Vacation time and vacation pay are different things
Employment standards give employees two related entitlements: vacation time (a number of weeks off per year) and vacation pay (money earned as a percentage of wages). Two weeks of vacation corresponds to 4% vacation pay, three weeks to 6%, and four weeks to 8%. The percentage is roughly the share of a 52-week year the vacation represents: 2 ÷ 52 is about 3.85%, rounded up to 4% in most provinces.
The employee earns vacation pay on every eligible dollar they are paid, whether they take the time off or not. Your job as the employer is to track both: how much time they are entitled to take, and how many dollars of vacation pay they have earned and not yet received.
Minimum entitlements by jurisdiction
Each province and territory sets its own minimums, and federally regulated employers (banks, airlines, telecoms, interprovincial trucking) follow the Canada Labour Code. The list below summarizes common minimums as of 2026. These are minimums: your contract or policy can be more generous, but never less. Always confirm against your province’s current employment standards, because rules and service thresholds do change.
Notice how service thresholds vary. An employee in Ontario moves to 6% after five years; in Nova Scotia after eight; in Saskatchewan the starting entitlement is already three weeks. Payroll software should move each employee to the higher rate automatically on their anniversary.
- Federal (Canada Labour Code): 4% (2 weeks); 6% after 5 years; 8% after 10 years
- British Columbia: 4% (2 weeks after 1 year); 6% (3 weeks) after 5 years
- Alberta: 4% (2 weeks); 6% (3 weeks) after 5 years
- Saskatchewan: 3/52 (3 weeks) after 1 year; 4/52 (4 weeks) after 10 years
- Manitoba: 4% (2 weeks); 6% (3 weeks) after 5 years
- Ontario: 4% (2 weeks) under 5 years; 6% (3 weeks) after 5 years
- Québec: 4% (2 weeks) after 1 year; 6% (3 weeks) after 3 years
- New Brunswick, Nova Scotia, PEI: 4%; 6% after 8 years
- Newfoundland and Labrador: 4%; 6% after 15 years
What counts as vacationable earnings
Vacation pay is a percentage of vacationable earnings, and the definition differs by province. In general, regular wages, overtime, commissions tied to productivity and statutory holiday pay are included in most provinces. Discretionary bonuses that are not related to hours, production or efficiency, expense reimbursements and some taxable benefits are often excluded. Some provinces include vacation pay itself in the base for statutory holiday pay, which is a separate calculation.
Because the definition varies, set up each earnings type in your payroll system with a clear flag for whether vacation pay accrues on it. A common error is accruing vacation pay only on regular hours and forgetting overtime or stat holiday pay, which underpays employees over a year.
Example: an Ontario employee with two years of service earns $1,600 in regular wages, $180 of overtime and $160 of public holiday pay in a pay period. Vacationable earnings are $1,940 and vacation pay at 4% is $77.60.
Two ways to pay it: on each cheque or accrued
Some employers pay vacation pay on every pay cheque, adding 4% (or 6%) to each pay. This is common for part-time, casual and seasonal staff, and some provinces allow it only with the employee’s written agreement or for certain types of work. The employee still has the right to take vacation time, but it is unpaid when taken because they already received the money.
The other approach is to accrue vacation pay in a balance and pay it out when the employee takes time off. This is typical for full-time staff and salaried employees. For salaried employees, many employers simply continue regular salary during vacation, then compare that against the percentage calculation at the end of the vacation year and pay any difference (often owed when the employee had overtime or commissions).
Whichever method you use, the pay stub should show vacation pay clearly. Several provinces require the stub or a statement to show vacation pay paid and the accrued balance.
Track the balance in dollars, not just hours
An employee whose wage rose during the year earned some vacation pay at the old rate and some at the new rate. Tracking the balance as hours and paying it at the current rate overpays them; tracking it as dollars earned keeps it accurate. Dollars are also what the law measures, since vacation pay is defined as a percentage of earnings.
SeroPayroll tracks vacation pay by the statute as a dollar balance owed, moves employees to the higher rate on their service anniversary, and shows the balance on pay stubs. If you run payroll inside SeroBooks Pro, the accrued liability sits in your ledger automatically.
Vacation pay on termination
When employment ends, all earned and unpaid vacation pay must be paid out, usually with the final pay or within a set number of days that depends on the province. That includes vacation pay on earnings in the final period and any balance carried forward.
Include outstanding vacation pay on the Record of Employment. On the ROE, vacation pay paid at separation is reported in the block for other monies, which affects when Employment Insurance benefits start. Our ROE guide explains how to report it.
Worked examples: hourly, salaried and long-service
Hourly, paid each cheque: a part-time Alberta employee with eight months of service earns $1,120 in a bi-weekly period, including $70 of overtime. Vacation pay at 4% is $44.80, added to the cheque as its own line. When that employee later takes a week off, the week is unpaid because the money has already been received.
Salaried, accrued: a Manitoba office manager earning $62,400 a year ($2,400 bi-weekly) with six years of service is entitled to three weeks at 6%. Over the vacation year she earns $62,400, so her vacation pay entitlement is $3,744. If she takes three weeks off at her regular salary of $1,200 a week, she receives $3,600. Her entitlement is $3,744, so at the end of the vacation year you owe the $144 difference, which arises because 6% of a year’s pay is slightly more than three weeks’ pay.
Long service, rate change mid-year: an Ontario employee reaches five years on July 1. Earnings before July 1 accrue at 4% and earnings after accrue at 6%. If they earned $24,000 in each half, the year’s vacation pay is $960 plus $1,440, or $2,400. Software that switches the rate on the anniversary handles this automatically; doing it by hand means splitting earnings at the anniversary date.
Common mistakes to avoid
Most vacation pay errors come from setup, not arithmetic. Check these when you set up payroll or move to a new system, and review the vacation liability account at year-end against the balances shown in payroll.
- Not moving employees to 6% (or 8%) on their service anniversary
- Leaving overtime or stat holiday pay out of vacationable earnings
- Paying vacation pay on each cheque without the required agreement
- Tracking balances in hours and paying at a new, higher rate
- Forgetting vacation pay on the final pay and ROE
- Applying one province’s rules to employees in another province