What Most Employers Get Wrong About Vacation Policies

Every summer, a business owner sends me their vacation policy and asks if it's fine. And I’m usually glad they asked because there’s often something that’s not “fine.” Vacation is one of those areas where typical practices for small employers and legal requirements under employment standards part ways, and no one notices until there’s a fire. 

We’ve put together a list of the things we see crop up most often, and what should be sitting on your radar.

The Common Mistakes We See

Not knowing which rules apply to you. It seems basic, but we still see confusion, and it CAN get complex. Most Canadian employees fall under provincial employment standards legislation. Where this gets tangly is if you have employees in more than one province, each person is governed by the rules where they work. So one policy won't necessarily cover everyone. To add to the muddiness, federally regulated employees (read: banking, telecom, airlines, interprovincial transport, etc.) all fall under the Canada Labour Code instead. 

Minimums vary, with most provinces starting at two (2) weeks of vacation after one year, with vacation pay at 4% of total wages, stepping up to three weeks (6%) after five years. There are exceptions to this, including Saskatchewan and Quebec, so some thought needs to go into how you will unify vacation entitlements, which starts with knowing the rules and which ones apply to you.

"Use it or lose it" policies. It is a nice idea to be able to zero things out and keep it tidy and manage big financial liabilities, but you can’t do this as an employer.  Vacation pay is earned wages, which means someone doesn’t forfeit it because they didn’t use it before an arbitrary date. What you can do is require employees to take their vacation TIME within 12 months of earning it. The solution to ballooning vacation banks is a scheduling and workload management conversation and discussion about payout if accrued amounts are high, not a “use it or lose it” clause. 

Undocumented accrual methods. The ESA uses a backward accrual model, which means employees earn vacation in the year before they take it. Many employers use forward accrual instead, which means granting time at the calendar year start or hire anniversary. This is totally okay, so long as it meets the minimums. Either approach works. What doesn't work is having no written policy about it. Inconsistency follows, managers make different calls, and you end up arbitrating disputes that clear language would have prevented.

Paying vacation pay at the wrong time. In BC, vacation pay must be paid at least seven (7) days before vacation begins, unless you have a written agreement to roll it into regular paycheques. Ontario has a similar rule. Under the federal Code, it's 14 days. 

Policies that don't match how you actually operate. If your policy says four (4) weeks' notice for vacation requests but in practice you’ll routinely approve requests same-week, you've got a gap. And the gap doesn’t usually matter until there’s a dispute. The fix might be enforcing your policy, or it might be updating the policy to reflect your practice. Either way, what's written and what's practiced should always be the same.

Using one policy for a multi-province team. A policy written to BC or Ontario minimums could be offside in Saskatchewan from day one. If you have people in multiple provinces, you need either province-specific addendums or a single policy built to the most generous standard across your team. (PS - we can help discuss the pros and cons of different approaches.)

So What Does Good Look Like?

Good vacation administration encompasses equitable, thoughtful practices that think about total compensation strategy. The basis for that is a written policy that covers:

• Entitlements

• Accrual method

• How requests are made and approved

• How conflicts are resolved

• Vacation pay administration details

• And if you have a distributed team, a policy that reflects the province where your people work.

If this feels complicated or you have that tiny sinking feeling right now, maybe even thinking about pushing it for another year, that’s totally normal. We can help you uncomplicate this with some focused attention via our holistic-view HR Health Check. 

This cornerstone service is a structured review of all of your HR goodies: policies (including vacation), compliance, documentation, people processes, all of it. After the review, you know what’s working and what’s quietly waiting to become a problem. 

Ready to get on the list for the HR Health Check? Email us at connect@reimaginework.ca and we’ll make sure you’re the first to know when we open up availability.