Tips on how to comply with ESA to avoid potential disputes, ensure employees get desired incentive
At this time more than any in my recent memory, I am seeing employees putting a premium on time off as a perk of employment rather than monetary bonuses.
While it is clear that the line between work and pleasure is increasingly blurred, it is also obvious that people are loathe to work for the weekend when they can achieve rich professional lives and get time to actively pursue their outside interests.
As employers, we need to be aware of what our staff need and where they place importance. Therefore, if vacation time is of critical importance to our workers, then we need to understand the ins-and-outs of vacation entitlements.
Vacation entitlements are an essential aspect of employment law. In British Columbia as in other jurisdictions, we have minimum entitlements for vacation pay and vacation time set out in the Employment Standards Act (ESA).
It is very important to understand that vacation time and vacation pay are separate entitlements under the ESA. For ease of administration, many employers choose to provide them as a joint entitlement (“paid vacation”) but they are, in fact, distinct entitlements.
Vacation time: In BC, vacation entitlements are accrued as employees work over a 12-month period, known as the "entitlement year." For employees who have completed one year of employment, the minimum vacation entitlement is two weeks. This entitlement increases to three weeks after five consecutive years of employment with the same employer.
Employers must ensure that employees take their annual vacation within 12 months after completing the year of employment in which the vacation was earned. However, the timing of vacation can be at the discretion of the employer, which means that employers can dictate when employees take their vacation time as long as the employees are given the required notice before their vacation starts. This requirement allows employers to manage their workforce effectively while ensuring employees receive their entitled rest periods.
Again, employers must make sure that employees take at least the minimum time off each year stipulated by the ESA though employers can offer more time off if they choose.
Vacation pay: In addition to annual time off, employees are also entitled to vacation pay. In BC, vacation pay must be at least 4% of the "gross wages" earned by the employee in the 12-month period the vacation is being taken. After five (5) years of employment, this percentage increases to 6%.
"Gross wages" includes most types of earnings, such as regular wages, salary and commissions, statutory holiday pay, paid sick days required under the ESA, certain bonuses and previously paid vacation pay.
Vacation pay must be paid at least one week (7 days) before an employee starts their vacation. However, if the employee and the employer agree in writing, then vacation pay can be paid out each payday. In light of the requirement for written agreement for vacation pay to be provided each payday, it is important that vacation and vacation pay entitlements be spelled out in the written employment agreement.
Paid vacation: Many employers will opt to provide employees with paid vacation each year as a way of dealing with vacation and vacation pay together. However, it is important to ensure that the pay provided to employees during vacation actually accounts for the gross wages which the employee earned before the vacation commenced.
If an employer provides more paid vacation time than is required under the ESA , the employer may allow a rollover of the excess to a subsequent year or paid out the excess unused entitlement at year-end. However, it is critical that employees be provided and take all statutorily mandated vacation time each year.
If a rollover system is used, it is practically important to keep close track of the accrual year over year since our experience proves that unchecked accruals can result in very significant amounts of money owed to employees particularly those with longer tenure.
Contractual vacation rights and leaves: Under the strict requirements of the ESA, employees are entitled to time off as well as vacation pay as a percentage of their wages. Therefore, when employees are on leave (subject to any sick pay, etc. under the ESA or policy), they are generally getting time away from work (satisfying the time off requirement) and are not earning wages so they are not entitled to vacation pay (since they are not earning wages while on leave).
However, if employees are entitled to accrued paid vacation under their employment agreement, then they generally accrued vacation entitlements while on leaves. This accrued right can be surprising to employers who may not have turned their minds to leaves when drafting the employment terms.
When preparing your written employment terms and administering vacation entitlements, it is important to consider the following:
- Will you be offering vacation time and vacation pay as separate entitlements?
- Do you want to exceed the statutory requirements as a competitive advantage or as a way of incentivizing your staff?
- Do you intend for employees to accrue paid vacation while on periods of leave?
- If not, ensure that your “rules” for vacation would not be deemed discriminatory under the Human Rights Code in that they create unfairness for those dealing with maternity, parental or medical leaves (to name a few examples)
- Do you require a policy that clearly sets out how vacation entitlements are accrued and can be used?
Summary on vacation entitlements
It is important for both employers and employees to familiarize themselves with the requirements of the ESA around vacation entitlements to ensure compliance, avoid any potential disputes and ensure that they are providing the desired incentive.
Vacation entitlements play a crucial role in maintaining a healthy work-life balance and contributing to the overall well-being of employees. By adhering to the standards set by the ESA, employers in BC can foster a positive and productive work environment that values and respects the importance of rest and relaxation. Going above and beyond the statutory requirements can even provide a competitive advantage and incentivise your hard-working talent. However, it is important that the nuances of vacation rights be understood and properly applied.
Richard B. Johnson is Co-Founder + Partner, Ascent Employment Law in Vancouver.