In the course of our certification mandates, we have seen a significant increase in the number of unused banked vacation hours over the past year. This increase can be explained in part by the labour shortage issue that is being felt in several fields. Staff shortages can make it more difficult for some employees to take time off work to take the vacation to which they are entitled.
We would, however, like to remind you of the importance of granting vacation time to your employees(psychosocial risks in particular). It’s also essential to make sure you keep track of these benefits, so you don’t end up with large amounts to pay out in the event of termination, for example.
Vacation accrual terms and conditions (LNT)
The Labour Standards Act (LSA) stipulates that (except in unionized environments where a collective agreement prevails) employees must take their vacation within 12 months of the reference period during which it is accumulated. The reference period corresponds to the year during which the employee accumulates a number of vacations corresponding to his or her annual leave entitlement.
Certain exceptions may apply (e.g., absence due to illness, domestic violence, criminal act, etc.) and justify deferral of vacation to the following year or payment of vacation pay if the employer refuses to defer vacation.
One of the main aims of the LTA is to protect employees by ensuring that they take periods of rest, and by preventing employers from refusing to allow employees to take their vacations by paying them compensation. It is therefore essential to enable and encourage employees to take their vacations.
However, should the employee fail to take his or her vacation on time (through no fault of his or her own), the employer may write off any unused vacation (subject to the exceptions indicated above). We would like to remind you that the Act respecting Labour Standards constitutes a minimum standard to be adopted in the workplace. It is up to the employer to improve on these requirements and to provide for special circumstances or transferable days from one year to the next… but these must be documented.
One of the best control measures to implement in an organization is the granting of vacations and the strict documentation of these. In fact, this practice makes it possible to detect all types of fraud, whether intentional or unintentional.
Follow-up and establish a clear policy
To ensure that annual vacations are monitored simply and fairly, we recommend that you put in place a vacation policy that provides a framework for how vacations operate, and that you keep a record of days not worked and paid. The policy could include the following elements:
- Reference period (date to date);
- The hourly rate used for vacation (if not in the employee’s contract);
- The number of weeks granted depends on seniority;
- Terms and conditions of early vacation, if permitted by the employer;
- Terms and conditions for postponed vacations (in the case of exceptions or if they are authorized);
- Additional leave arrangements.
Then, for exceptional cases requiring approved deferrals, it’s a matter of managing them (payment of indemnity or taking of vacation). If annual write-offs are necessary, make sure your policy is clear on the subject, so as not to generate dissatisfaction on the part of your employees, and of course to avoid the accumulation of several deferred weeks which will impact your financial statements (vacation provision).
Any questions on the subject?
We would like to remind you that we remain at your disposal for any questions you may have on the accounting impact of vacations, and invite you to contact our Human Capital department regarding the development of a policy or for any questions you may have concerning your human resources.
An article by Marie-Pier Desjardins, CPA auditor for our certification team
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