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Vacation Pay and Vacation Time Explained

Employers and employees often experience confusion when discussing vacation pay and vacation time. While there is some flexibility for employers, there are legislated rules that need to be followed and policies clearly communicated.

With some minor exceptions such as farmers or salespeople whose income is based solely on commission, ALL employees start earning vacation pay on the first day of employment.

In Manitoba, the minimum vacation pay earned by employees is 4% of gross wages from their first day of employment, and increases to 6% after completing five years of employment with the same employer. For a full time employee, 4% vacation pay equates to two weeks of working time and 6% equates to three weeks. Employers may choose to offer higher rates.

Gross wages include all regular wages (including hours paid as commission, salary, hourly, bonuses tied to productivity, and any other wages paid as compensation for the regular hours of work) and any general holiday pay. Overtime wages, wages in lieu of notice, and the previous year’s vacation wages are not included in the calculation of gross wages.

Vacation pay can either be paid to employees on each paycheque, or alternatively, accrued to an account on behalf of the employee. The first method is particularly suited to part-time employees, whereas full-time employees tend to prefer to have their vacation pay “saved” for them. The method of payment is selected by the employer.

When vacation pay is paid on each paycheque, employees are still entitled to take time off as vacation, however, they would not receive additional vacation pay while taking vacation time.

When vacation pay is accrued to an account on behalf of the employer, the employee can “draw” on the account when they take vacation time so that there isn’t an interruption in earnings. Vacation pay must be paid no later than the last day of work before vacation time starts and within 10 months of earning it. If an employee is terminated, the vacation pay “account” must be paid in full to the employee. Employers cannot use vacation in lieu of a notice period when terminating employment.

Employees are eligible to take vacation time after they have completed one year of work and must either take their vacation within 10 months of it being earned or the vacation account paid out. Employees and their employers can agree on when vacation will be taken.

In the event that an employer and employee cannot agree on when the vacation will be taken, the employer sets the vacation date. The employer must give the employee 15 days’ notice before the vacation is to be taken and cannot divide the vacation into periods shorter than one week. Employers can choose to schedule their employees’ vacations as part of an annual shut down.

Some employers allow their employees to take vacation time in the following year if it is not used. Employers should take care not to create a situation where an employee has a significant amount of vacation pay accrued that would then create an extended period of absence from employment; workloads must still be managed.

If you would like to discuss vacation time or vacation pay or need further clarification, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.