Vacation pay bookkeeping in Canada: which rules and amounts to check

“Add four per cent” is not a complete Canadian vacation-pay policy. The minimum percentage, qualifying service, wage base, payment timing and right to time off depend on the governing employment standards and the employee's circumstances. A contract or collective agreement may provide more than the statutory minimum.

In the books, record the vacation entitlement that has been approved. Compare what the employee has earned with what has been paid and what is still owed. The accounts alone cannot tell you what employment law requires. This guide compares selected rules for covered employees as of October 27, 2026. It is not personal employment or payroll advice.

Write down which employment rules apply

Identify the employment standards that actually govern the workplace. Federal labour standards apply to federally regulated employment, not simply to every employer incorporated federally or operating in Canada. Provincial or territorial standards govern many other workplaces, subject to coverage and exceptions.

For each employee, record the applicable jurisdiction, employment start date, relevant continuous-service facts, entitlement or reference year, approved contractual entitlement and payment arrangement. Note whether an absence, transfer, interruption or special occupational rule requires review.

Do not assume the employee's home address alone settles jurisdiction. If coverage is unclear, obtain advice before configuring payroll. A correct multiplication applied to the wrong employment standard is still a wrong result.

Maintain separate records for time and money

Vacation time is the leave entitlement. Vacation pay is the associated monetary entitlement. Paying a percentage on each cheque, where legally permitted and properly agreed, does not automatically remove the obligation to provide the required time off.

Similarly, a leave request approved in days does not establish how much vacation pay has been earned or paid. A salaried arrangement can make the relationship less visible, but it does not make the distinction disappear. Check the actual payroll design before adding a percentage on top of salary or assuming salary has satisfied everything.

Track four things separately: time off earned, time off taken, vacation pay earned but not yet paid, and vacation pay already paid. Label the units clearly. If a system turns hours into money, check the rate and rule it uses. One old hourly rate does not necessarily give the correct value of every employee's vacation day.

Compare selected rules without turning them into a national formula

Selected minimum structures for covered employees; exceptions and better entitlements may apply

Jurisdiction	Selected time entitlement	Selected pay percentage
Ontario	Generally 2 weeks below 5 years; 3 weeks at 5 or more years, assessed under the entitlement-year rules	At least 4% or 6% respectively
British Columbia	2 weeks after 12 months; 3 weeks after 5 years	At least 4%; 6% after 5 years
Quebec	Generally 2 weeks after 1 year; 3 weeks at 3 years of continuous service at reference-year end; first-year rules differ	Generally 4%; 6% at 3 years
Federal	2, 3 or 4 weeks after 1, 5 or 10 consecutive years respectively	4%, 6% or 8% respectively

The threshold is not the only difference. Ontario's guidance excludes vacation pay from the gross-wage base used for its vacation-pay calculation. British Columbia's guidance includes previously paid vacation pay in total wages. Reusing the same payroll base across jurisdictions can therefore fail even when the percentage happens to match.

Reference years, partial years, protected absences and payment arrangements also matter. Quebec's usual reference year is May 1 to April 30, but another period can apply. Do not treat January 1 as the universal entitlement reset.

Check the amount still owed with an example

For a fictional employee, assume the authorized payroll review has confirmed a 6% vacation-pay entitlement. It has also confirmed $6,250 of eligible wages for the month under the applicable rule. No change in service threshold, special absence or other adjustment applies. At the start of the month, the business owes $1,260 in vacation pay. During the month, it pays $980 of vacation pay earned earlier.

The employee earns $6,250 × 6% = $375 in new vacation pay. The amount still owed, called the liability, is $1,260 + $375 − $980 = $655. This calculation tracks money, not vacation days left.

Under a simple accrual method, you record vacation pay when it is earned, not only when paid. The new $375 adds to vacation-pay expense and the amount owed. Paying vacation pay earned earlier reduces the amount owed. It does not create that expense again. Actual payroll entries must also handle employee deductions and employer costs. The $980 in this example is the gross amount of the debt settled, not necessarily the employee's net bank deposit.

Reconcile the payroll detail to the general ledger. Differences may come from a payment coded as ordinary wages, a duplicated accrual or an opening balance that was never validated. Do not force agreement with an unexplained month-end adjustment.

Review thresholds, payment timing and departures

An employment anniversary can change the vacation entitlement. Check when the rules require you to assess service and which wages the new rate covers. Do not assume the higher percentage applies only to wages earned after that anniversary.

For scale, if an approved review determines that a $48,750 wage base requires 6% rather than the 4% previously used, the difference is $48,750 × 2% = $975. This illustrates the correction's size, not a rule that every anniversary requires the same retroactive calculation.

Payment timing also varies. British Columbia, for example, describes payment at least seven days before vacation and an alternative every-paycheque arrangement by written agreement. Ontario and federal rules have their own timing provisions. Confirm the applicable rule rather than choosing the payroll system's most convenient option.

At departure, review outstanding vacation pay and final-pay requirements with the authorized payroll process. Do not clear the liability merely because an employee record is inactive. Retain the entitlement calculation and payment evidence.

Make the review repeatable

Assign responsibility for jurisdiction decisions, payroll setup, anniversary reviews and liability reconciliation. Keep contracts, approvals and the wage-base rationale where the reviewer can find them. Recheck a policy when a business expands into another jurisdiction or changes payment arrangements.

Bookwits can support the practice's tasks, document requests and review discussions. It is not a payroll calculator or a legal entitlement engine. A sound process connects the approved rule to payroll results and the ledger, while preserving the distinction between time off and money owed.