Vacation pay is the line most Canadians never check. It shows up as “VAC” on a pay stub, or arrives as a lump sum before a trip, or lands in a final cheque when a job ends — and almost nobody verifies the number. So how is vacation pay calculated? By a percentage of your gross earnings, set by the province you work in rather than by your employer, and the rules vary more than most people expect. Saskatchewan starts everyone at three weeks. Newfoundland and Labrador makes you wait fifteen years for the same thing. Here’s how the math actually works.
The Two Systems: Vacation Time vs Vacation Pay
These are separate entitlements, and confusing them is the root of most vacation-pay disputes.
Vacation time is the number of weeks off you’re entitled to take. Vacation pay is the money attached to that time, and it’s calculated as a percentage of your gross earnings — typically 4% for a two-week entitlement and 6% for three weeks. The percentages aren’t arbitrary: two weeks out of a 52-week year is 2 ÷ 52 = 3.85%, rounded up to 4%. Three weeks is 3 ÷ 52 = 5.77%, rounded to 6%.
Employers can deliver vacation pay two ways, and both are legal in most jurisdictions:
- Accrued and paid out — the percentage is added to each cheque as a separate line, or banked and paid before you take your leave. Common for hourly, part-time and casual workers.
- Paid time off — you’re salaried, you take three weeks, and your salary keeps arriving. Common for salaried staff.
The catch with the second method: your employer still has to confirm that the value of the paid time off meets or exceeds the statutory percentage of your gross earnings. If it doesn’t, they owe you the difference. More on that below.
How Is Vacation Pay Calculated in Ontario?
Ontario’s Employment Standards Act sets two tiers based on length of service with the same employer:
| Length of service | Vacation time | Vacation pay |
|---|---|---|
| Less than 5 years | 2 weeks | 4% of gross wages |
| 5 years or more | 3 weeks | 6% of gross wages |
Two details matter more than the headline percentages.
“Gross wages” is broader than your base pay. In Ontario the 4% or 6% applies to gross wages earned in the vacation entitlement year, which includes overtime, commissions, non-discretionary bonuses and public holiday pay. It excludes vacation pay itself — you don’t earn vacation pay on vacation pay in Ontario. If your employer is calculating your 4% on base salary only and you earn meaningful overtime or commission, you’re being underpaid.
Vacation pay and vacation time accrue on different clocks. You start earning vacation pay from your first day, but you generally can’t take vacation time until you’ve completed a vacation entitlement year. That’s why a new employee who leaves after eight months is still owed 4% of everything they earned, even though they never became eligible to book time off.
Province Comparison Table
Minimum entitlements across every Canadian jurisdiction. These are floors — your contract or collective agreement can be more generous, never less.
| Jurisdiction | Starting minimum | Increases to 3 weeks / 6% | Vacation pay |
|---|---|---|---|
| Federally regulated | 2 weeks after 1 year | After 5 years (4 weeks / 8% after 10) | 4% → 6% → 8% |
| Alberta | 2 weeks | After 5 consecutive years | 4% → 6% |
| British Columbia | 2 weeks after 1 year | After 5 years | 4% → 6% |
| Manitoba | 2 weeks | After 5 years | 4% → 6% |
| New Brunswick | 2 weeks (or 1 day per month worked) | After more than 8 years | 4% → 6% |
| Newfoundland and Labrador | 2 weeks | After 15 years | 4% → 6% |
| Nova Scotia | 2 weeks | After 8 years | 4% → 6% |
| Ontario | 2 weeks | After 5 years | 4% → 6% |
| Prince Edward Island | 2 weeks | After 8 years | 4% → 6% |
| Quebec | 2 weeks after 1 year | After 3 years of uninterrupted service | 4% → 6% |
| Saskatchewan | 3 weeks after 1 year | 4 weeks after 10 years | 3/52 (~5.77%) → 4/52 (~7.69%) |
| Northwest Territories | 2 weeks | Starting with the sixth year | 4% → 6% |
| Nunavut | 2 weeks after 1 year | After 5 years | 4% → 6% |
| Yukon | 2 weeks per completed year | No statutory step-up | 4% minimum |
Three jurisdictions break the pattern and are worth knowing about. Saskatchewan is the most generous starting point in the country — three weeks from year one, and the percentage is 3/52 rather than a rounded 6%. Quebec reaches three weeks after just three years, the fastest step-up among the provinces. Newfoundland and Labrador is the slowest by a wide margin: fifteen years of continuous service before the third week arrives.
What counts as vacationable earnings also varies. Alberta explicitly excludes overtime pay and general holiday pay from the wages used to calculate vacation pay; Ontario and Newfoundland include overtime. If you work in more than one province over a year, the rules follow the province where you work, not where your employer is headquartered.
