Attracting and retaining top talent is a challenge that many organizations face. So, it’s no surprise that they turn to work perks and benefits to set themselves apart from the competition. Unlimited vacation is an increasingly common way to do just that. And while it comes with major benefits, there are also some drawbacks – including potential legal complications.
In this month’s blog, we’re diving into why you should consider an unlimited vacation policy, and how to do it the right way.
Why Offer Unlimited Vacation?
Unlimited vacation is an increasingly popular benefit. It is a great way to attract the best of the best – and keep them. Taking time off increases employee productivity and knowing they don’t have to hoard their time off provides an additional boost. However, while unlimited vacation is popular with employees, it’s not without complications for employers. Especially American employers hiring one or just a few employees in Canada!
Benefits of Unlimited Vacation
Unlimited vacation is a great way to boost talent attraction and retention. The amount and flexibility of paid time off consistently ranks as a key factor for job seekers. Too, a generous paid time off policy can boost individual and team productivity. Employees who know they will be able to take time off when they really need it, don’t work through illness or burnout.
A less-known benefit of unlimited vacation is that it can eliminate paid time off banking. While employees love being able to bank vacation and sick time for future use, it can cause serious problems for businesses.
Challenges of Unlimited Vacation
Opting for an unlimited vacation policy doesn’t mean you can neglect PTO tracking. No matter your time off policy, your managers still need to ensure that their teams are working productively with appropriate staffing levels, and that even on-call employees can take adequate time off. Time off must also be carefully tracked to prevent legal issues. Canadian employees have minimum statutory vacation entitlements, and your managers should ensure they are taken every year.
Even with an unlimited time off policy, your managers still need to manage who, how and when time off is taken. Studies show that unlimited vacation policies make some employees even more reluctant to take time off, while a very few monopolize time off over holidays. Managers should take an active role in ensuring that all employees are taking enough time off, and that no one group is taking more than their share.
Is Unlimited Vacation Legal in Canada?
Yes, unlimited vacation is legal in every province of Canada! However, that doesn’t mean you can wash your hands of vacation and stop thinking about it. Regardless of your vacation policy, you still have statutory responsibilities as an employer, and your employees still have entitlements. Even with an unlimited vacation policy in place, they will still receive statutory holidays, accrue vacation as they work, and be eligible to be paid unused vacation upon termination.
Canada’s employment laws were not designed with unlimited vacation policies in mind. Vacation legislation and policies are based on accrual or earning time/pay with hours worked. Your policy should always meet or exceed provincial standards. (Check out our blog on paid time off in Canada, to learn more about provincial paid time off rules.)
It’s also important to remember that Canadian employment rules are based on where the employee lives and works, not where the employer is headquartered. That’s why so many American businesses hiring in Canada rely on an Employer of Record like Canadian Payroll Services to help to advise them on how to handle vacations!
Canadian Vacation Rules
One of the key distinctions between Canadian and US employment law is that each province has mandatory minimum entitlements that cannot be signed away by company policy or contracts. These entitlements include minimum wage, hours of work, paid statutory holidays, and vacation time or pay. While each province has different minimums, they all have similar rules:
- All employers must provide paid vacation time, in the case of salaried employees, or vacation pay, in the case of hourly workers.
- The average minimum vacation pay is 4% of gross earnings as vacation pay or two weeks of paid vacation per year.
- Vacation time entitlements escalate with years of service.
- Accrued, unused vacation must be paid out when employees quit or are terminated.
- Contractors are not owed time off.
Your time off policy must meet or exceed the minimum vacation entitlement of the province where you do business, and employees should be strongly encouraged to use their minimum entitlement every year. It is your responsibility to ensure that employees have ample opportunity to avail themselves of vacation time.
Another distinction between Canadian and US rules is that paid time off is formally divided into vacation days, sick days, personal days, statutory holidays and protected leaves. As with vacation time and pay, each province has different rules for each category of time, except for nationally protected leaves.
- Only BC, PEI and Federal employees are entitled to paid sick days.
- All employees are entitled to medical leave, parental leave and other job protected time off; they may apply for wage replacement through the federal Employment Insurance program.
- Paid sick days are not eligible for pay out upon employees quitting or being terminated (unless otherwise specified in their contract).
Your time off policy should spell out the difference between time off categories, and your managers should carefully track their use. Failing to track time off accurately opens you up to claims of unpaid or unused vacation entitlements.
How to Do Unlimited Vacation the Right Way
Still interested in offering unlimited vacation? Great! Working with your HR and legal departments you will need to define just what you mean by unlimited, what kind of vacation payout you’d like to offer, and how you’ll continue to track time off.
Remember, an unlimited vacation policy does not waive statutory requirements. Your employees are entitled to statutory holidays and minimum vacation time or pay. As an employer, you are responsible for ensuring they take their minimum vacation, and you should continue to track vacation time to prevent staffing problems or surprise payouts upon termination.
Your unlimited vacation policy should carefully spell out what “unlimited” means in practice, any limits to when time off can be taken, and what payouts employees will be eligible for upon termination.
The policy should be formalized, written in plain language, and updated annually. As with any HR policy, it is a good idea to share it with your employees in a handbook. Your leadership team should be fully briefed on the policy, how to manage things day to day, and how to handle edge cases.
How Canadian Payroll Services Can Help
At Canadian Payroll Services, we handle unlimited vacation policies for many clients and can help you balance a permissive time off policy with employment standards. Our employment contracts ensure that you and your employees are protected, even when offering unlimited vacation. We track vacation time and pay accrual, send reminders for employees who aren’t booking time off, and provide accurate calculations upon termination – no matter how complicated or unlimited your policy might be!
Want to learn more about how Canadian Payroll Services can help? Get in touch!
