Personal Finance

Vacation salary - Previous year earning vs actual salary?

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  • May 8th, 2019 2:47 pm
[OP]
Sr. Member
Dec 13, 2006
586 posts
263 upvotes

Vacation salary - Previous year earning vs actual salary?

Hi,

my wife took a 1 week vacation earlier this month. She received her pay stub, and she have 37.5 Hours at her normal rate, and 37.5 (vacation) at a lower rate.

She had a raise in the year, and her company told her that the rate for vacation is based on salary in the previous year.

Is this standard practice?? I never had that... my vacation pay were always the same as my normal pay...
14 replies
Deal Addict
Jan 1, 2017
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Wow! I’ve never heard of this before! Definitely not standard. It seems like her company is pretty shady. She must work for a very small company.
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Aug 22, 2011
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Not normal at all.
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May 9, 2009
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Montreal
Is this vacation that she is carrying over from a previous year? If so, I'm not sure what the law allows, but I can understand why a company would want to pay this out at a lower rate.
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Aug 22, 2011
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psyko514 wrote: Is this vacation that she is carrying over from a previous year? If so, I'm not sure what the law allows, but I can understand why a company would want to pay this out at a lower rate.
Shouldn't matter if it's vacation days that were carried over, as payroll would code it as hours X current rate.
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May 9, 2009
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vkizzle wrote: Shouldn't matter if it's vacation days that were carried over, as payroll would code it as hours X current rate.
They could code it differently. I've seen something similar with banked OT. Again, not sure about legalities, just spitballing ideas.
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Aug 22, 2011
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psyko514 wrote: They could code it differently. I've seen something similar with banked OT. Again, not sure about legalities, just spitballing ideas.
Vacation carry over would be specific to each company, as some allows and some will have you forfeit unused days.
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May 9, 2009
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vkizzle wrote: Vacation carry over would be specific to each company, as some allows and some will have you forfeit unused days.
I meant the legalities around paying carry over at a reduced rate. Let's say you bank two weeks of vacation this year at a rate of $20/hour. You carry it over to 2023 when your salary has increased to $30/hour. I can understand why a company wouldn't want to pay you 50% more for that vacation time.
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Aug 22, 2011
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psyko514 wrote: I meant the legalities around paying carry over at a reduced rate. Let's say you bank two weeks of vacation this year at a rate of $20/hour. You carry it over to 2023 when your salary has increased to $30/hour. I can understand why a company wouldn't want to pay you 50% more for that vacation time.
I can only speak about my company and the vacation days that I carry over are paid based on my current salary.
Our Payroll records our vacation days as hours accrued and when we use them, it's paid at our current rate.
Member
Nov 26, 2012
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Toronto
Most employers will pay out accrued vacation at the current salary. However, the minimum pay required is at the wage it was earned (depending on province but likely most of them). Unfortunately this is what happened here.
Deal Addict
May 16, 2017
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How vacation is paid-out will be based upon 2 or 3 factors:
- statutory minimums,
- company policy or other written employment agreement (must meet or exceed statutory minimums),
- union, collective bargaining agreement (could vary lower from statutory minimums in some jurisdictions but highly unlikely).

i.e in BC per Employment Standards Act:

"58. (1) An employer must pay an employee the following amount of vacation pay:

(a) after 5 calendar days of employment, at least 4% of the employee's total wages during the year of employment entitling the employee to the vacation pay;

(b) after 5 consecutive years of employment, at least 6% of the employee's total wages during the year of employment entitling the employee to the vacation pay."

Interpretive note contained in the Employment Standards Act:

"Vacation Pay

An employee is entitled to two weeks' vacation after completion of their first year of employment. The vacation time is to be taken during the second year of employment, with the vacation pay calculated as 4% of total wages earned in the first year. Paid vacation pay becomes part of total wages for the year it is paid. Vacation pay in subsequent years is based on 4% of the total wages in the previous year. After completion of five years of employment, the employee becomes entitled to three weeks' vacation, with 6% vacation pay based on total wages from the fifth year of employment. In following years, an employee’s vacation entitlement remains at three weeks' vacation with 6% vacation pay, based on the previous year’s total wages."
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Dec 27, 2009
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grisensko wrote: Hi,

my wife took a 1 week vacation earlier this month. She received her pay stub, and she have 37.5 Hours at her normal rate, and 37.5 (vacation) at a lower rate.

She had a raise in the year, and her company told her that the rate for vacation is based on salary in the previous year.

Is this standard practice?? I never had that... my vacation pay were always the same as my normal pay...
Vacation is normally accrued at the rate when it was earned (and is expressed as a percentage of each paycheque earned - that goes into an accrued account of vacation pay owed to the employee). In other words, say an employee gets 6% vacation pay (3 weeks paid vacation per year). It accrues in their "account" at whatever rate their pay is at the time. So, that 6% vacation pay that has been accruing at your wife's old rate of pay, would not equal 6% of her new pay rate.

If someone was making say $50,000 per year and had accumulated $3,000 in vacation pay owed (6% of their salary for an entire year and hadn't used up any vacation pay yet), but suddenly they got a raise to $100,000 per year (since we are just being hypothetical lol) then that $3,000 in banked vacation pay owed will no longer cover 3 weeks pay (at least not at their current rate). So, if she were to take 3 weeks off at that point, the only pay sitting in her earned vacation accrued would be $3,000 (not her current $6,000 she would earn for 3 weeks of work). Her company is doing everything correctly.
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Dec 27, 2009
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vkizzle wrote: I can only speak about my company and the vacation days that I carry over are paid based on my current salary.
Our Payroll records our vacation days as hours accrued and when we use them, it's paid at our current rate.
Do you work for the government? They do it this way, but I have never encountered a private company that does. It is usually a percentage of each paycheque that goes into an accrued "vacation pay owed".
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Dec 27, 2009
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vkizzle wrote: Shouldn't matter if it's vacation days that were carried over, as payroll would code it as hours X current rate.
No, it would not with any company I've ever worked for (and I've done payroll close to 20 years).
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Aug 22, 2011
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Chickinvic wrote: Do you work for the government? They do it this way, but I have never encountered a private company that does. It is usually a percentage of each paycheque that goes into an accrued "vacation pay owed".
I work for a private company, in which vacation carryover and accrual polices are different based on department and seniority.

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