Vacation pay is money paid to an employee for their time off. In Ontario, vacation pay isn’t a nice-to-have, it’s your legal entitlement under the Employment Standards Act (ESA) and one that a lot of people don’t fully understand. But exactly how does vacation pay in Ontario work? In this guide, we’ll go over how vacation pay is calculated, when it must be paid, the rules around taking it, how it works when employment ends, common employer mistakes, and how to remedy them.
Ontario vacation pay basics: time versus pay
Under Ontario’s ESA, vacation time and vacation pay are two separate and distinct rights. These are minimum standards that cover most employees in Ontario, whether you’re full-time, part-time, casual, or seasonal. The 12-month period in which you earn your vacation is called the “entitlement year”, which typically starts on the date you start working.
- Vacation time is the number of weeks you’re entitled to take off each year. If you’ve worked for your employer for less than five years, you get two weeks of vacation per year. If you’ve worked for your employer for five years or more, you get three weeks of vacation per year.
- Vacation pay is the money tied to that time off, calculated as a percentage of your total annual earnings. How much vacation pay you get in Ontario depends on how long you’ve been working for your employer. For those who’ve been working for less than five years, your vacation pay should be a minimum of 4% of wages earned during your entitlement year. Once you’re with your employer for five years or more, your vacation pay rate goes up to 6% of wages earned per year.
Quick Answer: Employees who’ve been with their employer for less than 5 years are entitled to at least 4% of their gross wages as vacation pay in Ontario. Once they hit 5 years or more, they’re entitled to at least 6%. This is a separate entitlement from vacation time.
How to calculate vacation pay in Ontario?
To calculate your vacation pay, start with your applicable rate: 4% if you’ve worked with your employer for less than five years, or 6% if it’s been five years or more. This percentage applies to your gross wages earned during the entitlement year, not just your base salary. Vacation pay is calculated on more than just your base pay and to get a proper calculation, it’s helpful to first understand what counts towards your gross wages.
What counts as wages for calculating vacation pay?
To find out how much your vacation pay in Ontario is, several types of pay should be factored into the total. Wages that count include:
- Regular salary or hourly wages
- Commissions
- Overtime pay
- Public holiday pay
- Termination pay
- Non-discretionary bonuses (Bonuses tied to a set formula or target, not ones an employer chooses to give at their sole discretion)
Not included for vacation pay are earnings like severance pay, tips and other gratuities, discretionary bonuses, expenses, and travel allowances. Vacation pay itself is also not included.
Calculating vacation pay: step-by-step
Here’s how to work out your vacation pay for a full entitlement year:
- Add up your gross wages for the entitlement year. This is your total before any deductions.
- Apply your rate: Multiply that total by 0.04 (less than five years employed) or 0.06 (five years or more).
For example, take an hourly employee who earns $22/hour. They work 40 hours a week and have been with their employer for three years. Multiply their gross wages of $45,760 x 0.04 and their vacation pay would be $1,830.40.
For a salaried employee making $70,000 a year and working six years, multiply their gross wages by 0.06. This gives $4,200 in vacation pay. If that same employee also made $18,000 in commission for gross wages of $88,000, their vacation pay would be $5,280.
If you only worked for part of the year, prorate your calculation by using whatever your gross wages were for that shorter period.
Vacating pay timing and methods: lump sum or pay periods
By default, employers usually pay your vacation pay before your time off begins, but this can vary. In practice, this can look like a lump sum or distributed over time. Let’s compare the different methods.
Lump sum versus pay periods
Lump sums are the standard way to offer vacation pay in Ontario. Your employer pays the full amount in a pay period before you take your vacation time.
Your employer can also distribute your vacation pay in each pay period, as a percentage added to your regular wages. If this is the case, your vacation pay percentage must be included as a separate line item. Also, you must have a written or electronic agreement that allows them to do this.
When does vacation pay need to be paid out?
Generally, employers will pay out your vacation pay before your vacation period begins, not after you return. There are exceptions which require a written agreement:
- If you’re paid by direct deposit
- If your vacation time is less than one week
- If you’ve agreed to get vacation pay with each pay period
If the vacation period is less than one week, vacation pay can be paid on the regular payday for that pay period.
If your employment ends, any earned vacation pay or other vacation pay you’ve earned but haven’t used must be paid out as part of your final pay cheque. Under the ESA, this must done within seven days or by what would have been your next regular payday, whichever comes later.
Taking paid vacation in Ontario: scheduling, deadlines, and employer rights
Ontario employees must use their vacation time within 10 months after the entitlement year ends. When taking vacation, statutory vacation days cannot be subjected to “use it or lose it” policies, even though they generally must be scheduled within ESA timelines. However, your employer can decide the timing. They can also approve or deny requests based on business needs, like if too many team members have already booked that time off. Employers can also require you to take vacation at specific times, such as a company-wide shutdown, as long as you still get your full time and pay. With approval, you may waive the time off, but not the right to vacation pay, because the employer’s obligation to provide it still applies.
Employers have scheduling obligations too. For employees with under five years of service, vacation must be scheduled in a two-week block or two one-week blocks. For those with five years or more, it’s a three-week block, three one-week blocks, or two weeks plus one week. If you want to take a shorter time, you can request it in writing, but your employer doesn’t have to agree.
Employers can also revoke pre-approved vacation time in reasonable circumstances, such as an unexpected business deadline. If a last-minute change forces you to cancel something like a non-refundable booking, you may have grounds to recover those costs.
Vacation pay when employment ends: severance and final pay
No matter how the employment relationship ends, if an employee resigns or an employee quits, they should receive any accrued vacation pay they’ve earned but haven’t been paid. This applies whether they resign, are laid off, or are fired, and any unused vacation pay or outstanding vacation pay must still be paid based on the applicable vacation entitlement period if employment ends mid-year.
