or on termination	Hourly staff with irregular schedules	Balances must carry over correctly, including after a switch
Pay as you go	Vacation pay is added to every cheque	Part-time, casual or seasonal staff, where the law allows it	Some jurisdictions require written agreement; employees still need time off
Salary continuance	Salaried employees keep their salary during vacation, which counts as vacation pay	Salaried staff	The percentage can exceed regular salary when the employee had overtime or bonuses; check a top-up

Good software lets you set per employee group: the jurisdiction, the method, the percentage or weeks by service, the service date (which may differ from hire date for rehires), and which earning types count towards vacation pay.

Illustrative example. An Ontario hourly employee earns $41,600 in the vacation entitlement year. With less than five years' service, vacation pay is 4% × $41,600 = $1,664. After the employee's fifth anniversary, the rate becomes 6%: on the same wages, $2,496. If the software does not move the employee to 6% at the right anniversary, the employer underpays by $832 for that year.

Illustrative salaried check. A salaried employee earning $60,000 plus $5,000 of overtime takes two weeks' vacation. Two weeks of salary is $60,000 × 2/52 = $2,307.69. Vacation pay at 4% of all wages is 4% × $65,000 = $2,600. If the jurisdiction calculates vacation pay on total wages, the employer may owe a top-up of $292.31. Ask the vendor whether the software flags this.

Statutory holidays and termination

Two related set-up items:

Public / statutory holiday pay formulas differ by jurisdiction (number of holidays, eligibility, the averaging formula). The software needs the right holiday calendar per province, including for example Quebec's 24 June and provincial-specific days such as Family Day or Civic Holiday where they are statutory.
Termination: outstanding vacation pay must be paid on termination, within the deadline set by the jurisdiction. It must also be reported correctly on the ROE; see Records of Employment.

Set-up mistakes to avoid

Using one rule for all employees when you have staff in several provinces.
Setting service dates to the date of the latest rehire when the law counts earlier service.
Leaving bonuses or commissions out of vacationable earnings where the law includes them.
Not migrating vacation balances when switching systems; see switching payroll providers mid-year.
Paying vacation pay on each cheque without the written agreement some jurisdictions require.
Forgetting that unionised employees may have better contractual entitlements than the minimum.

What to ask in a demo

Show me an employee crossing the five-year mark mid-year: does the percentage change on the anniversary?
Can I set different rules for Ontario, Quebec and federal employees in one company?
Can I report accrued vacation liability for my accountant (the balance owed at year-end)?
How are balances imported when we start?

Add the answers to the best-fit checklist. For time-off requests and balances shown to employees, see HR features, self-service and scheduling, and for the type of software that fits a mixed workforce, software types and best fit.

FAQ

Is vacation pay the same as vacation time?

No. Vacation time is the time off; vacation pay is the money for it. Both are minimum standards, and an employer must provide both, even when vacation pay is paid on each cheque.

Do part-time employees get vacation pay?

Yes, minimum vacation pay applies to part-time and casual employees too, calculated as a percentage of their wages. Rules for very short-term or student work can differ; check your jurisdiction.

Can an employee waive vacation and take the money?

Many jurisdictions limit this; the purpose of the standard is time off. Some allow it in specific circumstances with agreement. Check the rules before setting up "pay in lieu".

Who enforces vacation pay rules?

The provincial or territorial employment standards branch, the CNESST in Quebec, and the federal Labour Program for federally regulated employers. Employees can file complaints, often within a limited period.

Sources

Justice Laws Website — Canada Labour Code, Part III, s. 184 (annual vacations)
Employment and Social Development Canada — federal Labour Program guidance on vacation and holidays
Government of Ontario — Employment Standards Act vacation and public holiday rules
CNESST — Quebec labour standards: vacation and statutory holidays
Government of British Columbia — BC employment standards
Government of Alberta — Alberta employment standards