Vacation pay is one of the most frequently mishandled payroll obligations in Canada. Unlike EI and CPP, vacation entitlements are governed by provincial employment standards legislation — and the rules vary significantly between provinces. Getting it wrong exposes you to employee complaints, Ministry of Labour orders, and back-pay liabilities.
Federal Rules: The Baseline
The Canada Labour Code applies to federally regulated employers — banks, airlines, interprovincial transportation, telecommunications, and federal Crown corporations. Under the Code, employees are entitled to:
- 2 weeks of vacation after 1 year of service (4% of insurable earnings)
- 3 weeks after 5 consecutive years (6% of earnings)
- 4 weeks after 10 consecutive years (8% of earnings)
Most Canadian employers are provincially regulated, not federally. If you're a local business, your obligations are set by your province.
Key Rule: Vacation Pay vs. Vacation Time
These are two separate entitlements. Employees are entitled to both paid time off (vacation time) AND vacation pay (a percentage of gross earnings). You cannot give extra pay in lieu of vacation time unless the employee has worked less than 5 days per week or the employment standards legislation specifically allows it.
Province-by-Province Vacation Pay Minimums (2026)
| Province/Territory | Minimum Vacation Pay | After X Years | Notes |
|---|---|---|---|
| Ontario | 4% (2 weeks) | First year | 6% (3 weeks) after 5 years |
| Quebec | 4% (1 week) | First year | 6% (2 weeks) after 1 year; 8% (3 weeks) after 3 years |
| British Columbia | 4% (2 weeks) | First year | 6% (3 weeks) after 5 years |
| Alberta | 4% (2 weeks) | First year | 6% (3 weeks) after 5 years |
| Saskatchewan | 4% (3 weeks) | First year | 6% (4 weeks) after 10 years |
| Manitoba | 4% (2 weeks) | First year | 6% (3 weeks) after 5 years |
| New Brunswick | 4% (2 weeks) | First year | 6% (3 weeks) after 8 years |
| Nova Scotia | 4% (2 weeks) | First year | 6% (3 weeks) after 8 years |
| PEI | 4% (2 weeks) | First year | 6% (3 weeks) after 8 years |
| Newfoundland | 4% (2 weeks) | First year | 6% (3 weeks) after 15 years |
Quebec: The Most Complex Province
Quebec's Act Respecting Labour Standards has a unique three-tier system. An employee who has worked continuously for less than one year earns 1 day per full month worked (up to 10 days), paid at 4% of earnings. After one year, the entitlement jumps to 2 weeks (4%). After 3 years of continuous service, it becomes 3 weeks at 6%.
Quebec also has the RQAP (Régime québécois d'assurance parentale) which works differently from federal EI for maternity and parental benefits — this affects payroll deductions for Quebec employees.
When Must Vacation Pay Be Paid?
In most provinces, vacation pay must be paid before the employee takes their vacation. Some provinces allow vacation pay to be paid as an addition on each regular paycheque (as a percentage of gross earnings) — this approach eliminates vacation pay liabilities but requires clear written agreement and consistent administration.
If an employee leaves mid-year without taking vacation, all accrued vacation pay must be paid out on or before their last paycheque.
What "Gross Earnings" Includes for Vacation Pay Calculation
Vacation pay is calculated as a percentage of gross earnings, which in most provinces includes:
- Regular wages and salary
- Overtime pay
- Commissions
- Stat holiday pay (in some provinces)
- Piece-rate pay
It generally does not include tips, severance pay, or general expense reimbursements.
Managing Multi-Province Payroll?
MaxRefund handles payroll compliance for businesses operating across multiple provinces, ensuring every vacation pay calculation meets the correct provincial standard.
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