Worked Examples
Hourly worker with overtime (Ontario, 3 years of service). You earn $25 an hour and work 2,000 regular hours plus 120 hours of overtime at time-and-a-half. Regular wages are $50,000 and overtime adds $4,500, for $54,500 in gross vacationable wages. At 4%, your vacation pay is $2,180. If your employer had run 4% on base wages only, you’d have received $2,000 — a $180 shortfall created entirely by leaving overtime out of the calculation.
Salaried worker with commission (Ontario, 7 years of service). Your base salary is $70,000 and you earned $10,000 in commission, so vacationable earnings are roughly $80,000. At 7 years you’re in the 6% tier, so the minimum monetary value of your vacation is about $4,800. But three weeks of base salary is only 3 ÷ 52 × $70,000 = $4,038. Simply giving you three paid weeks doesn’t clear the bar — your employer owes roughly $760 in top-up. This is the single most common vacation-pay error in Canadian payroll, and it almost always hits commissioned and bonus-earning staff.
Part-time worker (Ontario, first year). You work irregular shifts and earn $10,800 over the year at $18 an hour. Your vacation pay is 4%, or $432. Employers usually handle this by adding 4% to every cheque — an extra $0.72 for every hour worked — and showing it as a separate line. Check that the line is actually there; if your stub shows no vacation pay at all and none has been banked, something is wrong.
To see how any of these land after deductions on an actual cheque, run the figures through our Payroll Calculator.
Is Vacation Pay Taxed Differently?
No. Vacation pay is ordinary employment income. It’s subject to income tax, CPP and EI exactly like regular wages, and it’s taxed at the same marginal rates as everything else you earn. The difference between that rate and the share of income you actually pay is covered in our guide to marginal vs average tax rates.
What trips people up is withholding. When vacation pay arrives as a lump sum — a payout before a trip, or accumulated pay in a final cheque — payroll software often treats that cheque as if it were your normal earnings for the period. A cheque that’s three or four times your usual size gets withheld as though you earn three or four times your usual salary, so the tax bite looks brutal. It isn’t a different tax rate; it’s an over-estimate that settles up when you file, usually as a refund.
The reverse can also happen. If your employer adds 4% to every cheque, that money is being taxed steadily all year long and you’ll never notice it.
Frequently Asked Questions
How is vacation pay calculated in Canada?
It is a percentage of your gross earnings for the vacation entitlement year — 4% in most provinces for a two-week entitlement, rising to 6% once you qualify for three weeks. Saskatchewan uses 3/52 from year one instead.
Should vacation pay be on every cheque or paid out separately?
Either is legal in most jurisdictions, but it usually needs your agreement — in British Columbia, for example, paying it on each cheque requires written agreement, otherwise vacation pay is due before your vacation starts. Getting 4% on every cheque is convenient, but it means there’s no lump sum waiting when you actually take time off, so budget accordingly.
Do I get vacation pay if I quit?
Yes. Earned-but-unpaid vacation pay must be paid out when employment ends, whether you quit, are laid off or are dismissed. It is not “use it or lose it,” and it’s separate from any termination or severance pay. Deadlines vary: Ontario requires payment within seven days of the end of employment or on the next regular pay day, whichever is later, while British Columbia requires 48 hours if the employer ends the relationship and six days if you quit.
Does vacation pay earn vacation pay?
It depends where you work. Six jurisdictions — British Columbia, Alberta, Saskatchewan, Newfoundland and Labrador, Nunavut and the Northwest Territories — calculate vacation pay on earnings that include previously paid vacation pay. Ontario does not. The difference is small in any single year but compounds over a long tenure.
Do statutory holidays count as vacation?
No. Public holidays are a separate entitlement with their own rules and their own pay calculation, and they don’t come out of your vacation weeks. See our list of 2026 statutory holidays by province.
My employer says I can’t carry vacation over. Is that allowed?
Employers can generally require that vacation be taken within a set window — in Ontario, within ten months of the end of the vacation entitlement year. What they cannot do is make earned vacation pay disappear. If the time expires unused, the money is still owed.
What if I work part of the year?
Vacation pay is a percentage of what you actually earned, so it prorates automatically. Vacation time generally requires completing a full entitlement year before you can book it, which is why short-tenure employees are often owed vacation pay they never got to spend as time off.
How do I check whether I’m being paid correctly?
Add up your gross earnings for the year from your pay stubs, apply your province’s percentage, and compare that to the vacation pay shown on your stubs or T4. If there’s a gap, raise it with payroll first — most shortfalls are configuration errors rather than bad faith. If that doesn’t resolve it, your provincial employment standards office handles vacation pay complaints.
All entitlements verified against federal, provincial and territorial employment standards publications. Minimums only — your contract or collective agreement may provide more. Last updated: July 2026.