Calculating Surplus Income With Vacation Pay
Bankruptcy trustees have a legal right to collect any surplus income you make to repay your creditors.
But do you also need to include surplus income in this calculation?
Most people receive a fixed paycheque each month that includes vacation pay.
However, some companies do payroll accounting differently, handing out vacation pay in chunks throughout the year.
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It is only natural to wonder, therefore, whether you must declare these payments to the trustee.
Currently, the law states that those in bankruptcy must provide trustees with information regarding all sources of their income, including vacation pay.
If you receive a set amount of money from your employer each month that never varies, then you need to take any further action.
If, however, you receive overtime or vacation paycheques separately, you will need to declare these to the trustee too.
How Vacation Pay Affects Surplus Income Calculations
Usually, there is a requirement that you pay any surplus income (additional money you receive from your work that you don’t require for basics) to the trustee.
Vacation pay affects how this is calculated.
Let’s suppose that your basic earnings every month put you $300 under the surplus income threshold.
In this case, no portion of your wages qualify as surplus income, and so you don’t have to make any repayments directly from your paycheck.
Now suppose that you suddenly receive a vacation windfall paycheck of $3,700 in month twelve.
Summing the surplus income shortfall over the first eleven months comes to $3,300 ($300 multiplied by 11) under the threshold.
Adding the vacation pay in month twelve of $3,700 to this puts you $400 over for the year.
The time frame, therefore, matters.
When you consider each by itself, you mostly fall under the surplus income threshold.
However, when you average over many months, you find that you fall above it.
Of course, if your holiday pay had been $2,000, your average income would not have popped above the threshold.
In this case, none of your salary would have been harvested.
What Does This Mean In Practice?
For most people, there is no need to worry about the impact of vacation pay on surplus income – especially if your monthly income remains fixed.
If, however, your employer pays vacation checks separately, you’ll need to discuss this with your trustee.
The best course of action is to tell them how much you’re likely to receive in vacation pay for the year.
The trustee will then calculate your average monthly income and use that to determine how much money you will need to pay in the future, if any.
Sometimes it can work in your interest to take vacation pay early so that the trustee does not include it in their future calculations.
However, you will need professional advice to ensure that you do this correctly.
You may also want to consider filing a consumer proposal.
This approach allows some people to avoid the surplus income requirement altogether.
Finally, if you’re concerned about bankruptcy, then it always pays to consult with professionals.
They can offer guidance and support on issues such as overtime and vacation pay, letting you know precisely where you stand.
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