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Pension contributions and vacation pay

Are pension contributions required on lump-sum vacation pay?

This is a common question we hear from employers when employees go on vacation or terminate their employment.

Vacation pay – regardless of how or when it is paid – is part of both the regular and total earnings definitions set out in the Plan’s Rules. This means contributions are required on all vacation pay.

If an employee terminates their employment, employers must deduct pension contributions from the final pay and also include deductions from any accrued vacation pay.

Here is a summary of Plan Rule 4.3 regarding required contributions and earnings types:

  • At a minimum, required contributions must be applied to regular earnings, including all vacation pay whether paid as salary continuance or as a lump sum
  • Subject to this minimum, employers can set their own policies applying required contributions to amounts paid in addition to regular earnings, up to and including total earnings
  • The same definition of earnings must be applied to all employees within a designated unit of employees
These are the Plan’s earning definitions:

Regular earnings– means an employee’s agreed salary or wage, including vacation pay however paid, but excluding bonuses, commissions, overtime, shift differentials, or the taxable value of non-cash benefits.

Total earnings– means the total remuneration of an employee as reported to Canada Revenue Agency for a given year, including any prescribed amount(s) as defined by the Income Tax Act (Canada) but excluding the taxable value of non-cash benefits.

For more information about pension contributions and vacation pay, please contact us or review the Plan’s Rules and Regulations.