Payroll
Oct 9, 2025
Michelle Mire
How vacation pay is calculated in Canada
Vacation pay in Canada is usually 4% of earnings (two weeks), 6% after five consecutive years of employment, and 8% after 10 years. However, this can vary depending on provincial or territorial standards.
Payroll software gives you three options for when vacation pay is accrued (earned) and recorded. As you get set up, it’s important to pick one that fits your accounting method and payroll setup.
Method 1: Period start
What it means: Vacation pay is calculated based on the start of the pay period.
If a pay period runs from October 1–14, and payday is October 18, vacation pay accrues on October 1.
Best for:
Professional services, like consultants, accountants and agencies.
Businesses that need to match labour costs to projects or financial periods.
Companies using accrual accounting, recording money when it’s earned or owed.
Why: This method ties vacation pay directly to when employees start earning their wages. It’s ideal for businesses that report by monthly or quarterly financial periods and want payroll expenses to match when the work happens.
Method 2: Period end
What it means: Vacation pay is calculated as of the last day of the pay period.
If a pay period runs from October 1–14, and payday is October 18, vacation pay accrues on October 14.
Best for:
Most small to medium-sized businesses.
Retail, hospitality, trades, and service-based companies.
Employers who follow provincial Employment Standards Acts (ESA) closely.
Why: Vacation pay is legally earned as work is completed, so recording it at the end of the pay period matches the employee’s entitlement with labour laws. It’s also the default option in most Canadian payroll software, and what the Canada Revenue Agency (CRA) expects when reviewing records.
Example: A restaurant pays staff bi-weekly. Vacation pay accrues at the end of each pay period, ensuring totals match the hours worked and simplifying ESA compliance.
Looking for small business payroll software? See our helpful checklist.
Method 3: Pay date
What it means: Vacation pay is recorded when employees are paid.
If a pay period runs from October 1–14, and payday is October 18, vacation pay accrues on October 18.
Best for:
Very small businesses or sole proprietors.
Startups managing payroll manually or using cash-based (cash-basis) accounting, recording money when it’s paid.
Seasonal businesses or those paying vacation pay with every paycheque.
Why: It’s straightforward. You only record vacation pay when you pay it, keeping your books clean. You also avoid tracking accrual balances, which is handy if you’re managing cash flow tightly.
Example: A landscaping company pays out vacation pay on every paycheque. No accruals, no carryovers — just simple, cash-based tracking.
FAQs
Where can I find the federal vacation pay standards?
You can find them on the Government of Canada’s website.
Where can I find the provincial or territorial standards for vacation pay?
Here’s an alphabetical list, linked to the appropriate website.
Are part-time and casual employees entitled to vacation time?
Yes. Employment standards across Canada guarantee that all workers earn vacation time and vacation pay, regardless of their employment status.
Does payroll software calculate vacation pay automatically?
Yes it does. But you have to select the method you’re using to calculate vacation pay. And with Huumans Payroll, you can also pay up to 5 employees free for the first year.
What does the Government of Canada Vacation Pay Calculator do?
It calculates how much vacation an employee’s entitled to. But this is only the federal standard. The calculator doesn’t include provincial or territorial guidelines.
Fine print changes all the time. We do our best to keep things accurate and helpful, but this blog doesn’t replace your accountant, bookkeeper, or lawyer.
If you catch something off, let us know and we’ll fix it. And if we link to other sites, that’s just us sharing resources — what they say is on them, not us.
