We recently shared some tips on how to prepare for summer holidays with your nanny in our blog Getting Ready for Summer: Let’s Talk Nanny Vacations and Covering Your Bases. But what about the payroll side of things? If you’re wondering what you’re required to pay your nanny when they take time off, you’re not alone.

In this post, we’ll walk you through how vacation pay is calculated, the different ways it can be provided, and what to keep in mind to stay compliant and avoid confusion. And if you’re already with NannyTax, good news! We take care of all of this for you.

Why Vacation Pay Matters

Vacation pay is about more than time off. It’s part of your caregiver’s earned compensation. As an employer, you’re legally obligated to provide paid vacation time or vacation pay — or both, depending on your arrangement.

And yes, this applies even if:

You pay your nanny a flat weekly or monthly rate
Your nanny doesn’t take time off
You’re only hiring them for part of the year

Vacation pay must be tracked, reported, and paid properly and if you skip it or get it wrong, you could face issues with your provincial labour board.

How Much Vacation Pay Do You Owe?

It depends on how long your nanny has been with you.

Minimum Standard: 4% of Gross Wages

In most provinces, the basic vacation entitlement is:

2 weeks of vacation time after each 12-month period of employment
4% vacation pay (calculated on gross earnings, including overtime, stat holidays (in some but not all provinces), and some types of bonuses)

After 5 Years: 6%

In some provinces, once your nanny hits 5 years of continuous employment, their entitlement usually increases to:

3 weeks of vacation
6% vacation pay

Pro tip: Some families choose to offer more than the minimum to stay competitive and reward long-term caregivers but that’s up to you.

Two Ways to Provide Vacation Pay

You can meet your legal requirements in one of two ways:

Option 1: Vacation Time + Pay Together

Give your nanny time off with pay — just like a typical job. This means:

They accrue vacation time/pay as they work
You pay them their usual wage while they’re off
You do not need to pay out a separate 4% — it’s already built into the paid time

Best for: Full-time or long-term nannies who are expected to take scheduled time off

Option 2: Vacation Pay Included in Regular Paycheques

This means you “pay as you go” by adding 4% (or 6%) to each pay period, and your nanny takes unpaid time off when they vacation. Be sure to itemize the vacation pay separately on the pay statement.

But heads up: this method must be clearly documented in your employment contract, and your nanny must understand they won’t be paid during their actual time away.

Best for: Part-time, casual, or temporary roles where time off may be irregular

Real-World Example

Let’s say your nanny earns $800/week gross.

If you include vacation pay, you would add 4% = $32 per week to their taxable income. Then, when they take the required vacation time, it will be without pay.
If you give paid vacation time, and your employee has worked for a year already, you continue paying $800 during their time off.

Either way, vacation pay must be itemized on the pay stub.

How NannyTax Makes It Easy

With NannyTax:

We calculate vacation pay based on your province’s laws and your employment agreement.
We track accruals, payments, and timing for you.
Your nanny receives clear pay stubs that outline exactly how much vacation pay they’ve earned or used.

You’ll never need to scramble during the summer holiday season. Or worse, face a complaint for underpaying vacation wages.

Other Things to Keep in Mind

When Can a Nanny Take Vacation?

The employer can set the vacation schedule (within reason), but many families coordinate time off with school breaks or family trips.

Put It in Writing

Your employment contract should clearly outline:

Vacation entitlement
Whether vacation pay is included or separate
How vacation time is scheduled

Need a contract refresh? See our guide: What to Include in a Nanny Employment Contract

Track It Properly

To stay compliant, you’ll need to show that vacation pay was calculated and paid correctly. This includes whether it was paid out with each pay or banked and paid during time off.

Vacation Pay Is Not Optional

If your nanny doesn’t take paid time off, and the vacation pay was accruing, you must still pay out the accrued vacation pay at the end of their employment.

Final Thoughts

Vacation pay might seem like a small detail, but it’s a big part of being a fair (and legal) employer.

At NannyTax, we take the guesswork (and math) off your hands. Whether you pay weekly or monthly or something in-between, include vacation pay or accrue it, we’ll help you stay on track and compliant.

Ready to simplify payroll? Let’s get started! Give us a call toll-free at 1-877-626-6982 or send us a note at taxquestions@nannytax.ca. With three different payroll plans to choose from, you can pick the option that fits your needs and budget best.