VACATION POLICY TRENDS
By Sheryl Smolkin
Savvy HR directors know just how important a good vacation package is to hiring and recruiting and how the perception of ungenerous vacation terms can cause organizations to lose top people. The 2 key questions for HR:
- How much vacation time must an organization offer?
- How much, if any, additional time should an organization offer to compete effectively in the current market?
Legislative Minimum Vacation across Canada
Provincial/territorial/federal employment standards set the minimum paid vacation Canadian employers must offer their employees. (Click here to find out what the minimum vacation pay requirements are in your province.)
Coverage: Full-time, part-time, temporary, seasonal, term contract and student employees are eligible for vacation under employment standards laws. Each jurisdiction also exempts certain jobs from vacation requirements. For example, in Ontario, people participating in certain work experience programs, police officers, inmates of correctional institutions and people holding political, religious or judicial offices aren’t covered by the ESA vacation requirements.
Vacation Time: The general rule in most of the country is that employees must receive at least a 2-week paid (4%) vacation after 1 year of employment. In Sask., employees are entitled to a 3-week paid vacation (6% of annual pay) after 1 year and 4 weeks after 10 years (8% of annual pay).
Ontario, PEI and Yukon don’t require employers to increase vacation beyond the minimum after a prescribed period of service. Other provinces and federal ESA laws mandate an additional week of paid vacation after service ranging from 4 years (Alberta) to 15 years (Newfoundland).
Vacation Pay: It’s important to distinguish between vacation time and vacation pay. An employee becomes entitled to vacation time off after 1 year of service but accrues vacation pay from the very first day of employment. Each jurisdiction has different rules on whether vacation pay can be paid in lieu of time off.
What’s Included in Vacation Pay: Simply paying an employee’s regular salary when he’s off work may not result in a correct calculation of vacation pay. For example, under the Ontario Employment Standards Act “wages” to which an employee is due for vacation days include not only regular salary but also other payments to employees such as:
- Overtime pay;
- Public holiday pay;
- Allowances for room and board;
- Non-discretionary bonuses related to an employee’s hours of work, productivity or efficiency;
- Profit sharing bonuses; and
The Market: Vacation Employers Are Actually Offering
Of course, while you can’t offer less vacation than the ESA minimum, you can offer more. And, in fact, many employers do. So while you need to know the legislative minimum to comply, it’s also essential to know what other organizations are offering to compete.
The 2010 Towers Watson Benefits Data Source Statistical Summary of over 300 employers provides some excellent insight into the number of vacation days actually being offered to employees after particular lengths of service that you can use to gauge the competitiveness of your own current vacation package:
|AMOUNT OF EMPLOYEE SERVICE||VACATION DAYS OFFERED|
|After 1 year of service||
|After 3 years of service||11-15 days (68%)|
|After 5 years of service||11-15 days (73%)|
|After 10 years of service||16-20 days (79%)|
The survey also reveals significant differences in how companies deal with employee requests to carry over vacation days to the next year:
- 24% deny such requests;
- 26% approve such requests upon supervisor approval;
- 46% allow employees to carry over only a limited number of unused vacation days; and
- 4% allow employees to carry over all unused vacation days without limitation.
Top Employers Even More Generous with Vacation
A review of the vacation and personal leave policies of several randomly selected companies on the 2012 list of Canada’s Top 100 Employers also confirm that many award-winning organizations exceed statutory minimum vacation requirements. For example:
- Adobe Systems Canada: 4 weeks after employee’s first year + 3 extra days between Christmas and New Year;
- Bank of Canada: 3 weeks of vacation after 1 year, increasing to 4 weeks after 8 years;
- Carswell: 3 weeks’ vacation after 1 year and 4 weeks after 5 years;
- Toyota Motor Manufacturing: 2.8 week vacation allowance after 1 year with vacation increases after 3 years + 5 personal days per year; and
- VanCity: 3 weeks’ vacation after 1 year and 4 weeks after 4 years + 6 personal days per year.
Some Canadian companies like The Social Media Group and RL Solutions have even gone so far as to introduce unlimited vacations. Do people at the Social Media Group abuse the program? Not at all, says CEO Maggie Fox. “We work hard and play hard. I hire people who do great work. If I hire someone who takes advantage of the program, it’s my problem, because I’ve made a bad decision.”
Letting Employees Buy and Sell Vacation via Flex Plans
Another way companies can give their employees the opportunity to up the vacation ante is to include buying and selling of vacation days as options in flexible benefits or “cafeteria” plans.
Caveat: A flex plan that allows buying and selling of vacation days must be carefully structured so it doesn’t trigger tax rules prohibiting deferral of compensation. The Canada Revenue Agency’s Interpretation Bulletin IT-529 says flexible programs must stipulate that any time off purchased with flexible credits or salary cannot be carried forward from one year to the next because such carryovers would result in a prohibited salary deferral. Unused days must either be cashed out within the year they are purchased, or forfeited, according to the CRA.
CRA IT-529 also stipulates that when vacation days are sold, the amount credited to the plan is taxable in the year of sale. In addition, plans that permit aggressive selling of vacation days could be in violation of minimum vacation requirements under labour standards laws (see above).
Based on several recent studies undertaken by Mercer Consulting, Mercer partner Brian Lindenberg says that 15% to 20% of traditional flex plans in Canada allow for some degree of vacation buying and selling.
However, Lindenberg suggests that few new flex plans offer this option because most people don’t want to sell the vacation they already have, and in the current economy few plans offer enough additional flex credits to purchase more vacation. Furthermore, more employers are offering other forms of flexibility such as flexible working hours and part-time work to support employee work/life balance.
Paid Time Off (PTO) Plans
PTO plans are U.S. arrangements that aggregate various types of paid leave. Thus, for example, an employee entitled to 10 paid holidays, 2 weeks’ vacation, 2 personal days and 8 sick leave days per year, could instead be credited with a bank of up to 30 days of paid time off that can be taken for any purpose. A 2010 WorldatWork survey shows that 40% of participating U.S. companies (up from 33% in 2006) offer PTO (paid time off) plans as an alternative to a traditional approach with separate vacation time, sick time, and personal time.
Although they’re rooted in U.S. tax laws, U.S. companies with cross-border operations might want to offer the PTO arrangements provided to their U.S. employees to their Canadian employees so as to ensure consistency in benefits packages. However, importing PTOs into Canada can be problematic because employees in this country must still receive the minimum vacation required plus all statutory holidays under Canadian employment standards law. Staying within both sets of national requirements requires carefully tracking the purpose for which PTO days are taken — additional administrative complexity that can undermine the very purpose for which PTO banks were initially developed.
Another option is to exclude statutory holidays from the PTO bank and simply characterize the total time allocated under the PTO program as vacation. To avoid potential pitfalls and ensure they remain in compliance with local employment standards, Canadian employers contemplating the introduction of a PTO plan should seek legal advice.
Good Research, Good Design
Designing the right vacation plan for your organization may initially appear to be simply a matter of complying with legislated minimum requirements. However, further study shows that many other factors must be taken into consideration to ensure that you get it right. Good research will help you develop a well-designed vacation plan that will facilitate both attraction and retention of the skilled employees you need to run a successful organization.
Sheryl Smolkin is a Toronto lawyer and journalist. She can be contacted through her website.