What is the difference between vacation pay and vacation time?
Vacation pay is an entitlement to all employees and cannot be waived as per the Employment Standards Act. It accumulates from the start of employment as more wages are earned by the employee.
- If an employee has been working for their employer for under five years, they are entitled to at least 4% of their pay as vacation pay.
- If the employee has been working for their employer for five or more years, they are entitled to at least 6% of their pay as vacation pay when they take vacation time.
*It is earned with each paycheck.
Vacation time is provided to an employee after at least one year of employment. The amount of vacation time is dependent on the years of service.
- If an employee has been working for you for at least one year but not more than five years, they are entitled to two weeks per year.
- If the employee has worked for you for five or more years, they are entitled to three weeks per year.
*It is earned with each 12-month vacation entitlement year of service.
What is a 12-month vacation entitlement year?
There is a standard vacation entitlement year and an alternative vacation entitlement year.
Standard vacation entitlement year: A recurring 12-month period that beings at the employee’s start date of employment.
Alternative vacation entitlement year: A recurring 12-month period that begins on a date chosen by the employer. For example: Although the employee was hired on May 1st, their vacation entitlement year begins on January 1st as chosen by the employer.
When should vacation pay be paid to an employee?
There are a few ways to pay vacation pay.
- The entire annual amount of vacation pay (for example, 4%-6% of wages the employee earned that year) can be paid as a lump sum prior to the employee taking their vacation time; or
- The employer can add the vacation pay to each paycheck if the employee has agreed to this method in the employment contract or another signed agreement. The pay stub must clearly show how much vacation pay is included on the employee’s paycheck.
If the employee’s employment has ended, they are entitled to their remaining vacation pay that has been earned but not yet received for that year.
What other forms of payment must vacation pay be added to?
- Termination pay
- Pay in lieu of notice
Deadlines for taking vacation
Any vacation time that is earned during the employee’s vacation entitlement year or stub period must be used within 10 months of completing that year.
The employer can schedule vacation time for the employee to ensure it is used prior to the 10-month expiration period.
How to schedule vacation time
If the employee is entitled to 2 weeks of vacation time, the employee can schedule their vacation time as:
- a two-week block, or
- 2 one-week blocks.
If the employee is entitled to 3 weeks of vacation time, the employee can schedule their vacation time as:
- a three-week block, or
- a two-week block and a one-week block, or
- 3 one-week blocks.
For shorter vacation time periods, both the employer and employee will need to agree, and the single vacation days will need to be calculated. To learn how to calculate single vacation days earned, please click here.
When employment ends
If an employee has been terminated, they are entitled to 4% or 6% of wages that were earned during the partially completed vacation entitlement year in addition to any outstanding vacation pay.
*Remember, it is 4% of wages if they have been employed for less than 5 years and it is 6% if they have reached that 5 year mark.
Vacation pay is payable when providing the termination pay. It needs to be provided within 7 days of termination or on what would have been the next pay day for the employee if that date is later.
Vacation and public holidays
If a public holiday falls within an employee’s scheduled vacation time, the employee is entitled to either:
- A substitute day off work with public holiday pay. It much be used within 3 months of the public holiday or within 12 months if agreed to in writing by the employee, or
- Public holiday pay without a substitute day off work if it is agreed to in writing by the employee.
Vacation and leaves of absence
Leaves of absence are not considered a break in the employment relationship and thus count towards the completion of a vacation entitlement year.
The vacation pay provided would be either 4% or 6% (depending on the number of years employed) of the wages that were earned that year.
The exception would be if the employer includes a clause that states that “paid vacation is earned through active service”, in which case the employee would not be able to earn vacation time/pay while on a leave of absense. However, the employer must still provide the minimum vacation time and vacation pay as per the Employment Standards Act.
Jeff Dutton. Vacation Pay Ontario 2023 (October 18, 2019). https://duttonlaw.ca/vacation-pay-ontario-2020/#:~:text=Thus%2C%20the%20difference%20between%20vacation,they%20go%20on%20vacation%20time.
Government of Ontario. Your guide to the Employment Standards Act: Vacation. (July 21, 2022). https://www.ontario.ca/document/your-guide-employment-standards-act-0/vacation
A special thank you to Maria Kavanagh for her help and contributions to this article!
The content of this article is written for general information purposes only and does not constitute specific legal advice. This article should not be used as a substitute for competent legal advice from a licensed lawyer. Please contact us at 1-437-600-9469 if you’d like to speak to an Emerge Law lawyer.