Today we are going to dive into the world of Vacations….a looming financial headache we perceive that Employers will inevitably face. For those of you who may not be aware, vacation is based on BOTH VACATION TIME and VACATION PAY – A distinction that needs to be clear and understood.
Recently we have been having many conversations with clients about vacation entitlement. Specifically, what will employees be entitled to in 2021?
The simple answer is that it depends on how it is written in your policy manual.
Scenario 1
Calculated per calendar year: January to December
- Vacations shall be granted as follows:
- With 1 to 5 years of service at December 31 shall accrue 4% of total wages as vacation pay and shall be entitled to 2 weeks (two weeks) off work as vacation time.
- With 6 – 15 years of continuous service at December 31 shall accrue 6% of total wages as vacation pay and shall be entitled to 3 weeks (three weeks) off work as vacation time.
- With 15 plus years of continuous service at December 31 shall accrue 8% of total wages as vacation pay and shall be entitled to 4 weeks (four weeks) off work as vacation time.
Scenario 2
- Vacations shall be granted as follows:
- With up to 5 years of continuous service, he/she shall earn vacation with pay at the rate of 5/6 days per completed month, which is 2 weeks per year.
- With greater than 5 years but less than 15 years of continuous service, he/she will earn vacation with pay at the rate of 1 ¼ days per completed month, which is 3 weeks per year.
- With 15 plus years of continuous service he/she shall earn vacation with pay at the rate of 1 2/3 days per completed month, which is 4 weeks per year.
Both scenarios rightly capture an employer’s obligation for vacation entitlement, however the impact on the balance sheet is profoundly different when involving time off without pay.
There are always the two components for vacation entitlement. One is for time and the other is for pay.
Scenario 2 is triggered strictly by continuous service. Scenario 1 on the other hand is triggered by continuous service and also earnings (back to vacation TIME and vacation PAY). The impact of both layoffs and leaves of absence in the two scenarios have a different effect.
The former is a much larger balance sheet item, whereas the latter provides for a potential time off obligation.
The details in each jurisdiction as it relates to the time off due to the COVID-19 pandemic should be carefully evaluated to determine future obligations. As an example, in Ontario all layoffs were converted into a protected leave of absence for the period March 1, 2020 to NOW extended to July 3, 2021. Everyone who was absent in that period continued to accrue service but Scenario 2 attaches financial obligations for that period.
A thoughtful review of the overall operation for vacation entitlement will prevent unnecessary costs and time in the future.