Vacation pay and public holiday payments

You may provide vacation pay and public holiday payments to your employee.

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• Steps
• References

Steps

1. Determine if you need to report the payment on a slip

   You must report the payment as employment income on your employee’s T4 slip in the year the vacation pay or the public holiday payments are received, including any payments you make to a trust as credits for vacation that your employee earns in the year (if applicable).

2. Withhold payroll deductions

   You must withhold the following deductions:

   • Income tax
   • EI premiums
   • CPP contributions

   Depending on the situation, you must use a different method to calculate the deductions to withhold from the payment.

   • Your employee receives vacation pay while on vacation leave

     If you pay your employee vacation pay while they are on vacation leave, you have to calculate EI premiums and CPP contributions in the same manner as you would for regular salary.

     If you use tax tables to calculate your employee's income tax, use the table that applies to:

     • The period of vacation if you pay vacation separately
     • The regular pay period if you include the vacation pay with other earnings

   • Your employee does not take vacation leave or is paid vacation pay continuously throughout the year

     If the payment is one of the following:

     • Your employee does not take vacation and you compensate your employee for their vacation pay in the form of pay (over and above their regular salary)
     • Your employee is paid on a continuous basis throughout the year for vacation pay (at the labour standards rate) and does not receive vacation pay while they are on vacation

      You have to calculate:

     • Income tax withholdings using the bonus or irregular payments method
     • EI premiums in the same manner as you would for regular salary
     • CPP contributions using the bonus or irregular payments method

   • You pay your employee for a public holiday

     If part of the pay period includes a public holiday, you have to calculate the income tax withholdings, EI premiums and CPP contributions in the same manner as you would for regular salary.

   • You make contributions to a vacation pay trust for your employees

     If you make contributions for vacation credits to a trust for your employees, you have to withhold income tax withholdings, EI premiums and CPP contributions from the amounts in the same manner as you would for regular salary.

    Learn how to calculate payroll deductions: How to calculate

3. Report the payment on a T4 slip

   You must report the following on the T4 slip:

   • Box 14, Employment income
   • Box 24, EI insurable earnings
   • Box 26, CPP/QPP pensionable earnings
   • Box 56, PPIP insurable earnings if your employee worked in the province of Quebec

    Learn how to report the payment: T4 slip – Information for employers

References

Legislation