Employers and managers often struggle with the distinction between an employee’s entitlement to, on the one hand, annual vacation time and, on the other, annual vacation pay. Understanding these two entitlements can be compounded when issues such as parental leave and commissioned employees are added to the calculation. Fortunately the first step in moving beyond the confusion is straight forward — understanding that the two entitlements, while sounding similar, are wholly separate obligations on an employer.
Section 57 of the Employment Standards Act requires an employer to ensure that an employee takes time off for vacation. After twelve consecutive months of employment, an employee is entitled to at least two weeks of annual vacation time. This increases to three weeks after five consecutive years of employment. Section 57, however, does not address how an employer is to pay employees for their vacations.
The amount of vacation pay (and when it is to be paid to the employee) is set out in Section 58 of the Act. The amount of vacation pay is based on the employee’s previous year’s total wages including overtime and vacation pay earned during that year. After five calendar days of employment, an employer must pay an employee at least four per cent of the employee’s total wage. This increases to six per cent once the employee has worked five consecutive years.
Vacation pay must be paid at least seven days before the beginning of an employee’s vacation or, if the employee agrees or it is specified in a collective bargaining agreement, on a scheduled pay day. If an employee is paid their salary during a vacation period, this will be considered vacation pay pursuant to Section 58 of the Act.
Complications can arise when issues of parental leave and employee commissions come into play. The Act provides that employees who are absent from work on parental leave are deemed to be continuously employed. Therefore, when employees return from such leave, they are entitled to vacation time and pay according to the minimum requirements set by the legislation. Vacation pay, however, is calculated based on a percentage of accumulated wages during the vacation entitlement year. As a result, employees who have not accumulated wages during a portion of an entitlement year (such as while on an unpaid maternity or parental leave) will also not have accrued vacation pay during that time.
The statutory obligations regarding vacation time and vacation pay apply equally to commissioned sales persons. Employees paid by commission must take annual vacation time and receive vacation pay. When an employer is calculating vacation pay it must include all commissions earned by an employee but it cannot incorporate vacation pay into the employee’s commission structure. Additionally, commissions that become payable during an employee’s annual vacation are not considered vacation pay.
As with any right and obligation, disputes can arise over issues of vacation time and pay. When they do, courts in British Columbia have determined that the parties should resolve their disputes through the Employment Standards Branch (as set out in the Act). Employees cannot seek remedies through the courts. In Macaraeg v. E Care Contact Centers Ltd., a 2008 decision by the British Columbia Court of Appeal, the Court found that the Employment Standards Act “provides a complete and effective administrative structure for granting and enforcing rights to employees.” The Court, therefore, confirmed that employees’ rights to vacation benefits must be pursued through the mechanisms set out in the Act and not through a civil action. This benefits employers as an employee’s claim is restrained by the time limits set out in the Act.
Navigating the details of vacation time and vacation pay can be a challenging experience for any employer. Employers can move through the confusion by recognizing that the two entitlements are wholly separate obligations owed to their employees.