Understanding Vacation Pay in BC: A Complete Employer Guide

By: Dessie Barton

 

Taking time away from work isn’t just a perk; it’s a legal right. In British Columbia, the Employment Standards Act (ESA) sets out specific rules about vacation pay and time off. Whether you’re an employer managing payroll or an employee planning your next getaway, it’s important to understand how vacation pay is earned, calculated, and paid.

BC Vacation Pay Rules: How It’s Earned and Calculated

Vacation pay begins accruing from an employee’s first day of work, even during a probationary period. It is calculated as a percentage of gross wages, which includes regular pay, overtime, bonuses tied to productivity, and commissions.

The basic rules are:

• 4% of gross wages – for employees with less than five years of employment.
• 6% of gross wages – for employees with five or more consecutive years of employment.

Here’s a simple example:

• An employee earns $50,000 in their first year. Their vacation pay entitlement is 4% x $50,000 = $2,000.
• Once they reach five years of service, the same employee would be entitled to 6% vacation pay, or $3,000 on $50,000 of earnings.

Vacation pay must continue to accrue while an employee is working, even if they haven’t yet taken their vacation time.

When Employees Become Entitled to Vacation Time

While vacation pay starts accruing immediately, BC vacation time entitlement kicks in later:

• After one year of employment, employees earn at least two weeks of vacation.
• After five consecutive years, this increases to at least three weeks.

Employers may choose to offer more generous vacation entitlements through company policy or employment contracts, but they can’t offer less than these minimums.

Vacation time must typically be taken within 12 months after it is earned. Employers are responsible for scheduling vacation time and ensuring employees actually take their leave; it’s not something that can be indefinitely deferred.

How Vacation Pay Should Be Paid Out

Employers can choose one of three main methods for paying vacation pay:

1. With each paycheque: Some employers include vacation pay in every pay period, showing it as a separate line item on the paystub.
2. Before vacation is taken: If employees take paid vacation, the vacation pay for that period can be paid out before their time off begins.
3. At termination: If an employee leaves the company, all earned but unused vacation pay must be paid out with their final pay.

The key is consistency and transparency; whatever method is used should be clearly stated in the employment agreement or policy.

Carrying Over Vacation Time and ESA Compliance

The ESA expects employees to actually take their vacation time. Employers must ensure employees take their vacation within 12 months of earning it. While it’s common for workplaces to allow some carryover of unused days, it’s not a legal requirement.

Allowing excessive vacation carryover or “banking” time indefinitely can create financial and compliance risks. It also defeats the purpose of rest and recovery that a vacation is meant to provide.

Best practice:

• Encourage employees to take their vacation annually.
• Have a clear written policy outlining how much, if any, vacation can be carried forward and by when it must be used.

Common Vacation Pay Compliance Mistakes Employers Make

Even well-intentioned employers can make mistakes. Some of the most frequent issues include:

• Paying 4% vacation pay indefinitely instead of increasing to 6% after five years.
• Not including all earnings (like overtime or commissions) when calculating vacation pay.
• Treating vacation pay as a bonus rather than a legal entitlement.
• Failing to pay vacation pay upon termination, regardless of whether the employee resigned or was dismissed.
• Not keeping proper records of vacation accruals, payments, and usage.

Employers should regularly audit their payroll systems to ensure calculations are accurate and policies align with the ESA.

Best Practices for BC Employers

To maintain compliance and promote a healthy workplace culture:

1. Document everything – Have clear written policies on vacation accrual, scheduling, carryover, and payout.
2. Communicate expectations early – Review vacation rules with new hires so there are no surprises later.
3. Use payroll software wisely – Ensure it automatically updates vacation rates when employees reach the five-year threshold.
4. Schedule proactively – Remind employees to book vacation well before the year-end to prevent carryover challenges.
5. Review regularly – Conduct an annual review of vacation balances and pay rates to ensure alignment with legislation.

Key Takeaways

• Vacation pay starts accruing from day one of employment.
• Employees earn 4% (two weeks) of vacation after one year, and 6% (three weeks) after five years.
• Employers can pay vacation pay with each paycheque, before vacation, or upon termination, but it must always be clearly documented.
• Vacation must be taken within 12 months of earning it; employers can require employees to take their vacation if necessary.
• Regular audits, clear policies, and proactive communication are essential for compliance.

Need Help Staying Compliant?

Understanding and applying BC’s vacation pay rules can feel straightforward—until exceptions arise. Whether you need to update your employee handbook or clarify your vacation policy, Pivot HR Services can help.

Contact us today to ensure your business is compliant, your employees are informed, and your policies reflect best practices.