Employees worldwide are entitled to some benefits, and these benefits differ from country to country. In Ontario, every employee is entitled to vacation pay regardless of how their wages are calculated. Every employer is obligated to make this payment to employees in their establishment.
If you are an employee in Ontario or a job seeker, this article summarises all you need to know about Ontario’s vacation pay.
What is Vacation Pay in Ontario?
Some people often confuse vacation pay as being the same as vacation time. However, they are different. Vacation pay is a percentage of an employee’s gross wages that they start to earn on every paycheck as soon as they are employed.
On the other hand, vacation time is time-off made by an employee every year depending on the number of years he or she has served for. Vacation pay also varies depending on the number of years of service.
An employee has the liberty to give up part or all of their vacation time earned with a written or electronic agreement from the employer. The Director must approve this agreement of Employment Standards, and such employee is entitled to vacation pay. Employees are allowed to give up vacation time but not the right to vacation pay.
According to the Employment Standards Act (ESA), vacation pay must be at least four percent (4%) of gross wages earned in a 12-month vacation entitlement year or stub period (where it applies).
A vacation entitlement year is the 12-month period over which employees earn vacation time. A standard vacation entitlement year is a 12-month period that is recurring and starts on the date of hire.
There is also an alternative vacation entitlement year, which also refers to a regular 12-month period. However, this begins at a different date from the date of employment as chosen by the employee.
A stub period is a period between the date of hire and the first alternative vacation entitlement year.
Vacation Time in Ontario
As said earlier, vacation time earned by an employee in Ontario depends on their employment period. Below is a table that shows how much vacation time is achieved based on a period of work.
Period of Employment | Vacation Time |
|---|---|
One to five years | Two weeks |
Five or more years | Three weeks |
An employee and employer can reach a collective agreement or employment contract to give a more generous vacation time entitlement.
When is Vacation Pay Paid in Ontario?
Usually, vacation pay must be paid to an employee in a lump sum sometime before taking the vacation time earned. There are, however, some exceptions to this. They are;
- When the vacation time is less than a week
- The employee has made an electronic or written agreement to receive a vacation out on each paycheck as it accumulates.
- If agreed in writing or electronically by the employee to receive vacation pay at any time
- If the employee receives their wages by direct deposit into their account in a financial institution
Calculating Vacation Pay in Ontario
Like vacation time, depending on the employment period, an employee can receive four percent (4%) or six percent (6%) of their gross wages earned in a vacation entitlement year or a stub period excluding vacation pay.
The table below shows the amount of vacation pay received depending on the period of employment.
Period of Employment | Vacation Pay |
|---|---|
Less than five years | 4% |
Five years or more | 6% |
An employee can be entitled to a higher percentage of vacation pay if the employment contract or a collective agreement provides a better vacation benefit.
Vacation days = Gross Annual Income Total × Vacation Pay Percentage / 100
For example
Vacation days $50,0000 × 4/100
Vacation pay = 2000
Vacation pay is calculated on the following gross wages:
- Regular wages or salary plus commissions
- Bonuses and gifts that are related to work or productivity
- Overtime pay
- Public holiday pay
- Termination pay
- Allowances for room and board
- Domestic or sexual violence leave pay
The following wages are exempted from vacation pay:
- Expenses and travelling allowance
- Secret bonuses and gifts that are unrelated to work
- Tips and gratuities
- Severance pay
- Federal employment insurance benefits
- Living allowances
- Vacation pay
- Payments made from a benefit plan like sick pay
How to Calculate Accrued Vacation Pay
Accrued vacation pay is the amount of vacation time an employee has earned per the company’s employee benefits policy that has not been paid. Below is how to calculate an accrued vacation pay:
Vacation days = Total vacation days × Stub period (number of months completed) 12
For example
Vacation days 20 × 6/12
Vacation days =10
What happens to Vacation Pay if You Lose Your Job?
If an employee’s job is terminated, they are still entitled to vacation pay earned and but that has not yet been paid. Suppose their employment was terminated during a vacation entitlement period, depending on the period of work. In that case, the employee is entitled to 4% or 6% of wages earned during the last vacation entitlement period even as it is partially completed plus outstanding vacation pay earned previously if any.
Vacation pay is payable on termination pay as a lump sum paid to an employee if they were not given a notice of termination. However, it is not payable on severance pay- that is compensation for an employee to recognize long years of service to establish when laid off.
An employer must pay any unpaid vacation pay payment within seven days of the termination date or end of employment or on what would have been the employee’s next paydays, whichever is farther.
Every employee in Ontario, regardless of whether wages pay them, salary, or commissions, is entitled to vacation pay and cannot give up the right to it. It is a percentage of select gross wages that accumulates on every paycheck from the date of hire. It varies depending on the employment period and must be paid even when an employee is laid off or when he or she quits. It also isn’t the same as vacation time.
As an employee or even an employer, having this knowledge will make you aware of your rights as an employee and your employer’s duty.
