Vacation Pay vs. Vacation Time in Ontario: What’s the Difference?

In Ontario, employees are entitled to both vacation time and vacation pay as part of their employment rights. While these two terms are often used interchangeably, they actually refer to two different distinct concepts. Understanding the difference between vacation time and vacation pay is important for both employees and employers to ensure that everyone is receiving the appropriate compensation and time off.

Here’s what employers should know about their employee’s vacation rights, their eligibility, and how much time off and pay they are due.

What is vacation time?

Vacation time is the length of time off an employee receives annually for vacation. Vacation pay refers to the amount of pay employees must receive to compensate them for the vacation time they take off work. While employees may forfeit their vacation time if they wish, with the approval of their employer and the Director and Employment Standards, employers must provide them vacation pay regardless.

Employees earn their vacation time over the course of the year. This means that employees are eligible for vacation time after one year of employment.

How much vacation time are employees entitled to?

Employees who have been with the same employer over a year, but less than five, are eligible for 2 weeks of vacation time per completed employment year, and those who have been employed for five years or more are eligible for 3 weeks of vacation time.

When does the vacation entitlement year begin?

Usually, a vacation entitlement year refers to a recurring 12-month period that starts on the date of hire. However, if an employer has established an alternative vacation entitlement year, which starts on a date other than the hire date, the employee is also entitled to a pro-rated amount of vacation time for the period that comes before the alternative vacation entitlement year. This period is known as a “stub period”.

How is vacation pay calculated?

For employees who have less than five years of employment, the vacation pay must be a minimum of 4%of the gross wages (excluding any vacation pay) earned in the 12-month vacation entitlement year or the stub period (if any).

For employees with five or more years of employment at the end of the 12-month vacation entitlement year or stub period (if any), the minimum vacation pay entitlement is 6% of the gross wages earned in the same period.

What else is important to know about vacation time?

It is important to note that an employee’s contract of employment or a collective agreement may provide a greater right or benefit regarding vacation time and/or pay.

Furthermore, employees who don’t complete either the full vacation entitlement year or the stub period (if any) are not eligible for vacation time under the Employment Standards Act, 2000 (“ESA”). However, employees earn vacation pay as they earn wages. This means that if an employee works even just one hour, they are still entitled to at least 4% (or 6%, depending on length of employment) of their hourly wages as vacation pay.

What is vacation pay?

Vacation pay is the amount of money that an employee is entitled to receive while they are on vacation. Vacation pay is typically a percentage of the employee’s regular pay and is meant to compensate the employee for their time off.

How much vacation pay are employees entitled to in Ontario?

In Ontario, the minimum amount of vacation pay that an employee is entitled to is 4% of their gross earnings. Gross earnings include wages, overtime pay, and any public holiday pay that the employee has received in the previous 12 months. If an employee has been employed for five or more years with the same employer, their vacation pay entitlement increases to 6% of their gross earnings.

Employers have the option to provide more vacation pay than the minimum amount required by law. For example, an employer may offer 6% vacation pay to all employees, regardless of their length of service.

Vacation time and pay policies

Employers should have vacation time and pay policies in place that comply with the minimum standards set out in the ESA. These policies should outline how vacation time and pay are calculated, how much vacation time and pay employees are entitled to, and how vacation time and pay are paid out.

Employers may also have additional policies in place that provide for more vacation time and pay than the minimum standards set out in the ESA. For example, an employer may offer three weeks of vacation time instead of two weeks for employees who have been employed for one year or more.

Employees should be provided with a copy of the vacation time and pay policies when they start employment and these policies should be reviewed and updated as needed.

Employers must also ensure that they are providing employees with their proper vacation time and pay entitlements. Failure to do so can result in penalties and fines from the Ministry of Labour.

Vacation time and vacation pay are two important components of employment in Ontario. While these terms are often used interchangeably, they refer to distinct concepts that employees and employers must understand to ensure that employees are receiving their proper compensation and time off.

Employers must ensure that they are complying with the minimum standards set out in the ESA when it comes to vacation time and pay. This includes accurately calculating and tracking vacation time and pay, providing employees with their proper entitlements, and having vacation time and pay policies in place that comply with the ESA.

Need help calculating vacation pay?

We can answer your questions on vacation time, vacation pay and other employee absences. Speak with our HR experts to get advice on how to stay compliant with the ESA and pay employees correctly. Contact us today: 1 (833) 247-3652