Annie Chong, manager of Carswell’s payroll consulting group, fields questions from readers
Question: Our employees are paid monthly. What source deductions tables do we use to calculate their vacation pay when they take one- or two-week vacations?
Answer: To calculate income tax source deductions on vacation pay when an employee takes vacation time use the income tax deduction tables that apply to the vacation period.
For instance, for a two-week vacation, use the biweekly tables. If you are paying vacation pay, but the employee is not taking vacation time (e.g., on termination of employment), calculate income tax deductions using the bonus method. For information on the bonus method, please refer to 7.4.1, Bonuses, Incentives, and Awards, for federal calculations and 8.4.1, Bonuses, Incentives, and Awards, for Quebec calculations.
For C/QPP contributions, calculate the deductions in the same way as you would from regular pay without changing the pay period table if the employee takes vacation time. If no time is taken, use the fixed contribution rate, but do not deduct more than the annual maximum employee contribution.
For EI and QPIP premiums, calculate the deductions in the same way that you would from regular pay, being careful not to deduct more than the annual maximum employee premium amount.
Paying vacation pay for salaried employees
Question: Can we pay our salaried employees their regular weekly wages as vacation pay?
Answer: Employers must be careful about doing this. Employment/labour standards legislation in all Canadian jurisdictions requires employers to pay employees a specified percentage of their earnings for vacation pay. The earnings included when calculating vacation pay may or may not be the same as the employees’ regular weekly pay since vacationable earnings may include payments such as: call-in pay, overtime pay, commissions, shift premiums and statutory holiday pay, among other payments.
As a result, the amount of vacation pay owing to an employee may be higher than the employee’s regular weekly wages. The types of payments that must be included when calculating vacation pay vary from jurisdiction to jurisdiction. For a listing of earnings in each jurisdiction that are included and excluded from vacation pay, please refer to Exhibit 21.1, Vacationable Earnings.
Calculating vacation entitlement when a business is sold
Question: We recently bought an existing business and retained the employees of that company. For calculating their vacation entitlement, do we use the date that we purchased the company as their date of hire?
Answer: No. When an employer sells or transfers its business to another owner and the new owner continues to employ the employees of the original owner, their employment is considered continuous and uninterrupted by the change in ownership. As a result, for calculating vacation entitlement, the new employer must use the employees’ date of hire with the original employer.
Note: Employment Standards laws in Ontario and Prince Edward Island specify that continuity of employment does not apply if the new owner hires the employees of the previous employer more than 13 weeks after the employees’ last day of work with the selling employer or the day of the sale, whichever comes first.
Annie Chong is manager of the payroll consulting group at Carswell, a Thomson Reuters business, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She can be reached at [email protected] or (416) 298-5085.
Answer: To calculate income tax source deductions on vacation pay when an employee takes vacation time use the income tax deduction tables that apply to the vacation period.
For instance, for a two-week vacation, use the biweekly tables. If you are paying vacation pay, but the employee is not taking vacation time (e.g., on termination of employment), calculate income tax deductions using the bonus method. For information on the bonus method, please refer to 7.4.1, Bonuses, Incentives, and Awards, for federal calculations and 8.4.1, Bonuses, Incentives, and Awards, for Quebec calculations.
For C/QPP contributions, calculate the deductions in the same way as you would from regular pay without changing the pay period table if the employee takes vacation time. If no time is taken, use the fixed contribution rate, but do not deduct more than the annual maximum employee contribution.
For EI and QPIP premiums, calculate the deductions in the same way that you would from regular pay, being careful not to deduct more than the annual maximum employee premium amount.
Paying vacation pay for salaried employees
Question: Can we pay our salaried employees their regular weekly wages as vacation pay?
Answer: Employers must be careful about doing this. Employment/labour standards legislation in all Canadian jurisdictions requires employers to pay employees a specified percentage of their earnings for vacation pay. The earnings included when calculating vacation pay may or may not be the same as the employees’ regular weekly pay since vacationable earnings may include payments such as: call-in pay, overtime pay, commissions, shift premiums and statutory holiday pay, among other payments.
As a result, the amount of vacation pay owing to an employee may be higher than the employee’s regular weekly wages. The types of payments that must be included when calculating vacation pay vary from jurisdiction to jurisdiction. For a listing of earnings in each jurisdiction that are included and excluded from vacation pay, please refer to Exhibit 21.1, Vacationable Earnings.
Calculating vacation entitlement when a business is sold
Question: We recently bought an existing business and retained the employees of that company. For calculating their vacation entitlement, do we use the date that we purchased the company as their date of hire?
Answer: No. When an employer sells or transfers its business to another owner and the new owner continues to employ the employees of the original owner, their employment is considered continuous and uninterrupted by the change in ownership. As a result, for calculating vacation entitlement, the new employer must use the employees’ date of hire with the original employer.
Note: Employment Standards laws in Ontario and Prince Edward Island specify that continuity of employment does not apply if the new owner hires the employees of the previous employer more than 13 weeks after the employees’ last day of work with the selling employer or the day of the sale, whichever comes first.
Annie Chong is manager of the payroll consulting group at Carswell, a Thomson Reuters business, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She can be reached at [email protected] or (416) 298-5085.
