What Is Vacation Pay?
Vacation pay is money paid to employees for the time they take off work. Think of it this way – if you work 50 weeks in a year, your well-deserved two weeks of vacation should not be unpaid. Instead, you should receive payment on your vacation. This is vacation pay!
In Ontario, vacation pay accumulates as wages are earned. In other words, vacation pay is earned as soon as an employee starts working. Employees who have worked at their employer for less than five years are entitled to a minimum of 4% of their pay paid as vacation pay. An employee who has worked for five years or more is entitled to a minimum of 6% of their pay paid as vacation pay.
And What About Unpaid Vacation Pay?
Of course, unpaid vacation pay is when an employer fails to pay the aforementioned extra percentage on wages for money when the employee goes on vacation. And it turns out this is a common problem in Ontario.
The most common kind of unpaid vacation pay in Ontario is when someone who earns variable income (i.e., commission income) does not receive vacation pay on top of that variable income. For example, if a car salesman earns commissions when he sells a car, he should be paid at least 4% extra vacation pay for that sale.
In Ontario, it is the law that variable compensation employees must be paid additional vacation pay above and beyond their regular pay. Many employers follow this law, but some employers break this law on purpose, secretly, and others do it because they simply did not know they had to. This “variable income and vacation pay” law is relatively unknown for many people.
Here’s the law about commissions and vacation pay: Under the Ontario Employment Standards Act, 2000, employees are entitled to vacation pay calculated at a minimum of four (4) per cent of their commissions earned within a 12-month vacation entitlement year, or the stub period for which their vacation is being given just like for normal hourly or salary wages. If an employee has been employed for five (5) or more years, their vacation pay is calculated at least six (6) per cent of their commissions.
Therefore, commissioned employees should always be receiving vacation pay based on their total compensation, including commissions, not just on their base salary/hourly wage.
As we have seen recently, as a result of many employers making vacation pay payments solely on base salaries, many employees are owed substantial back pay for their employer’s failure to make vacation pay payments on variable income.
Accordingly, many variable compensation employees in Ontario could be owed large amounts of back pay for vacation pay if their employer failed to properly pay vacation pay on top of their commission income for years.
The second most common type of unpaid vacation pay in Ontario is, more obviously, when an employer simply fails to pay any vacation pay on normal wages. Sometimes this is a mistake because the law (read my vacation pay in Ontario guide here) can be confusing, while other times, it can be done on purpose to save money. In any event, if an employer fails to pay vacation pay on wages for any reason, it has to pay that money back to the employee. This is the case even if the failure to pay vacation pay goes back decades.
What Happens If An Employer Owes Unpaid Vacation Pay?
If you believe your employer owes you unpaid vacation pay, you have several options.
Your first option is to consider filing an unpaid vacation pay complaint with the Ontario Ministry of Labour. The Ministry of Labour will investigate your case, free of charge, and then enforce your unpaid vacation pay claim if it determines you are so owed unpaid vacation pay. This is generally the ideal route for individual cases with relatively small sums of vacation pay owing. However, the Ministry of Labour will enforce large amounts of unpaid vacation pay too. There is no cap at the Ministry of Labour for “unpaid wages” (vacation pay is technically “wages”).
Secondly, suppose you believe you have a relatively large claim of unpaid vacation pay and you do not want to work at your employer anymore. In that case, you could sue your employer for that unpaid vacation pay and common law damages for constructive dismissal (that which resulted from your relatively significant amount of unpaid vacation). This way of claiming unpaid vacation pay/constructive dismissal is not free. Lawyers or paralegals (if the claim is under $35,000) will charge an hourly rate or a contingency rate. But it is important to note here that the free Ministry of Labour services offered in this province cannot investigate or enforce claims of constructive dismissal and common law damages. You must sue in court.
Thirdly, if you believe unpaid vacation pay is pervasive at your employer, you could launch a class-action lawsuit. Again, this way of unpaid vacation pay dismissal is not free. However, in most instances, the law firm will only charge a contingency fee in class actions. The main benefit of a class action is that all employees in the company or group can claim unpaid vacation pay simultaneously for essentially for free and without having to hire or deal with a lawyer for most of the class.
Jeff is a lawyer in Toronto who works for a technology startup. Jeff is a frequent lecturer on employment law and is the author of an employment law textbook and various trade journal articles. Jeff is interested in Canadian business, technology and law, and this blog is his platform to share his views and tips in those areas.