Vacation Rules in BC: What Small Business Owners Need to Know

Vacation rules in BCIt’s the start of the year and we’ve been inundated with questions from clients regarding employee vacation rules in BC. We reached out to the British Columbia Employment Standards Branch for clarification on vacation rules in BC and here’s what they had to say:

Q: For salaried employees, if we only track vacation in terms of time off and continue to pay employees their regular salary while they are off, do we need to pay vacation pay on bonuses and other extraordinary payments?

A: The answer is, of course, it depends. The BC Employment Standards Act (“ESA”) requires employers to provide vacation pay of at least 4% of employee’s wages during the year of employment entitling the employee to the vacation pay and 6% of total wages after 5 years of employment. “Wages” includes all money paid to an employee which meets the definition of “wages” under section 1 of the ESA. This also includes overtime, statutory holiday pay, bonuses, previously paid vacation pay, and compensation for length of service in the event of a termination.

If an employer stipulates in the employment agreement that employees are entitled to a certain number of weeks of paid vacation time, without referencing the % of vacation pay accrual, as long as the dollar value of the annual paid vacation (i.e. their salary during the vacation time taken) exceeds the minimum ESA requirement of 4% of the year’s earnings (or 6% if greater than 5 years of service), the employer won’t need to do anything else.  If 4% (or 6%) of the year’s earnings is greater than the salary received during the vacation time off, then the employer would owe additional vacation pay for the difference.

Even if vacation is tracked as time off only, employers should still be calculating what 4% (or 6%) of total earnings are along the way so that they will know if there are any additional funds owing to the employee.

Example 1: Joe’s employment contract says that he gets 4 weeks of paid vacation each year, no reference to vacation accrual, and he’s worked for the company for 2 years. If the total value of the 4 weeks of vacation is higher than 4% of his total annual wages, then the employer is not in violation of the ESA.

Example 2: Joe’s employment contract says that he gets 4 weeks of paid vacation, accrued at the rate of 8% of total wages. The employer would need to calculate 8% of total earnings and pay him out anything else that exceeds the 4 weeks of paid vacation.

Q: The ESA says that employees are not entitled to annual vacation until after 12 months of employment. If we allow employees to take vacation in the year earned rather than waiting 12 months, does this pose any problems?

A: If employers allow employees to take vacation in the year earned, rather than needing to wait a year, this is considered a benefit to employees and exceeds the requirements of the ESA. However, if the employer does not specify that this time is vacation taken in advance of being earned, the Employment Standards Branch would consider the advance vacation pay as a bonus payment and not vacation pay, and employers would be still be on the hook for vacation time and vacation pay.

The recommendation is that employers should have a written agreement with employees, separate from their employment agreement, that explicitly states that employees can take vacation in the year earned and that this is considered vacation granted in advance.  See the section part way down this link that says Vacation granted in advance for more information.

Q: If employees are granted vacation in advance of the entitlement, there is a chance that they could leave the company and have taken more vacation than they’ve earned. Can an employer deduct any overpayment of vacation pay from the employee’s final pay cheque?

A: Employers cannot deduct vacation taken but not earned from an employee’s final pay without the employee’s express agreement in a written assignment of wages per Section 22(4) of the ESA. The purpose of the written assignment is to provide the employee’s authorization to deduct a specific dollar amount from their pay cheque. Otherwise, you can’t deduct the amount of vacation pay owing from their final pay.

Q: Can employees carry forward unused vacation days into the following year?

A: The answer depends on your company policy. If an employer lets an employee take vacation in the year earned rather than waiting 12 months, and the ESA says that employees have until the end of the following year to use their vacation. The agent we spoke to said that employees have until the end of the year after which they earn vacation to use it; however, there’s nothing stopping an employer from saying that all employees are encouraged to take vacation in the year earned and that carry overs are on an exception basis only.

Employers should be setting policies on when vacation should be used.  It was confirmed that employers are fine to say that vacation must be used by the end of the year. But, there can’t be a use it or lose it policy because employees technically have until 12 months after earning vacation to use it.

Please note that the vacation rules in BC apply to non-union employers only. If you operate elsewhere in Canada, check with your province’s employment standards branch for more information.

The issue of vacations and vacation pay can be tricky. If you have any specific questions related to vacation rules in BC, contact the BC Employment Standards Branch for assistance. The Interpretation Guidelines Manual is excellent or you can call and speak with an agent.

If you require any assistance to determine your vacation policy for your small- or medium-sized business, feel free to contact Vancouver-based Clear HR Consulting.


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