Vacation time and vacation pay can be a real headache for Ontario employers. Figuring out the rules, keeping track of employee time off, and calculating vacation pay may feel like deciphering ancient hieroglyphics. If you feel this way, you’re not alone! Small business owners, non-profit leaders, and HR folks all face the summer bummer of figuring out how much vacation time employees get and how much to pay for it. That’s why we’ve put together this guide to break down the essentials and make your life easier.
An important thing to remember going into this summer season is that Ontario’s Employment Standards Act (ESA) treats vacation time and vacation pay as two separate entitlements for employees and employers have responsibilities for both.
Vacation Time
The ESA has specific rules in place to make sure employees get adequate time off and are paid for it. Vacation time in Ontario is calculated based on years of service of employees, and you should note that the ESA does not distinguish between full and part time employees:
- Employees with less than five years of service: Workers are entitled to two weeks of vacation time after each 12-month period of employment. This period is called the “vacation entitlement year.”
- Employees with more than five years of service: Workers are entitled to three weeks of vacation time after each 12-month period.
A vacation entitlement year typically starts on the first day of work and goes on for as long as the employee is authorized to take time off. If you pick a different date to begin the vacation entitlement year of the employee, other than the employee’s hire date, the employee is still entitled to a certain amount of vacation time for the time in between. This period is often called a “stub period.”
Scheduling Vacation Time
You as the employer, get to decide when your employees take their vacations (within reason!). However, you must ensure that the time off is used within ten months following the end of the entitlement period.
- For Employees with Less Than Five Years of Service: Vacation time should be scheduled in blocks of two weeks or in two separate one-week periods.
- For Employees with Five or More Years of Service: Vacation must be scheduled as a block of three weeks, or two weeks followed by one week, or in three separate one-week periods.
- Note: Employees may request shorter periods, and if the employer agrees, then the vacation can be taken accordingly.
For stub periods, if the vacation time earned is between two and five days, it should be taken consecutively unless otherwise agreed upon. For more than five days, the employee must take at least five days consecutively, with additional days either added to this block or taken separately.
Employers cannot schedule employees to take vacation time in less than one-week increments, unless this was requested by the employee.
Vacation Pay in Ontario
Ideally, vacation pay should be paid in a lump sum before your employee jets off for their adventures. But there could be a few exceptions, such as if they’re taking their time off in smaller chunks, with your written agreement. Here’s a breakdown of the key aspects of Ontario’s vacation pay:
Vacation Pay Entitlements
Vacation pay is calculated as a percentage of the employee’s earnings over the vacation entitlement year or stub period:
- For Employees with Less Than Five Years of Employment: Vacation pay must be at least 4% of the gross wages (excluding any vacation pay) earned during the 12-month vacation entitlement year or stub period.
- For Employees with Five or More Years of Employment: Vacation pay must be at least 6% of the gross wages earned during the vacation entitlement year or stub period.
Employers are required to provide these minimum entitlements unless a contract or collective agreement offers a greater benefit. Employees who reach the five-year mark partway through the vacation entitlement year or stub period are also entitled to 6% vacation pay on all wages earned during that period, regardless of when they reached this milestone.
When to Pay Vacation Pay
In most cases, vacation pay for a completed vacation entitlement year or stub period must be paid to employees in a lump sum before they take their vacation. However, there could be exceptions to this rule, if the ESA requirements are fulfilled. Vacation pay regulations were recently updated in the ESA and employers need to update their vacation pay practices if they haven’t already done so to ensure that they are compliant:
- Taking Vacation in Short Periods: If vacation is taken in periods of less than one week, vacation pay can be paid on each pay cheque as it accrues if the employee agrees to this arrangement in writing or electronically.
- Accrued Vacation Pay Agreement: If the employee agrees in writing or electronically, vacation pay can be paid at any agreed time.
- The employee’s wage statement must show clearly the amount of the vacation pay being paid.
- Direct Deposit: If wages are paid by direct deposit, vacation pay can be paid in line with this method. In this case, the employee must be paid vacation pay on or before the pay day for the period in which the vacation falls.
- Employee Agreement: If the employee agrees electronically or in writing, the vacation pay can be paid at another agreed time.
Vacation Pay Upon Employment Termination or Resignation
Whether your employee is saying “see ya later” or you’re saying “so long,” they’re entitled to all their earned and unpaid vacation pay. This includes vacation pay accrued during previous and current vacation entitlement years or stub periods.
- Before Five Years of Employment: If an employee leaves before reaching five years of service, they are entitled to vacation pay of at least 4% of the wages earned during the last vacation entitlement period, along with any outstanding vacation pay from previous periods.
