Why These Rules Matter

Many small business owners assume payroll is simply wages and deductions. But labour standards laws add another layer of obligations — and they’re enforced separately from the CRA.

Even if you’re fully compliant with tax rules, a missed vacation payout or miscalculated overtime rate can still trigger a complaint or inspection under your provincial employment standards.

Knowing these rules protects both your employees and your business.

Vacation Pay

Vacation pay is not optional — every employee earns it, even if they’re part-time or paid hourly.

In Alberta (and most provinces), the standard rules are:

• Employees earn 4% of wages during their first five years of employment, which equals two weeks of vacation.
• After five years, it increases to 6%, or three weeks.

You can either:

1. Accrue it throughout the year and pay it when the employee takes time off, or
2. Pay it out on each paycheque as a separate line item.

If you choose to accrue it, remember that vacation pay becomes a liability — you owe it even if the employee hasn’t taken time off yet.

A common mistake is failing to include commissions or overtime earnings in vacation calculations. Vacation pay is based on all wages earned, not just base hourly or salary amounts.

Statutory Holidays

Stat holidays are paid days off mandated by each province. In Alberta, there are nine per year, including New Year’s Day, Canada Day, Labour Day, and Christmas Day.

To qualify for stat pay, most employees must have worked 30 days in the last 12 months and worked their scheduled shifts before and after the holiday (unless excused).

Here’s how stat pay works:

• If the employee does not work on the holiday, they’re paid an average day’s wage.
• If they do work, they receive 1.5 times their regular pay for hours worked, plus either a day off with pay later or the stat pay on top.

Many small businesses get caught when paying for stat holidays incorrectly, especially for irregular schedules or part-time staff. The key is to apply the average-day formula consistently and keep detailed time records.

Overtime Pay

Overtime is another area where employers often slip up.
In Alberta, overtime begins after 8 hours in a day or 44 hours in a week, whichever is greater.

The overtime rate is 1.5 times the employee’s regular hourly rate.

You can handle overtime in two ways:

1. Pay it out at the higher rate in the next pay period, or
2. Bank it as time off with pay (known as “banked overtime” or “time off in lieu”), as long as there’s a written agreement.

Banked overtime must be taken within six months, and if the employee leaves before using it, you must pay it out in full at the overtime rate.

Recordkeeping Requirements

You must keep payroll and time records that clearly show:

• Hours worked each day
• Overtime hours
• Stat holiday pay calculations
• Vacation pay accruals and payouts

These records must be kept for at least three years after the last day of employment. They’re your best protection if a dispute ever arises.

The Real Cost of Compliance

Vacation, stat, and overtime rules are not just red tape — they represent the real cost of having a team.
When you plan your pricing and cash flow, factor in these obligations alongside wages, CPP, and EI.

For most small employers, these items add roughly 6–10% to the total cost of labour.
Ignoring them creates cash-flow gaps later when payouts come due.

The Takeaway

Payroll compliance goes beyond deductions and remittances. True payroll management means understanding the labour laws behind each paycheque.

When you calculate vacation pay, stat pay, and overtime correctly, you protect your business from penalties, build trust with your team, and create a more predictable payroll system.

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