Skip to main content
C
Charlotte Higgins
January 24, 2023
Question

Vacation pay accrual is taxed in year earned or year used for employer?

  • January 24, 2023
  • 2 replies
  • 0 views

Quickbooks automatically keeps track of vacation hours and associated pay accumulated for employees. For the employees, it would seem that they are taxed in the fiscal year that they use their vacation pay (i.e. when they are paid). But, Quickbooks seems to add vacation pay as a payroll expense every pay period, which would make it an expense in the pay period it is earned and not when it is used. Furthermore, if an employee receives a pay rise between accruing vacation and using it, I thought that the employee is paid their current hourly rate.

Thus, I have two questions for Canada (Québec) tax and labour standards:

1. As an employer, do I include vacation pay accrued as an expense (for my business taxes) in the year it is accrued or the year it is used (paid out)?

2. Does an employee accrue vacation hours or pay ($)? For holiday time taken, ff they have earned vacation hours (at the legal 4%), should they receive vacation pay at the pay rate when it was earned or the pay rate when it is taken?

And if the way that Quickbooks calculates it does not match Canadian tax and labour standards, is there a way to change the settings?

Charlotte Higgins

2 replies

A
Amanda-B
January 24, 2023

Hey there Charlotte, 

 

Thanks for reaching out to us here. QuickBooks Online Payroll is a great tool to pay your employees in accordance with government guidelines.  I would be happy to point you in the right direction.

 

The CRA website has a detailed guide on how Vacation pay works. Here is a link for your reference.  If you require further assistance, I recommend reaching out to an accounting professional. They will be able to guide you in the right direction and answer any additional questions or concerns that may arise.  You can add your accountant to your books by going to the My Accountant tab of your QuickBooks account. You can also find an accountant that has experience using QuickBooks near you by clicking on the Find a pro to help option in that section.

 

If you have any other questions, feel free to reach out here

C
Charlotte HigginsAuthor
January 24, 2023

I had already read the page to which you linked -- it details how to calculate the income tax and other deductions for the employee. In fact, all my searches had turned up information on employee taxation. My question pertains to employer taxation.

D
drapes2013
March 9, 2023

Vacation tax is very frustrating. I have recently had staff who are paid hourly and accumulate a large amount of vacation pay. When it is paid out as a lump sum the tax is calculated as if this is their regular weekly pay ie it is calculated at a much higher marginal tax rate. There does not appear to be any way to correct this. I also have had vacation accumulated and cannot find out when the tax is being applied. The entire situation is very frustrating and Quickbooks seems unable to understand or help.

Terms & ConditionsAccessibility statement