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Do you report accrued vacation pay for monthly receiver general remittances?

By Lloyd Lindsay |

Marilyn asked:

Do you report accrued vacation pay for monthly receiver general remittances? Is it added to the total gross pay figure when accrued, or only when paid out?

Lloyd Lindsay answered:

Provincial and/or Federal law requires employers to pay their employees Vacation Pay at prescribed amounts. Union agreements may call for larger amounts. Employers may choose one of two payment methods:

  1. Pay the Vacation Pay when employees take their vacation, or
  2. Include the Vacation Pay with an employee's regular pay.

1. Pay the Vacation Pay When Employees Take Their Vacation Under this option, the employer calculates and pays the vacation pay owing when the employee takes his/her vacation. The employer deducts and calculates the government deductions and payroll taxes regarding this pay and includes them with its next remittance to the Receiver General.

Where an employee quits or is terminated, the employer calculates the Vacation Pay owing and either adds it to the employee's regular pay for the final period or pays it separately as an amount for an additional regular pay period. In either case, the employer calculates the government deductions and payroll taxes and includes them with its next remittance to the Receiver General.

Advantages:
a. The employer does not have to pay the employee and the government the vacation pay and payroll taxes in advance, and b. The employee receives the pay at a time when he/she would not be receiving their regular pay.

2. Include the Vacation Pay With an Employee's Regular Pay Under this option, the employer calculates and includes the vacation pay at each payroll date. Then it deducts and calculates the government deductions and payroll taxes regarding this pay and includes them with its next remittance to the Receiver General.

Advantages:
a. The employer calculates and pays the Vacation Pay for each pay period and does not have to make calculations covering several months.

Disadvantages:
b. The employer is paying out the Vacation Pay and related payroll taxes in advance of the employee's vacation. Because of this, the earlier payments may cause a strain on the employer's cash flow. c. Employees do not receive any money from employment when they take their vacation. If they have not budgeted for this, they may encounter cash flow problems.

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