If you’re owed termination pay or statutory severance as well, those are separate entitlements. Vacation pay forms part of your earned wages and doesn’t replace any vacation pay you’re owed. Since termination pay (pay in lieu of notice) counts as wages, it should be included in the vacation pay calculation. This doesn’t apply to severance pay.
Final pay after employment ends
Your employer must pay out any unpaid or unused vacation when employment ends. Vacation pay must be paid within seven days of termination or on your next payday, whichever is later. It should also be clearly itemized on your final pay statement. If it isn’t paid, or the amount looks wrong, request payment in writing for the vacation pay owed. If that doesn’t resolve the issue, you can also file a claim with the Ministry of Labour or talk to an employment lawyer about taking further action.
Unpaid vacation pay in Ontario: common employer mistakes and how to fix them
Payroll errors for vacation happen more often than you’d think. Many employers wrongly exclude commissions, bonuses, or other covered amounts when calculating vacation pay. Employers are responsible for tracking vacation entitlements and ensuring proper payment. Mistakes can happen, but they often aren’t intentional. Common errors include:
- Excluding commissions or non-discretionary bonuses from the calculation
- Paying vacation pay only on the base salary
- Forgetting to switch the rate from 4% to 6% once an employee has worked there for five years
- Not paying accrued vacation pay or other unpaid amounts on termination of employment
Worried that you’re getting shortchanged? To estimate the vacation pay earned during the relevant vacation entitlement period, calculate what you should have received with the following formula:
Gross wages for the entitlement year x Your vacation pay rate – The amount of vacation pay you received
If there’s a difference, that’s what you’re owed. From there, you can raise the concern with your employer directly, ideally in writing. If that still doesn’t solve the problem, you have the option to file a complaint with the Ontario Ministry of Labour. They will investigate and can order your employer to correct the error.
Vacation pay in action: calculation examples
Here are a few examples of what calculating your vacation pay might look like:
Scenario 1: A part-time employee with under five years of service
Maya works part-time at $18/hour, averaging 20 hours a week, and has been with her employer for two years. Over the course of a year, she earns $18,720 in gross wages. At the 4% rate, $18,720 x 0.04 = $748.80 in vacation pay.
Scenario 2: A salaried employee with five or more years
Chris has worked for his employer for seven years and earns a $60,000 salary. At the 6% rate, $60,000 x 0.06 = $3,600 in vacation pay.
Scenario 3: An employee making a significant part of their earnings through commission
Calvin earns a $40,000 base salary plus $35,000 in commission, for gross annual wages of $75,000. He’s been with his employer for four years, so the 4% rate applies. $75,000 x 0.04 = $3,000 in vacation pay.
Recordkeeping, compliance, and best practices
For employers, staying compliant with the ESA’s vacation pay rules comes down to good tracking and clear policies. These best practices go a long way:
- Track accruals per employee. Payroll or HR software should track each employee’s vacation. This includes vacation time earned, taken, each vacation day or other vacation time used, and any vacation pay owed or accrued pay balance. It should also consider length of service, so the right rate is applied automatically.
- Put policies in writing. Taking this step helps employers set clear expectations, avoid ambiguity and reduce the risk of future disputes.
- Audit regularly. Periodically review payroll to ensure all wages are counted towards vacation pay calculations and that the correct rates are applied.
An employment contract can provide better vacation terms than the ESA minimums, but employer records should still show at least the statutory minimum entitlements.
The ESA also requires employers to keep accurate and consistent records of vacation entitlements. These must also be made available for inspection upon request. Since vacation pay disputes come up often, keeping good records is essential. Beyond being a legal requirement, they’re also your best defense if someone files a claim against you.
Next steps and resources
If you’re not sure if your vacation pay adds up, a good first step is running your numbers. You can search online for a vacation pay calculator and check if your pay statements meet the ESA minimum.
If your numbers don’t match up or your employer refuses to help, consult with Whitten & Lublin. Our lawyers specialize in employee rights. Our team can clarify your entitlements and guide you through the process of resolving your dispute.
You can also go straight to the source and review the vacation guidelines for Ontario’s Employment Standards Act (ESA). The entire ESA guide is an excellent resource for any worker. If you think your rights have been violated, you can file a claim directly to protect your interests.
Frequently Asked Questions
Is vacation pay mandatory in Ontario?
Yes. Under the ESA, paid vacation in Ontario is a legal entitlement for all employees. Employers must pay at least 4% of gross wages for employees with less than five years of service. For those with five years or more, the rate is 6%.
How much vacation pay am I entitled to in Ontario?
At minimum, you should receive 4% of your gross wages if you’ve worked for your employer for less than five years. If you’ve been there for five years or more, you should receive 6%. Some employers offer greater benefits through a contract or collective agreement. They may also provide more vacation time entitlement, meaning the weeks off that go with that pay, but they cannot provide less than the ESA minimum.
Are commissions and bonuses included in vacation pay?
Commissions and non-discretionary bonuses (ones tied to a set formula or target) count as gross wages for vacation pay. Discretionary bonuses are not.
Do collective agreements change my vacation pay entitlements?
Yes, if they’re better than the ESA minimum. A collective agreement can provide more vacation time, higher vacation pay, or both. In that case, those terms would override the ESA’s minimums. If a collective agreement offers less, the ESA still applies.
Can my employer revoke approved vacation time?
Yes, an employer can change or cancel a pre-approved vacation due to reasonable business needs, like an emergency staffing shortage. The nature of an employee’s role plays a large role in judging the reasonableness of the situation.
