Vacation Pay Ontario: What You Need To Know

Vacation Pay Ontario

An employee’s statutory entitlement to vacation pay is defined under Ontario’s Employment Standards Act, 2000 (“ESA”). With the continuing COVID-19 pandemic, employees have been increasingly asking questions about the topic of vacation. Below you will find answers to the most frequently asked questions regarding vacation pay in Ontario.

What is vacation pay?

Vacation pay is money paid to an employee for the time that they take off work. Vacation pay is accumulated as an employee’s wages are earned or as soon as an employee starts working. “Wages” are defined as the employee’s regular earnings (including commissions), bonuses and gifts that are non-discretionary or are related to hours of work, overtime pay, public holiday pay, termination pay, allowances for room and board, and domestic or sexual violence leave pay.

How is vacation pay calculated in Ontario?

Under the ESA, employees who have worked at their employer for less than 5 years are entitled to vacation pay calculated at a minimum of 4% of their pay earned within a 12-month vacation entitlement year. Employees who have worked at their employer for 5 years or more are entitled to vacation pay calculated at a minimum of 6% of their pay.

When did 6% vacation pay start in Ontario?

The increased entitlement to vacation pay (6% vacation pay) for employees with five or more years of employment only apply to vacation entitlement years or stub periods that end on or after December 31, 2017. Employers are not required to provide the increased entitlements if the vacation entitlement year or stub period ended before December 31, 2017.

When will my vacation pay be paid out?

Generally, employers will pay the whole vacation pay annual amount (4%-6% of all wages earned that year) in a lump sum sometime before the employee takes the vacation time earned. Alternatively, and only if the employee agrees in their contract or signed agreement, the employer can pay their vacation pay on each pay cheque as it accrues (e.g. 4%-6% added to the paycheque). 

Is it mandatory to pay vacation pay in Ontario?

Yes, it is mandatory to pay vacation pay to all employees in Ontario, including salary, hourly, and commissioned-based workers. This requirement cannot be waived pursuant to Part III, s. 5(1) of the ESA. Unfortunately, we often see commission-based employees or other variable income earners being paid their vacation pay incorrectly (e.g. only on their base salary), when it must also be paid on top of commissions.

Will I get paid for unused vacation?

Under the ESA, vacation pay must be taken within 10 months of the vacation entitlement year. However, it should be noted that the ESA sets out only the statutory minimum guidelines for vacation pay in Ontario. An employer may decide to set out their own vacation policy regarding unused vacation and outline the same in the employee’s contract. Employees who have not taken their vacation time in the 10-month period must be paid out for their vacation.

Will I receive my vacation pay upon termination?

When employment ends (e.g. when an employee quits or is terminated), an employee is entitled to vacation pay that they have earned and that has not yet been paid. 

An employee’s pay in lieu of notice of their termination (e.g. termination package) should include vacation pay on the wages that the employee would have continued to earn during the notice period. The unpaid vacation pay must be paid within 7 days of the employment ending or on the employee’s next usual payday, whichever is later.

Monkhouse Law is an employment law firm in Toronto with a focus on workers’ issues. Our firm has conducted the most class actions regarding unpaid vacation pay in Canada. If you believe unpaid vacation pay is pervasive within your company, give us a call at 416-907-9249. We offer a free 30-minute phone consultation.

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