Vacation Pay in Canada
Vacation time and vacation pay are related, but they are not the same thing. This guide explains how vacation pay works, why the rate and wage base vary by jurisdiction, when it may be paid, and how CRA treats it in payroll.
Last updated August 2026
At a glance
- Vacation time is the employee's entitlement to time away from work. Vacation pay is the money attached to that entitlement.
- The minimum rate, service threshold, definition of wages, and payment timing come from the applicable provincial, territorial, or federal employment standards.
- There is no single Canada-wide vacation-pay percentage or wage base. A flat 4% rule is not sufficient for every employee or jurisdiction.
- CRA does not decide the employee's minimum vacation-pay entitlement. CRA determines the CPP, EI, income-tax withholding, and T4 treatment once vacation pay is paid.
Vacation time and vacation pay are different entitlements
A common payroll mistake is to treat “two weeks of vacation” and “4% vacation pay” as the same thing. They describe different parts of the employment-standard entitlement. Vacation time is the time away from work. Vacation pay is calculated from the employee's applicable wages and is intended to provide pay for that vacation.
The two usually move together, but the exact service thresholds and minimums depend on the jurisdiction. For example, Ontario provides minimum vacation time and vacation pay at different service thresholds, while Saskatchewan starts with three weeks of annual vacation and uses a different vacation-pay formula. For the full jurisdiction-by-jurisdiction reference, see Canadian Employment Standards.
The basic calculation
At a high level, vacation pay is usually calculated by applying the jurisdiction's vacation-pay rate to the wages that count under that jurisdiction's definition. The difficult part is often not the multiplication — it is determining the correct rate and the correct wage base.
“Vacationable wages” is not a universal payroll field. Overtime, commissions, bonuses, public holiday pay, and previously paid vacation pay can be included or excluded differently by jurisdiction.
Why a single 4% rule does not work across Canada
Several jurisdictions use 4% as an early-service minimum, but the similarities end quickly. Rates can increase with service, and the definition of wages can also differ. A few official examples show why payroll software needs jurisdiction-specific rules.
4% or 6%, depending on service
Ontario's minimum vacation pay is 4% of gross wages, excluding vacation pay, for employees with less than five years of employment. The minimum rises to 6% once the employee reaches the five-year threshold for the applicable entitlement period.
4%, then 6% after five years
BC requires at least 4% of total wages and at least 6% after five consecutive years. Its published wage examples include items such as salary, commissions, statutory holiday pay, paid sick days required by Employment Standards, and previously paid vacation pay.
3/52, then 4/52 after ten years
During the first nine years, Saskatchewan calculates vacation pay as 3/52 of applicable wages, approximately 5.77%. After ten years with the same employer, the entitlement becomes 4/52, approximately 7.69%. Saskatchewan's wage base includes items such as overtime, public holiday pay, and vacation pay.
4%, 6%, then 8%
For federally regulated employment, the Canada Labour Code minimums correspond to two weeks after one year, three weeks after five years, and four weeks after ten years, with vacation pay of 4%, 6%, and 8% respectively.
These examples are not a substitute for the rule that applies to a particular employee. Some occupations, collective agreements, greater contractual benefits, and special employment-standard rules can change the result.
What counts as vacationable wages?
The rate is only half of the calculation. Payroll also needs to know which earnings belong in the vacation-pay base. This is where a generic “gross pay × rate” shortcut can produce the wrong answer.
- Regular salary or hourly wages are commonly included.
- Commissions and earned bonuses may be included depending on the jurisdiction.
- Overtime is included in some jurisdictions and excluded from the relevant base in others.
- Public holiday pay can be vacationable in some jurisdictions.
- Vacation pay itself is included in the wage base in some jurisdictions and excluded in others.
That is why a payroll system should resolve the employee's province or federal jurisdiction before calculating the vacation amount, rather than applying one national earnings definition.
Accrual versus paying vacation pay on each cheque
Build a vacation balance
The employer tracks vacation pay as it is earned, then pays the applicable amount when the employee takes vacation or at another time permitted by the employment-standard rules. The payroll record needs to preserve both the amount earned and the amount actually paid.
Pay vacation pay with regular payroll
Some jurisdictions allow vacation pay to be paid on each regular paycheque when the required conditions or written agreement are met. This changes when the employee receives the money, but it does not remove the need to calculate the correct employment-standard entitlement.
Do not assume pay-as-you-go is available on the same terms everywhere. Check the applicable employment-standard rule and any written-agreement requirement before configuring payroll.
What happens when employment ends?
Outstanding vacation pay normally remains a payroll obligation when employment ends, but the deadline and the earnings on which the final vacation pay is calculated vary by jurisdiction. For example, Ontario requires earned and unpaid vacation pay to be paid after employment ends within its statutory timing rules, while Saskatchewan requires previously unpaid vacation pay to be paid within its own termination deadline.
A final-pay calculation therefore should not simply clear a vacation balance. It needs to determine what was earned, what was already paid, and what remains payable under the applicable employment standards.
How CRA treats vacation pay
Once vacation pay is paid, the calculation moves from employment standards into payroll tax. CRA requires vacation pay to be reported as employment income and says the deduction method depends on how the vacation pay is paid.
| Payment situation | CRA payroll treatment |
|---|---|
| Vacation pay paid while the employee is on vacation leave | EI and CPP are calculated in the same manner as regular salary. Income-tax table use depends on whether the vacation pay is separate or included with regular earnings. |
| Vacation pay paid continuously through the year, or paid instead of taking vacation | CRA uses the bonus or irregular-payment method for income tax and CPP, while EI is calculated in the same manner as regular salary. |
CRA also requires the payment to be reported on the applicable T4 employment-income, insurable-earnings, and pensionable-earnings boxes. For the broader distinction between employment standards and CRA, see CRA vs Employment Standards.
What if vacation pay was missed?
First determine whether the employee was owed vacation pay that was never paid, or whether the employer paid the amount but recorded or reported it incorrectly. Those lead to different corrections.
- Owed but not paid: reconstruct the entitlement under the applicable employment standards, then process the amount through payroll when it is actually paid.
- Paid but recorded incorrectly: correct the payroll history and determine whether any deduction, remittance, pay-stub, or T4 correction is required.
Do not rewrite historical payroll simply because today's calculation says a different amount should have been paid. Payroll records need to distinguish the legal entitlement from the amount that was actually paid.
How Beanflow handles the two layers
Beanflow Payroll does not currently support Quebec payroll calculations. Quebec reference content is provided for comparison, but it should not be read as support for running Quebec payroll.
Related payroll guides
Official sources
- CRA — Vacation pay and public holiday payments
- ESDC — Annual vacations and general holidays for federally regulated employees
- Ontario — Vacation
- British Columbia — Annual vacation
- Saskatchewan — Calculating and Paying Vacation Pay
This article is general information, not legal or tax advice. Employment-standard rules can change and special rules may apply to particular occupations or workplaces. Confirm the current government source for the employee's jurisdiction before relying on a calculation.