- After Five Years of Employment: If an employee has reached five years of service before termination, they are entitled to at least 6% of the wages earned during the last vacation entitlement period, plus any outstanding vacation pay from earlier periods.
- Note that if your employee was receiving a greater entitlement, they must be paid out at that rate if they leave your employment.
Vacation pay must be included in the termination pay but not in severance pay. The unpaid vacation pay must be settled within seven days of employment ending or on the employee’s next scheduled pay date, whichever is later.
Vacation and Public Holidays
Public holidays that fall during an employee’s vacation are just like any other vacation day. The day remains part of the vacation period. The employee is entitled to one of the following options:
- Substitute Day Off: The employee can take a substitute day off with public holiday pay within three months of the public holiday. Alternatively, if agreed in writing or electronically, this time period for it to be used can be extended to 12 months.
- Public Holiday Pay: The employer can pay the public holiday pay directly without providing a substitute day off, if the employee agrees in writing or electronically.
Additionally, employees may agree in writing or electronically to work on a public holiday that falls during their vacation.
Remember that you need to clearly show on the employee’s pay stub whether you’re paying a vacation day, public holiday pay, or their regular wages; this ensures that your vacation records are up to date.
Learn more about Ontario’s public holidays and holiday pay here.
Vacation and Leaves of Absence
During leaves of absence such as pregnancy, parental, sick, family responsibility, bereavement, declared emergency, family caregiver, family medical, critical illness, domestic or sexual violence, organ donor, reservist, child death, or crime-related child disappearance leave, there is no break in the employment relationship. Therefore, the time spent during these leaves counts toward the employee’s vacation time entitlement year or stub period, but not towards their vacation pay.
Since vacation pay is 4% or 6% of the employee’s gross wages during the entitlement year, if an employee has not worked during the previous time period, they would not accrue vacation pay, but they would still accrue unpaid vacation time. It’s recommended to have the employee use up their accrued vacation time, although unpaid, at the end of their leave period so that you can start fresh with their vacation entitlements.
Maintaining Vacation Records
It’s important to note that employers must keep detailed records of vacation time and pay, including:
- Vacation time earned but not taken before the start of the vacation entitlement year.
- Vacation time earned and taken during the vacation entitlement year or stub period.
- The balance of vacation time remaining at the end of the vacation entitlement year or stub period.
- Vacation pay earned and paid, including the calculation method.
These records must be updated no later than seven days after the start of the next vacation entitlement year or the first payday after the stub period or vacation entitlement year ends, whichever is later.
Employees can request a statement of their vacation records in writing. The employer must provide this information no later than seven days after the request or the first payday after the request, whichever is later. If the request concerns the current vacation entitlement year or stub period, the information must be provided no later than seven days after the start of the next vacation entitlement year or the first payday after the stub period or vacation entitlement year ends.
If vacation pay is paid on each pay cheque as it accrues, employers do not need to provide detailed vacation pay records but must report vacation pay separately on wage statements or provide a separate statement.
Most employees and employers in Ontario are covered by the Employment Standards Act (ESA). However, some employees have exemptions or special rules that alter how the ESA applies to them. You can learn more about these special rules and exemptions for specific job categories here.
We understand the summer vacation stampede can be a headache, especially with juggling workloads and ensuring smooth operations. But by understanding and implementing proper vacation scheduling and pay procedures, you can ensure your employees get the well-deserved time off they need to recharge. Remember, happy and rested employees lead to an engaged workforce and increased productivity.
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Disclaimer
This article provides general information about vacation pay and related regulations in Ontario and is intended for informational purposes only. It does not constitute legal advice, and readers should not rely on it as a substitute for professional legal consultation. Employment laws can be complex and subject to change, and individual circumstances may vary. For specific legal advice regarding vacation pay or any other employment-related matters, please consult with an HR advisor.
Important Resources:
- HR Covered: A Comprehensive Guide to Holiday Pay in Ontario
https://www.hrcovered.com/understanding-holiday-pay-in-ontario-a-comprehensive-guide/ - Ontario Ministry of Labour:
Vacation and Vacation Pay in Ontario
https://www.ontario.ca/document/your-guide-employment-standards-act-0/vacation#calculatingstub
Calculating Stub Period Vacation Entitlements
https://www.ontario.ca/document/your-guide-employment-standards-act-0/vacation#section-2
Jobs with Exemptions
https://www.ontario.ca/document/industries-and-jobs-exemptions-or-special-rules - Employment Standards Act:
https://www.ontario.ca/document/your-guide-employment-standards-act-0 - ES Self-Service Tool for Calculating Timing of Vacation Pay:
https://www.apps.labour.gov.on.ca/es-self-service-tool/