I’m going to go out on a limb here, and guess that vacation has been on your mind recently. With the sun shining and patios and beaches beckoning, you’re probably gearing up for or just coming back from some time off. While no one would dispute the need for rest and recharge, more Canadian employers are thinking about their vacation policies, including whether their employees can purchase or sell vacation days either as part of their flexible benefits plan, or as part of their overall time off strategy.

While Canada is not known globally for our generous mandated vacation time (we’re third last, only to be beaten by Japan, with 10 paid vacation days but no additional statutory holidays, and the United States with no requirement for vacation time), all provinces and territories includes a minimum requirement for time off in their labour standards.

Read: Many Canadians don’t take allotted vacation time

For the most part, the minimum mandated annual vacation in all Canadian provinces is two weeks after one year of employment, with the exception of Saskatchewan where it’s three. There are, of course, exceptions for employees who are federally rather than provincially regulated, and for other exempt groups like clergy or judges, where the minimum required can be different than the provincial labour standard.

An organization’s philosophy about vacation time can be reflective of a number of things: the competitiveness of the labour market from which they compete for and recruit talent, the culture of the organization, the demographic composition of the organization, or the production schedule and corresponding staffing requirements, to name a few. Regardless, in recent years, many organizations have had another look at how they view employee vacation time.

With increased focus by Canadian employers on workplace mental health, work/life balance, and talent retention and engagement, the importance of vacation time as a mechanism in striking a better balance both for employees and workplaces is getting more attention.

Although there has been much said about millennials in the workforce looking for employers who offer flexibility around vacation time, progressive time-off policies and practices also appeal to any employee who’s a caregiver for an aging or ill family member, is managing and coordinating childcare needs, or is flirting with a phased retirement.

Read: Vacation is good for employees’ health

Allowing the buying and selling of vacation days is certainly an effective way to give employees more flexibility and control in managing their time off. If your organization has a flexible benefits plan, this is probably the easiest way to incorporate vacation time buying and selling into your overall benefits strategy. In fact, about one in five flex plans in Canada currently include vacation days.

Flex plan participants choosing to buy additional days can do so either with flex credits or through prorated payroll deduction, while those choosing to sell vacation days can use the additional credits to purchase more enhanced coverage options for other benefits within their plan or receive taxable cash.

Employers that allow employees to buy and sell vacation time should make sure they have a comprehensive policy in place that lays out the rules of engagement, like limits on the total number of days that can be purchased or sold, how many days can be taken together, how time off is coordinated within teams, and whether there are restrictions on when time off can be taken, such as during key production times for example.

Read: Canadians receive fewer vacation days than most countries

Flexible benefits plans that incorporate the buying and selling of vacation days must be structured carefully so that deferred compensation rules aren’t triggered. Canada Revenue Agency (CRA) stipulates that vacation days purchased with flex credits must be used within the same year they are purchased, or that the arrangement may be considered a salary deferral arrangement. If purchased days are unused, vacation purchase policies must require the purchaser to cash them out in-year, or forfeit them. In the same Interpretation Bulletin (IT-529), CRA states that when vacation days are sold, the ensuing amount credited to the plan is taxable in the year the days are sold.

Plan sponsors should be careful to limit the number of vacation days employees are able to sell so the minimum mandated vacation requirements in the various provinces or territories in which the business operates is still met.

Some organizations are moving to an overall paid time off strategy that combines vacation, personal and sick days into one bank of time off that can be used for any purpose. Paid time off plans, or PTOs, began in the United States, so in Canada, employers with American parent companies or cross-border operations where equity across borders is important have been among the first to adopt this strategy here.

Though PTOs are growing in popularity in the U.S., they have not seen the same popularity in Canada just yet. Canadian employers interested in exploring a PTO approach within their own organizations should consult a lawyer to ensure compliance with labour standards in the jurisdictions where they operate.

Kim Siddall is an associate vice-president with Aon. She has more than 20 years of experience in the health and benefits industry. These are the views of the author and not necessarily those of Benefits Canada.
Copyright © 2018 Transcontinental Media G.P. Originally published on benefitscanada.com

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