Understanding how vacation pay works in Ontario is crucial for both employees and employers. This guide will break down the essentials of paid vacation in Ontario, including how it’s calculated, who is eligible, and what the laws say about it.

What is Vacation Pay?

Employers pay employees vacation pay while they are on vacation. In Ontario, the Employment Standards Act (ESA) sets the rules for vacation time and holiday pay. These rules ensure that employees get some time off work to rest and recharge.

Who is Eligible for Vacation Pay?

Most employers in Ontario must provide holiday pay to their employees. This includes full-time, part-time, and casual workers. However, there are some exceptions. For example, employees in certain industries or those covered by a collective agreement may have different rules.

Key Points to Remember

• Full-time, part-time, and casual employees are generally eligible.
• Exceptions may apply for certain industries or under collective agreements.

How is Vacation Pay Calculated?

Holiday pay in Ontario is calculated as a percentage of the employee’s gross wages earned during the year. The standard rate is:

• 4% of gross wages for employees with less than five years of employment.
• 6% of gross wages for employees with five or more years of employment.

What Counts as Gross Wages?

Gross wages include all earnings, such as:

• Regular wages
• Overtime pay
• Public holiday pay
• Commissions
• Bonuses (if they are non-discretionary)

Note that employers do not include certain payments, like tips and gratuities, in the calculation.

When is Vacation Pay Paid?

Holiday pay can be paid in different ways:

• With each paycheck: Some employers include holiday pay in each paycheck. This method is often used for part-time or casual employees.
• Before taking vacation: Employees can receive their holiday pay before they take their vacation time.
• On a scheduled basis: Some employers pay holiday pay on a specific schedule, such as annually.

Important Considerations

• Employers should inform employees about how they will receive their holiday pay.
• Employers must notify employees in writing if they change the method of paying holiday pay.

Vacation Time vs. Vacation Pay

It’s important to distinguish between vacation time and holiday pay. Vacation time refers to the actual time employees take off work, while holiday pay is the money they receive during that time off. In Ontario, employees are entitled to:

• Two weeks of vacation time after each 12-month vacation entitlement year for employees with less than five years of employment.
• Three weeks of vacation time after each 12-month vacation entitlement year for employees with five or more years of employment.

Using Vacation Time

Employees must take their vacation time within 10 months of earning it. Employers must schedule vacation time in a way that allows employees to take it. However, employers also have the right to decide when employees take their vacation.

Can Vacation Time be Carried Over?

In some cases, employees and employers may agree to carry over vacation time to the next year. This agreement must be in writing.

Special Situations

Termination of Employment

If an employee’s employment is terminated, they are entitled to receive any unpaid holiday pay. This includes holiday pay earned during the current entitlement year and any previous years.

Leaves of Absence

Employees on certain types of leaves, such as maternity or parental leave, continue to earn vacation time and holiday pay. Employers must calculate the vacation time and pay based on the wages the employee would have earned if they were not on leave.

Public Holidays

Public holidays do not count as vacation days. If a public holiday falls during an employee’s vacation, they are entitled to another day off with public holiday pay.

Record Keeping

Employers must keep records of vacation time and vacation pay for each employee. These records must include:

• The vacation entitlement year
• The amount of vacation time earned
• The amount of vacation time taken
• The vacation pay earned and paid

Why is Record Keeping Important?

Proper record keeping ensures compliance with the ESA and helps resolve any disputes regarding vacation time and pay.

Common Questions About Vacation Pay in Ontario

Can Employees Waive Their Right to Vacation?

No, employees cannot waive their right to vacation time. However, they can agree to receive vacation pay instead of taking time off. This agreement must be in writing and approved by the Ministry of Labour.

What Happens If an Employer Does Not Pay Vacation Pay?

If an employer does not pay holiday pay, employees can file a claim with the Ministry of Labour. The Ministry will investigate and take necessary action to ensure compliance.

How Does Vacation Pay Affect Income Taxes?

Holiday pay is considered part of an employee’s income and is subject to income tax deductions. Employers must include vacation pay in the employee’s T4 slip.

Conclusion

Understanding how vacation pay works in Ontario is essential for both employees and employers. By following the rules set out in the ESA, employees can enjoy their well-deserved time off, and employers can ensure they are compliant with the law.

Whether you are an employee planning your next vacation or an employer managing payroll, knowing the ins and outs of holiday pay will help you navigate this important aspect of employment in Ontario.