14 Nov How To Calculate Vacation Pay in BC
Calculating vacation pay in BC is not as easy as paying 8 hours at regular wage (for reasons illustrated here), but it is a pretty simple calculation just the same. Of course the simplest option is to try Payroll Connected for 30 days free, and then let our software do all the heavy lifting for just $9 per month thereafter. However for those not yet ready for the automated option, here’s how to go about it the old fashioned way.
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The basics of Vacation Pay in BC are this:
– Employees are entitled to Vacation Pay in BC after 5 calendar days of employment
– An employee is entitled to 2 weeks of vacation pay per year, paid at 4% of their total wages for the first five years.
– After 5 years of employment, an employee is then entitled to 3 weeks of vacation pay a year, paid at 6% of their total wages.
– If the employee is terminated, they are to be paid all vacation pay owed to them at that time
The Vacation Rate is applied to their ‘Total Wages’ that includes:
– Regular Wages
– Overtime Wages
– Statutory Holiday Pay
– Bonuses which meet the definition of wages
– Vacation Pay
Yes, you are calculating Vacation Pay on Vacation Pay, or Vac-On-Vac. Don’t blame me, I’m just reporting here.
A note regarding Salaried Employees: They are not required to receive Vacation Pay, since their wages are always the same anyhow; they only get Vacation Days off.
If you’re just starting out, the first thing to determine is if your employees are going to Accrue Vacation Pay (save it up each paycheck, to be used at a later date), or if they’re going to have it paid out on each paycheck.
Paying out vacation pay on each paycheck, in my opinion, more is beneficial to the employer. Since the employee receives their Vacation pay on each check, the only thing the employer needs to keep track of is how many days off the employee takes within their employment year.
Allowing the employee to accrue vacation pay is more beneficial to the employee, again in my opinion, in that it allows them to still get a steady paycheck, even when they take time off. The down side however is that you have to keep track of how many days AND how much Vacation Pay they have saved up, so it’s more work for the Employer, if they’re not using software that tracks it automatically (which ours does).
And now what you actually came here for.
Calculating Vacation Days
First we’ll address the easier of the two; tracking vacation days earned. This should be done for both Accrue and Non-Accrue employees as vacation time taken are insurable hours (for Employment Insurance). To determine how much vacation time an employee earns per pay period, simply take the number of days they typically work in a week, multiply it by how many weeks they’re allowed, then divide that result by the number of pay periods in the year.
Example: Kylie who is paid semi-monthly works five days a week and gets two weeks off a year. So their calculation looks like:
5 work days a week x 2 weeks of vacation time = 10 days off
10 days off / 24 pay periods in a year = 0.42 days off earned per pay period
Therefore, on the first pay period they earn 0.42 days off, then 0.84, then 1.26 to earn their first full day off. When they use a day off, simply subtract the one from the total earned. Easy!
Calculating Vacation Pay
The first thing to note is that this is completely different than Vacation Days off. Vacation Pay does not have a 1 to 1 relationship with Vacation Days, which is why a day off for Vacation Pay is NOT the same as a ‘regular day’s pay’.
Why?
Because total wages, especially for hourly employees, is often variable, and Vacation Pay is calculated based on Total Wages, that means that Vacation Pay is ALSO variable (unlike Vacation Days which is always earned at the same amount paycheck after paycheck).
To calculate the Vacation Pay in BC (it’s different province by province), add up the:
+ Regular Wages
+ Overtime Wages
+ Satutory Holiday Pay
+ Commissions
+ Bonuses treated as Wages
+ Vacation Pay Used (for Accruing employees that took vacation time off)
——————————————
= SubTotal Wages
Now multiply the SubTotal Wages by the vacation rate. Ta-da! You now have the Accrual Amount. So if the employee is Accruing Vacation Pay, this is the amount you record as the employee earning for the period.
Now one last bit for employees that have their vacation pay paid out on each paycheck. We have to account for the lack of the ‘Vacation Pay Used’ ability by applying the same vacation rate to the SubTotal, and then you have their total ‘vac-on-vac’ vacation pay for the period.
Example 1: Stuart accrues their vacation pay and earned $2,000.00 in regular wages plus $200.00 in Overtime. They get a 4% vacation rate. Therefore the amount of vacation pay they accrue is:
$2,000.00 + $200.00 = $2,200.00
$2,200.00 x 4% = $88.00 in accrued vacation pay.
When they use some Vacation time, this $88.00 will be part of the SubTotal amount for THAT pay period, so that is when they will get their Vac-On-Vac amount calculated.
Example 2: Jessica gets their vacation pay paid out on each paycheck. They earned $1,000.00 in regular wages, plus $100.00 in overtime. They also get a 4% vacation rate. Their vacation pay will be:
$1,000.00 + $100.00 = $1,100.00
$1,100.00 x 4% = $44.00 Vacation Pay
$44.00 x 4% (again) = $1.76 Vac-On-Vac
Then add the two vacation calculations together:
$44.00 + $1.76 = $45.76 in Total Vacation Pay
Taking Vacation Time Off
For an employee that gets their vacation pay paid out each paycheck, it’s as easy as they, and the employer, deciding on what days off they can take, and that’s that. For employees that accrue vacation pay however it’s a little more involved.
From Example 1 above, let’s pretend Stuart has 4.62 Vacation Days accrued and $1,025.33 in Vacation Pay accrued. Now they want to take 3 days off. How do you calculate it?
Simply divide the Vacation Pay accrued by the Vacation Days accrued to determine how much Vacation Pay they will get for each day off:
$1,025.33 / 4.62 = $221.93
Then multiply that amount by the number of days they’re taking off:
$221.93 x 3 = $665.79 Vacation Pay
Easy! But remember: This will likely NOT be the same as a ‘Regular Day’s Pay’ because it’s calculated based on Total Wages, which likely fluctuates pay period to pay period.
Hopefully this guide has proven to be useful, and remember that if you ever want to escape from Payroll Misery, Payroll Connected is here to help.
For all official labour standards, consult the government website here:https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standards/forms-resources/igm/esa-part-7-section-58