Is an unlimited vacation policy right for your Canadian team?

What is the administrative reality of implementing an unlimited vacation policy in Canada? Here are a few things to consider about the importance of tracking vacation time taken in Canada, even if you have an unlimited vacation policy.

Canadian legislation states that new employees must receive 4% of gross earnings as vacation pay and at least 2 weeks per year away from work per year (note: the legislation varies a bit per province, but is comparable). So when developing an unlimited vacation policy, it’s important that vacation dates are still properly tracked as either “vacation” or “other” time taken, and not just all lumped as “PTO” (i.e. combining vacation with sick and personal days). If you don’t track “vacation” specifically, it will be difficult to prove, if audited, that the minimum legislation was followed and you provided the vacation amount provided under employment standards regulations. Keep in mind that some provinces, such as BC and QC, have vacation legislation which increases vacation to 6% of gross earnings after 6 and 5 years respectively – this is another reason to have a vacation tracking mechanism in place. 

Tracking “vacation” will also play a role in the amount of “vacation pay” entitled to an employee if they are terminated from employment. For example, under Canadian legislation, if 4% vacation on earnings has not been provided to the employee, it must be paid out upon termination. To give a worst case scenario, if you aren’t tracking “vacation”, the employee could argue that all of their PTO taken was for sick days and therefore you still owe them 2 weeks “vacation” per the legislation upon termination – if you keep poor records – the employee may have a case against you! 

There is also a legislative stipulation that vacation time/pay available to the employee should be reported on the employees’ pay stubs (although, we have not seen the Ministry of Labour come after any company for not doing this as of yet!). Also, it’s doubtful any employees would complain about improper tracking on pay stubs if they are provided unlimited vacation.

Another factor to keep an eye on is setting precedent (i.e. denying time off requests for some and not others). A training with your management team to set out guidelines on approving vacation requests is recommended. This includes discussing at what point employees are entitled to take vacation (i.e. how much can they take after how much time worked?). For example, if a six month employee wanted 3 paid weeks off, is that permitted?  Keep in mind that in Canada you generally cannot deduct any vacation time taken that an employer might want “back” after the employee terminates.

Lastly, be careful on the wording of the vacation policy and be sure you are not falling below minimum employment standards in your policy or in your employment contracts.

If all of the above is covered in your unlimited vacation policy, it’s certainly an innovative benefit to employees.

For more information on Canadian compliance contact Stacy or Kathryn at 1-866-859-4157.

www.hroptions.ca