16 Jun How to Calculate Vacation Pay in PEI
Taking some well-earned time off is a great way to recharge the work batteries. Knowing how to calculate vacation pay in PEI is an important part of making sure your payroll’s correct. If you want a fool-proof way of making sure that it’s right every time, sign up for a free 30 day trial of Canadian Payroll Connected. But, if you want to test the waters first of doing it the manual way, here’s how to calculate Vacation Pay on the beautiful rock of Prince Edward Island.
Entitlements for Vacation Pay in PEI
– Employees that have worked for less than 5 years continuously, they’re entitled to two weeks of vacation time off at 4% of their wages after 12 months of work.
– Employees that have worked for more than 5 years continuously, they’re entitled to three weeks of vacation time off at 6% of their wages after 12 months of work.
Note: After Jun 30th 2026 this was changed to a 5 year employment period from an 8 year.
For the full details, consult the Prince Edward Island Provincial Labour Standards (https://www.princeedwardisland.ca/en/information/workforce-and-advanced-learning/changes-to-the-employment-standards-act)
By the letter of the law, vacation is to be earned in one 12 month period for full time employees, and then made available only after that period. In other words, you earn it now to use it next year. If an employee works, “less than 90 per cent of the standard weekly hours,” (weekly hours being 44), then there’s an option to pay out vacation pay on every paycheck. Then when the employee takes time off, they simply take a day off without pay (since they’ve already been given their Vacation Pay on every check).
All that said, many employers will waive the 12 month waiting period on full time employees and have the vacation available to them from the get go. One word of warning though: Watch the days! If you pay an employee more vacation than they’ve earned, and they fly the coop, chances are you’ll be out that extra paid vacation.
How to Calculate Vacation Days for PEI
Let’s start with the easy one, shall we? To calculate how much of a vacation day and employee earns each pay period, simply take the number of work days they’re entitled to as Vacation Days, and divide it by the number of pay periods for the year. For example, if they’ve worked less than 5 years, they’re entitled to two weeks off. But in that 2 week period, there’s only 10 working days. So if they’re paid bi-weekly (26 pay periods a year), then the calculation is 10 days / 26 pay periods = 0.3846 vacation days earned every pay period.
That means after their first pay they have 0.3846 Vac Days owed to them, then 0.7692, then 1.1538 after the third pay period. At which point they have one full vacation day available to them. Just keep adding the same amount every period as they save up vacation time, and subtract however many days they use when they go on vacation. Easy!
How to Calculate Vacation Pay in PEI
Vacation Pay is a little more tricky, but only because of what wages the Vacation Rate is applied to. By the text in the PEI Labour Standards, the Vacation Rate shall be applied to, “the sum of the employee’s wages and the cash value of any meals or lodging, or both, provided by the employer per pay period.”
Wages is defined as: “salary, commission or other monetary compensation measured by time, piece or otherwise, due or paid to an employee for work performed for an employer, but does not include holiday pay (stat pay), vacation pay, leave pay, tips or gratuities, or benefits;”
So for wages, Overtime’s in, Stat Pay is out.
From there, it’s a simple calculation really. Let’s say the employee earned $1,500.00 in wages for the period. Just take $1,500.00 x 4% Vacation Rate = $60.00 in Vacation Pay. Tah-dah!
If they’ve been working continuously for more than five years, it’s the same thing with just a higher rate: $1,500.00 x 6% = $90.00
The last thing to do is to decide whether they’ll save it up over the year (Accrued Vacation) or get it paid out each paycheck.
Accrued Versus Paid Out
This really comes down to a preference. Yes, there’s legislation regarding full time versus part time, but for the most part, it’s an employer preference. Full time employees generally want to get paid when they take time off. Part time employees want the cash now. If you’re unsure, this is one arena where consulting with your employees is a good way to go. Just make sure the they choose one or the other. Trying to accrue some times then get it paid out at other times is just asking for administrative mayhem.
Tracking Vacation Time
If vacation is accrued, then keep a ledger with two columns: one for Vacation Days earned and one for Vacation Pay earned. Every period, the Vacation Days will increase by the same amount, where Vacation Pay is dependent on the Vacation Rate multiplied by wages.
When they take a vacation day, take the Vacation Pay they’ve accrued and divide it by the Vacation Days they’ve accrued to come up with a daily Vacation Pay amount. For example, if an employee has 5.36 days accrued and $795.85 in Vacation Pay: $795.85 / 5.36 = $148.48 in Vacation Pay for each Vacation Day taken. [you can further divide that by 8 hours in a day to get $148.48 / 8 = $18.56 per Vacation Hour, if taking a half-day off for example].
NOTE: Don’t just figure 8 hours times their regular hourly wage when granting Vacation Pay. For the reasons given here, this will short-change the employee income they’re owed!
Honestly paying out Vacation Pay is realistically the trickiest part of the whole deal. But the good news is that if you want it to take care of itself, check out Canadian Payroll Connected’s low-cost high-value packages. For the cost of a lunch, you can eat stress free and let the software do the work.
Photo by Kat van der Linden on Unsplash