Vacations and Overtime

Here’s a quick test of your payroll knowledge – Jake takes Monday as a vacation day. For that day, the employer pays Jake 8 hours at his regular hourly rate. During the remainder of the week, Jake works 38 hours, for a total of 46 paid hours for the calendar week. Is Jake entitled to be paid overtime for any portion of these hours?

The answer – only if Jake’s work is subject to the Quebec employment standards. For every other jurisdiction, and subject to any overtime that may apply on a daily basis, the employer is only required to pay Jake at his regular, straight-time rate for these 46 hours.

Look at these two examples:

In BC, vacation time doesn’t count as ‘work’ for overtime purposes and vacation time doesn’t affect the weekly threshold for overtime – 40 hours per Sunday to Saturday calendar week. As a result, all 46 hours are owing at straight-time.

By contrast, for Quebec employment standards purposes, vacation time taken is ‘work’ that counts against the workweek overtime threshold of 40 hours. As in BC, this threshold for overtime (40 hours) does not change when vacation time is taken. As a result, there are 6 hours for which Jake must be paid weekly overtime at time-and-a-half, under the Quebec employment standards.

That’s the story for vacation time, but how does vacation pay affect any overtime that might otherwise be owing? There’s one jurisdiction where vacation pay may impact the base hourly rate used for overtime purposes – British Columbia. In all other jurisdictions, vacation pay does not factor into overtime calculations.

In BC, as in other jurisdictions, there are situations where the base rate for overtime purposes includes more than just an employee’s regular hourly rate (or a salary converted to an hourly rate). In these circumstances, the BC rules require that the base rate subject to overtime premiums (i.e. time-and-a-half or double-time), be calculated using all wages in the applicable pay period, including any vacation pay. This may apply to employees paid on a piece rate or other incentive basis. Note, there are exceptions for employees paid partly or wholly by commission.

Here’s an example of the calculations required in BC. Francis, in the bi-weekly pay period ending on Saturday, October 11:

• Earned $1,750.00 in piece rate wages;
• Worked 80 straight-time hours;
• Worked 3 daily overtime hours, payable at time-and-a-half; and
• Was paid $160 in vacation pay for 1 vacation day.

To calculate Francis’ base hourly rate for overtime purposes, divide the sum of the wages paid, $1,910 ($1,750 plus $160), by the sum of the hours worked, 83 (80 regular plus 3 overtime hours). This gives an hourly rate of $23.01. The 3 daily overtime hours must be paid as 3, times 23.01, times the overtime premium, in this case, 1.5 for overtime owing of $103.55. Note, the vacation time does not factor into this calculation, just the vacation pay.

If Francis was paid a combination of base pay and piece rate, calculate an hourly rate, as above, and add this to her base pay. For example, if Francis was paid a base rate of $5/hour and earned a total of $1,200 in piece rate wages, for the same hours of work, the base rate for overtime purposes would be: $5 + [ ( $1,200 + $160 ) / 83 ] or $21.42/hour. At time-and-a-half, Francis would have to be paid $96.9 for this overtime ($21.42 times 3 times 1.5).

Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the payroll industry. He can be reached at armcewen@shaw.ca, (250) 228-5280 or visit www.alanrmcewen.com for more information.