Say you run a five-person plumbing shop in the northeast. Your newest apprentice started in April, asks for a week off in August, and wants to know if it is paid. Your senior tech just passed five years and asks whether his vacation pay goes up. Your bookkeeper wants to know whether to keep paying 4% on every cheque or bank it. Three questions, three different answers, all under the same rules. Alberta vacation pay is not complicated once you separate the two pieces: the time off, and the money.
Vacation time vs. vacation pay
Alberta's employment standards treat these separately:
- Vacation entitlement is the time off an employee is owed.
- Vacation pay is the money owed for that time, calculated as a percentage of wages.
| Length of employment | Minimum vacation time | Minimum vacation pay |
|---|---|---|
| Under 1 year | None, unless the contract provides it | 4% of wages still accrues |
| 1 year to under 5 years | 2 weeks per year | 4% of wages |
| 5 years or more | 3 weeks per year | 6% of wages |
So the apprentice in the example has no vacation time entitlement yet, unless his contract says otherwise, but he is still building up 4% vacation pay on his wages. If you agree to give him the week off, it can be unpaid time, or paid from what he has accrued, depending on what you both arrange.
The Alberta vacation pay 4% and 6% rule
Vacation pay is at least 4% of wages for employees entitled to 2 weeks, and at least 6% once an employee reaches 5 years and is entitled to 3 weeks. These are minimums. You can always offer more.
What counts as wages
This is where most mistakes happen. For vacation pay, wages do not include:
- overtime pay
- general holiday pay
- termination pay
- expenses or reimbursements
In practice, start from regular wages and take out those items before applying the percentage. If your payroll software applies 4% to the whole gross amount, check its settings, because you may be calculating on the wrong base.
When the rate changes to 6%
The move from 4% to 6% happens when the employee reaches 5 years with you. Put each employee's start date and five-year date in your payroll or HR records, and set a reminder. It is easy to miss for a long-time employee who never asks.
Monthly salaried employees
For employees paid a monthly salary, weekly vacation pay is the monthly wage divided by 4.3333. That converts a month to a week fairly, since months are a bit longer than four weeks.
Example, with made-up round numbers: an office manager earns $6,500 a month. $6,500 divided by 4.3333 is about $1,500 per week of vacation. Two weeks of vacation would be about $3,000 in vacation pay.
This is general information, not legal advice. Rules change, so confirm the details on the official Alberta vacation and vacation pay page or call Alberta Employment Standards.
When vacation pay must be paid
The rule sets a deadline: vacation pay must be paid no later than the next regular pay day after the vacation begins. If the employee asks at least a day before their vacation starts, it can be paid earlier, before they leave.
Paying on every cheque vs. banking it
Small employers tend to handle this in one of two ways:
- Paid out on each cheque. The 4% or 6% is added to every pay as a separate line. Simple to administer, nothing builds up on your books, and it suits casual or variable-hour staff. The downside: when the employee actually takes vacation, there is no vacation pay left for that week, which surprises people who did not notice the line on each stub.
- Banked (accrued) and paid when vacation is taken. The percentage builds up as a balance and is paid out for the vacation period, no later than the next regular pay day after the vacation begins. Employees get a paycheque while they are away. You need to track balances carefully.
Whichever you choose, apply it consistently, show it clearly on the statement of earnings, and confirm on the official page that your approach meets the timing rules for your situation.
Taking vacation: dates and timing
- Vacation must be taken within 12 months after it is earned.
- You can deny specific dates for operational reasons. If you and the employee cannot agree, you can set the dates by giving at least 2 weeks' written notice.
- Vacation can be split into shorter periods if the employee requests it in writing, and half-day increments are allowed if you both agree.
Keeping requests, approvals and balances in one place makes these rules much easier to follow. Our guide to a vacation request system for small business covers the setup.
Vacation pay at termination
When employment ends, vacation pay gets mixed up with notice and final pay. A few points to keep straight:
- No forced vacation during notice. You cannot make an employee use vacation during a termination notice period unless both of you agree.
- Final earnings deadline. Final earnings must be paid within 10 consecutive days after the end of the pay period in which employment ended, or within 31 consecutive days after the last day of employment. You choose which.
- Termination pay is not "wages" for vacation pay. Do not calculate vacation pay on top of termination pay.
- Banked balances. If you bank vacation pay, check the official termination and vacation pay pages for how the outstanding balance is handled in the final pay, and get advice if anything is unusual.
These are employment standards minimums. Contracts and common law can require more, so get advice on any termination that is not straightforward.
Construction employees are different
Construction employees fall under a separate exception: vacation pay of at least 6% from the start of employment, with other rules that differ from the standard ones above. If you run a construction business, read the construction exception page on alberta.ca before setting up payroll rather than relying on the general rules.
Records you need to keep
- Keep employment records for at least 3 years from when each record is made. That includes hours worked each day, wage and overtime rates, and deductions.
- Give a statement of earnings each pay period showing the pay period, regular and overtime hours, wage and overtime rates, itemized earnings, deductions with reasons, and any hours taken off in lieu of overtime. Vacation pay should be its own clear line.
- Track vacation balances: time earned, time taken, vacation pay accrued and paid, and the date each block of vacation was earned so you can see the 12-month window.
- CRA payroll records are a separate federal rule, generally kept for 6 years.
A worked example
Made-up round numbers, just to show the method. An hourly installer, three years in, has this two-week pay period:
- Regular wages: $2,000
- Overtime: $150
- General holiday pay: $200
- Mileage reimbursement: $80
Only the $2,000 regular wages count. At 4%, vacation pay for the period is $80. If you pay it on each cheque, $80 goes on this stub as vacation pay. If you bank it, $80 is added to their balance. The overtime, holiday pay and mileage are paid as normal but do not go into the vacation pay calculation.
Two years from now, when that installer passes five years, the rate on that same $2,000 becomes 6%, or $120.
Vacation pay errors are rarely about the percentage. They are about the base it is applied to.
Pull one recent pay stub per employee and check two things: is vacation pay calculated only on regular wages, and is anyone past their five-year date still on 4%? Fix the payroll settings once and it stays fixed.
If you run payroll in QuickBooks Online, a lot of the tracking can be automated, from balances to five-year rate changes. See QuickBooks Online automation in Canada for what is possible.
Where Sidekick fits
We build vacation and holiday automation for Calgary small businesses: time-off requests and approvals in one place, balances that track themselves, reminders before vacation goes past the 12-month window, and five-year dates flagged before they pass. It can connect to QuickBooks Online and the payroll you already use. Book a free call to talk through your setup.
Frequently asked questions
Is Alberta vacation pay 4% or 6%?
It is at least 4% of wages for employees entitled to 2 weeks of vacation, and at least 6% once an employee reaches 5 years with the employer. Construction employees get at least 6% from the start of employment under separate rules.
Is vacation pay calculated on overtime in Alberta?
No. For vacation pay purposes, wages exclude overtime, general holiday pay, termination pay and expenses.
When does vacation pay have to be paid in Alberta?
No later than the next regular pay day after the vacation begins, or earlier if the employee asks at least a day before the vacation starts.
Do employees under one year get vacation pay?
Yes, vacation pay of 4% still accrues on their wages. They are not entitled to vacation time until they reach one year unless their contract says otherwise.
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