Is your business calculating vacation leave properly?
An alarming number of human resource professionals are incorrectly calculating the vacation leave earned by their employees. In some cases, this stems from a misunderstanding of two key provisions in the Holidays with Pay Order, whilst in others, the mistake is passed down from one HR manager to her successor like an old school uniform in August.
Our law sets the default position that vacation days earned in any given year may be taken in the following year unless there’s an agreement between the parties to take the leave during the year it was earned. Very few employers permit their workers to take vacation in the first year, and assume that vacation leave is not earned during that year at all. To the contrary, an employee begins to accumulate vacation leave once he has worked for 110 days, at which time he’s credited with 5 working days. If leave earned in year one may only be taken in year two and leave earned in year two may be taken in year three, then the leave is being taken in arrears. In businesses where leave is taken in arrears, the result will normally be that when the employment contract is terminated, the worker will be carrying a balance representing some or all of the vacation leave earned in that year, and possibly prior years too. That’s why it is so important for an employee to know whether he is taking leave earned in the current year as opposed to the preceding year.
It is also very important for business owners to know the accurate amount of vacation leave that their workers are entitled to at any given time. Not only does this help with proper strategic planning, but it also minimizes the risk of unexpected costs at a later date.
The 2nd misinterpreted provision relates to the amount of vacation leave pay owed to an employee. The law uses the term “normal wages”, not “base pay”. Normal wages includes commission and regularly- paid bonuses but does not include overtime pay or certain allowances. An employee who earns commissions ought to be paid the average earnings calculated over the preceding 13 weeks. Thus, if a sales associate opts to take vacation leave after a slow business period, she could find that her pay during that period is significantly less than it would have been had she taken it immediately after healthy commissions had been paid to her.
The minimum amount of vacation leave that an employer must grant is two weeks for each year worked by an employee with fewer than 10 years' service, and three weeks for each year worked by an employee with more than 10 years' service. For purposes of calculating vacation leave, a worker is treated as having worked for a full year if he has worked for more than 220 days. These are minimums only and can be increased by agreement between the employer and employee. Although vacation leave is a statutory right, it should generally be exercised only with the approval of the employer. This approval should not be unreasonably withheld.
If an employer breaches the Holidays with Pay Act, he may be fined up to a maximum of $250,000 or up to three months’ “holiday” in her Majesty’s prison.
Gavin Goffe is a Partner at Myers, Fletcher & Gordon and a member of the Firm's Litigation and Labour Law Practice Group. Gavin may be contacted at email@example.com or through www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.