What happens to accrued vacation pay when a business sells?

Vacation pay gets treated loosely in conversation — as a benefit, almost a courtesy — but employment standards legislation treats it as wages, earned as the person works, not granted when they take time off. That framing decides who owes it after a sale.

Share sale: the debt stays on the corporation’s books

Since the corporation remains the employer in a share sale, its liability for every dollar of vacation pay employees have already earned does not disappear or reset — it is simply a liability the buyer now owns along with everything else on the balance sheet. This is exactly the kind of item that should be verified during financial and employment due diligence before the buyer agrees on price.

Asset sale: usually the seller’s obligation to settle

In an asset sale, the seller employed the person while the vacation pay accrued, so the seller is generally the one who owes it — typically paid out around the employee’s last day with the seller. If the buyer hires the employee and wants to preserve the vacation balance rather than have it paid out and restarted, that has to be negotiated and documented; it does not happen by default.

Why this belongs in the purchase agreement, not an assumption

Buyers and sellers sometimes each assume the other is handling it, and the employee is the one who finds out the hard way. The agreement should state whether accrued vacation is being paid out by the seller before closing, credited against the purchase price, or expressly assumed by the buyer as part of the deal.

What to check before closing

• Current vacation balances for every employee the buyer intends to keep
• Whether the seller’s payroll records match what employees believe they have accrued
• Any provincial rules on how vacation pay must be calculated and when it must be paid out