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What small businesses need to know: vacation pay

Did you know that you must pay vacation pay on commissions employees earn? Many employers aren’t aware that vacation pay is paid on different types of earnings. In fact, in addition to base salary and commissions and depending on jurisdiction, vacation pay may be payable on such earnings as:

a)      Work-related bonuses;

b)      Notice of termination;

c)       Shift premiums; and

d)      Sick pay.

For a comprehensive list of vacationable earnings by jurisdiction, please visit http://www.ceridian.ca/en/resources-tools/legislation/vacationable-earnings.html.

Failure by an employer to properly calculate vacation pay may result in complaints being filed with the Ministry of Labour and corresponding fines and orders being issued against the employer. In fact, in 2013/2014, of the top five complaints reported to the Ontario Ministry of Labour, vacation pay/vacation time complaints ranked number 2!

In Naidu v. Hare Motors Ltd., a case decided in British Columbia, the employer was ordered to pay $7,769.10 in outstanding vacation pay on commissions plus costs for legal fees. The employee entered into an agreement with the employer which stated that “commissions…..includes holiday pay.” The employer argued that vacation pay was included in the commission. The employer was unsuccessful, however, because:

a)      The contract didn’t specify what portion of the commission was considered vacation pay, and therefore, no reasonable way of knowing how much vacation pay was being paid to the employee and whether it met with the minimum requirements under the Employment Standards Act; and

a)      The Employment Standards Act requires that after five (5) years of employment, vacation entitlement increases. Accordingly, the amount of vacation pay the employee was entitled to should have increased (the employee was employed with the organization 8 years), and the contract failed to account for this entitlement.

It is crucial that employers understand and comply with the employment standards legislation which regulates the types of earnings that attract vacation pay.

It is also important to note that an employer must differentiate between vacation time and vacation pay. Vacation pay is the actual amount of pay owed to employees and is independent of vacation time, which represents time away from work. Although this distinction is clear in the legislation, it is routinely misapplied by employers.

For more information on legislated employment standard minimums, please visit http://www.e2rsolutions.com/resource-centre/employment-standards.

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