Vacation pay in Canada (2026 cheat sheet)

Vacation pay is a mandatory requirement across Canada, designed to ensure employees can take time off to recharge.

Paid vacation supports productivity, engagement, and retention, and is an important tool in recruiting and keeping talented staff.

For employers, managing vacation pay correctly is critical — mistakes can lead to back pay obligations or legal issues.

What is vacation pay?

Vacation pay is the money employees (including part-time and casual employees) earn while taking time off. 

Under Canadian employment standards, employees are entitled to a minimum percentage of their gross earnings as vacation pay, which increases with tenure.

Employees start accruing vacation pay from the first day of employment. Some employers require employees to work a full year prior to taking a vacation but it is more common for employers to allow employees to take their vacation as earned, e.g. at the 6-month mark the employee is eligible to take 1 week of vacation.

Vacation pay is calculated based on total earnings, including salary, commissions, overtime, bonuses (some discretionary bonuses may be excluded), and certain allowances. It’s essential to include all applicable earnings, as underpayment can lead to costly compliance issues.

Employers have 2 main ways to manage vacations:

1. Accrued vacation time off – Employees take time off and are paid their normal wages during that period. Vacation pay is accrued and tracked until the employee takes the vacation. Essentially, the employer is putting aside a percentage of the employee's earnings that they then use to pay the employee while they are away on vacation.
2. Vacation pay payout – Employees receive a set percentage of their wages as vacation pay on each paycheck or at year-end. When they take time off, it is unpaid, because they’ve already received compensation for vacation time.

Either method is acceptable, but employers must comply with provincial minimums and clearly communicate the chosen approach. Generally speaking, we see accrued vacation time used when employees are salaried or work a consistent number of hours year-round.

Vacation payout is a common way to manage vacation pay for part-time and casual employees, and those on a fixed-term contract.

Minimum vacation entitlements by province

While specific rules around vacation entitlements vary by province, here’s a simple summary of minimum vacation entitlements (vacation time / vacation pay - minimum % of gross earnings) across Canada:

Paying and scheduling vacations

Vacation pay is typically paid before the vacation begins, though some provinces allow it to be included in regular paycheques, if agreed.

Employees must generally take vacation time within 12 months of earning it, but jurisdictions vary slightly. If a vacation coincides with a statutory holiday, employees are entitled to an additional day off.

Employers can schedule vacations to suit operational needs but you must give reasonable notice to employees. Conversely, employees cannot refuse vacation time scheduled by the employer, although you can come to an agreement to postpone or adjust timing.

Tracking employee vacation time

Employers must track vacation balances, accruals, and usage, and clearly itemize vacation pay on pay statements.

Upon termination, all accrued and unused vacation pay must be paid out, including during layoffs or if an employee resigns.

During maternity or parental leave, employees generally continue to accrue vacation time but do not accrue vacation pay as vacation pay is a percentage of earnings.

Do I have to pay employees for vacation time they don’t use?

Many businesses overlook the importance of setting clear rules around vacation carryover, which can create complications for both employers and employees. 

If vacation is allowed to accumulate indefinitely, it can become a significant financial liability, as you must pay out any unused vacation when an employee leaves.

To manage this effectively, best practice is to establish a policy that limits carryover — for example, allowing a maximum of one week to be carried over to the next year, with any remaining unused vacation forfeited.

Equally important is supporting employees in planning their time off, ensuring they take regular breaks to rest and recharge. Clear policies combined with proactive planning helps employees use their vacation while minimizing financial risk for the business.

Quick reference: vacation pay in Canada

• Decide whether vacation will be paid time off or paid out as a percentage, and communicate it clearly.
• Track vacation carefully to stay compliant and ensure your employees are taking the time away from work they are owed and that you as a business are not allowing employees to take more paid time off than they are entitled to.
• Plan and schedule vacation reasonably to meet business needs while respecting employee needs. Consider asking employees to submit their request by a certain date so all requests can be managed fairly.
• Create a vacation policy that describes your expectations around requesting time off, scheduling coverage, carrying over vacation and how conflicts will be managed.

Proper management of vacation pay protects your business legally while supporting a productive, engaged workforce. Clear policies and consistent tracking make compliance simple and reduce the risk of disputes.

Frequently asked questions about vacation pay in Canada

Can I make an employee take a vacation?

Employers should work with employees on deciding when they will take vacations. Giving employees choice around when they take vacation has a positive effect on morale. This isn’t always possible in some businesses. Some businesses close for a period of time so it makes the most sense for the employee to take their vacation at that time.

The employer is well within their right to determine when the employee goes on vacation. If you choose the vacation dates - e.g. over Christmas - you must give the employee advance notice of the dates. The length of notice depends on regulations in your province, but is usually between 2 or 4 weeks in advance.

To avoid employees building up too much vacation time (that you will have to pay out if an employee leaves the company), we recommend creating a policy that sets a maximum of what can be carried over to the next year, e.g. one week, with any remaining unused vacation being forfeited.

Can I really take people’s vacation away if they don’t use it?

Yes - if you have a policy that states vacation cannot be carried over and will not be paid out, you can remove unused vacation at the end of the year. This is not the best situation, though, and does not do a lot to promote a positive workplace.

The better option is to encourage employees to plan to use their vacation time and to keep employees up to date on how much vacation they have. A quarterly review of where your team is with their vacation is the best way to manage this.

Can an employee refuse to take a vacation?

No, employees can’t refuse to take their vacation if the employer schedules it. Provincial and federal employment laws require employees to take their annual vacation time, typically within 10 to 12 months of earning it.

You can agree to a worker’s request to postpone or waive their vacation for a specified period, but the employee can’t simply refuse to take it

Do I have to pay out unused vacation pay when an employee quits?

Yes. Employees are entitled to all their unused vacation pay when their employment ends, regardless of the reason for the employment ending.

Having a vacation policy that ensures vacation time does not build up is very important for ensuring you do not have to pay out large amounts of vacation at the end of employment.

What happens to vacation pay during layoffs or terminations without cause?

In the case of layoffs or terminations without cause, you have to pay employees all accrued and unused vacation pay with their final paycheck. This payout is separate from termination pay or severance and is usually calculated as either a percentage of their total wages — e.g 4% or 6% — or as an amount for any unused vacation days they have accrued.

You must make the payment within a specific timeframe — sometimes as quickly as within 48 hours — and often by the end of the next regular pay period or within 10-14 days of the termination date, depending on the province.

How do I handle vacation pay if an employee passes away?

When an employee passes away, you need to pay out any accrued vacation pay (along with final wages and other entitlements) to the deceased person’s estate.

You should report the payment as employment income and pay it by cheque.