Canadian Payroll Reporter

May 2014

Focuses on issues of importance to payroll professionals across Canada. It contains news, case studies, profiles and tracks payroll-related legislation to help employers comply with all the rules and regulations governing their organizations.

Issue link:

Contents of this Issue


Page 1 of 7

2 Canadian HR Reporter, a Thomson Reuters business 2014 News May 2014 | CPR May 2014 May 2014 | CPR CPR Complying with vacation Complying with vacation standards not always easy standards not always easy A look at some of the main challenges employers and payroll departments face A look at some of the main challenges employers and payroll departments face BY SHEILA BRAWN EMPLOYMENT standards rules can be a challenge for employers and payroll depart- ments. One area that can test even the most seasoned payroll professional is vacations. "We have lots of challenges," says Cheryl Ball, a payroll con- sultant with the Canadian Pay- roll Association (CPA), speak- ing about payroll professionals. She adds that the CPA handles queries about vacation require- ments all year from payroll prac- titioners looking to better un- derstand the rules. Without a thorough under- standing of the law and well- thought-out vacation policies, employers could face fines or penalties, says lawyer Karen Sargeant, a partner with Fasken Martineau in Toronto. Although a vacation dispute on its own rarely ends up as an issue before the courts, she says, "that's not to say it couldn't be, particularly where employers have use-it-or-lose-it policies." These policies require em- ployees to take their vacation by a certain date or lose it. "Es- sentially, you can't have these policies. They are not legal in Canada," says Sargeant. Employment standards rules across Canada require that em- ployees get a minimum amount of vacation time and vacation pay each year. In Ontario, for ex- ample, employees are entitled to at least two weeks' vacation time each year after a full year of em- ployment. Employees also have a right to receive at least four per cent of the total wages they earned during the period of the vacation entitlement. "If you simply have a use-it-or- lose-it policy (and) the employee has not received the vacation time or if they take no vacation, the result is they receive no va- cation time or vacation pay," she says. "If they made a claim (with Employment Standards) down the road, they would be success- ful," says Sargeant, adding, "That vacation pay continues to accrue even if you have a use-it-or-lose- it policy if the employee makes a claim for it. They truly can't lose it." Sargeant recommends that employers revise vacation poli- cies to remove use-it-or-lose-it provisions. If employers really want to keep them, the policy must state that it is subject to the legislated minimums for vaca- tion, she says. "If you want to have a use- it-or-lose-it policy, make it clear that it is only the amount over and above the statutory minimums that you can lose," Sargeant says. "For example, in Ontario, if you've got an employee who is entitled to four weeks' vacation, you can say, 'You lose the two weeks over and above the statu- tory minimums if you haven't taken that.'" The policy must also clearly distinguish between the amount the employer is required to pro- vide and the amount the em- ployer is actually providing. "If you don't distinguish be- tween a statutory minimum and what the person is actually get- ting, what they are actually get- ting could become the minimum at the employment practices branch that various ministries of labour would enforce," Sargeant says. Another challenge is making sure payroll pays employees the correct amount of vacation pay. All jurisdictions require that employees receive at least four per cent of their earnings for vacation pay. Most jurisdictions increase the minimum to six per cent after a specified number of years (for example, after five years in Alberta). Ontario and Yukon are the only two jurisdic- tions that do not. Saskatchewan's requirements are slightly different. Labour standards legislation there states employers must pay employees 3/52s of their total earnings in the previous year as vacation pay, with the minimum rising to 4/52s after 10 years. The difficulty for payroll can come from not seeing vacation time as separate from vacation pay, as the law requires, and paying employees their regular earnings for the time they are on vacation. Regular earnings may be less than the amount of vacation pay to which an employee is entitled, depending on the types of earn- ings the employer has paid the employee. "Wages (for calculating va- cation pay) are defined quite broadly and include more than just base pay," says Sargeant. "It all depends on what the definition of wages are in that province. They need to go to the provincial legislation. Some types of bonuses are included in the definition of wages — for example, bonuses that are de- pendent on production. Other bonuses, completely discretion- ary bonuses, for example, may not be included in the definition of wages." To avoid problems, Ball says payroll practitioners must learn what is included and what is ex- cluded from vacation pay in each of their jurisdictions. Once they know the rules, they must ensure their system for tracking vacation pay is set up to include the correct types of earnings. She suggests payroll practitio- ners visualize using a bucket to collect the types of earnings to include when calculating vaca- tion pay. Each time payroll pays earnings subject to vacation ac- crual to an employee, payroll should add the earnings to the employee's bucket. At the end of the year, the bucket should be full of earnings that payroll will use to calculate the amount of vacation pay. Even if payroll knows which earnings to include, there must be a system in place to ensure vacation pay is actually paid to employees. Legislation across Canada generally requires employers to pay vacation pay when employ- ees take their vacation. If employers continue to pay employees their regular earn- ings instead of vacation pay for the vacation time, they could have to balance everything out at the end of the year. "The problem is making sure that you meet the minimum em- ployment standards and mak- ing sure that the bucket actually does that. Sometimes people will just be merrily going along and putting money in the bucket and putting money in the bucket, never emptying the bucket out. At the end of the year, they will have paid them these paid (va- cation) days and they will have not emptied the bucket and then they will have to compare what's truly been paid with what's truly in the bucket." Sargeant recommends that even if payroll departments think they are paying the right amount of vacation pay, they should do reconciliation at the end of the year to ensure employees have received the proper amount of vacation time and pay. "For every employee, they should be doing a calculation See SEPARATE on page 7 WAGES FOR CALCULATING VACATION PAY ARE DEFINED QUITE BROADLY.

Articles in this issue

Archives of this issue

view archives of Canadian Payroll Reporter - May 2014