No matter how an employee is paid (i.e. salary, hourly or purely commissioned based), every employee in Ontario is entitled to both vacation time and vacation pay. However, some employers wrongfully fail to pay vacation pay on all the different kinds of wages employees in Ontario earn like bonuses and commissions.
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The Difference between vacation pay and vacation time in Ontario
Vacation time and vacation pay are two different things in Ontario.
Vacation time: An employee who has worked less than five years is entitled to two weeks of vacation time after one year of employment. An employee who has worked for five years or more is entitled to three weeks of vacation time per year.
|Years of Service||Vacation Time|
|5 or more||3 weeks|
Vacation pay: 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.
|Years of Service||Vacation Pay|
|0-5||4 per cent|
|5 or more||6 per cent|
Thus, the difference between vacation time and vacation pay in Ontario is that vacation time is earned after each year, whereas vacation pay is earned each paycheck. Vacation time is time off work, vacation pay is money that is given to the employee when they go on vacation time.
When to pay vacation pay in Ontario
Employers have a choice when to pay vacation pay to an employee.
- Employers can pay the whole vacation pay annual amount (i.e. 4%-6% of all wages earned that year) in a lump sum sometime before the employee takes the vacation time earned; or
- Only if the employee agrees in their contract or some other signed document, the employer can pay their vacation pay on each paycheck as it accrues (i.e. 4%-6% added to the paycheck). However, in this case, the employee’s pay stub must clearly indicate the amount of vacation pay being paid.
When employment ends for any reason, an employee is entitled to all the vacation pay that they have earned that has not yet been paid. If the employer permits banking vacation pay from previous years, these amounts would have to be paid too. Read below to learn that vacation pay must be added to termination pay.
If an employer pays an employee their regular pay during a “paid vacation” (which is common for salaried employees, but less common for hourly employees), employers do not need to pay an employee a lump sum before vacation begins or an accrual amount every paycheck. However, in this case, when employment ends (for example, where an employee quits or the employment is terminated), an employee is entitled to vacation pay that they have earned and that has not yet been paid yet if they haven’t taken all their vacation time in the year.
Read More: Failure to Pay Vacation Pay in Ontario
Do commission employees get vacation pay in Ontario?
Yes. Commission employees must get vacation pay in Ontario. As an employment standard, vacation pay is mandatory and cannot be waived pursuant to Part III, s. 5(1) of the Employment Standards Act.
Vacation pay must be paid on top of the employee’s commissions. In other words, a commission employee is entitled to his or her commission payments plus 4% or 6% of those amounts paid as vacation pay. An employer is forbidden from saying commission pay is “all-inclusive” of vacation pay. To be clear an employer must adjust their commission percentage to reflect vacation pay. An employer cannot just say the agreed-upon commissions include vacation pay. Employees must get both commission pay and vacation pay on that commission pay.
Many, many commission employees in Ontario would be surprised to learn they are owed tens of thousands of dollars in vacation pay because their employer failed to add vacation pay to their commission payments. For example, if an employee is paid $1000,000 in base salary and an additional $100,000 in commissions per year, they would be entitled to $8,000 in vacation pay (i.e. 4% of all wages.) per year. However, many employers are only paying commissions on an employee’s base salary amount or $4,000.00 in this example. This is illegal. Employers ought to pay vacation pay on all amounts paid to the employee. The employee in our example must get $8,000 extra per year as vacation pay.
Must overtime be paid for all kinds of wages?
Vacation pay is payable on all the different wages as defined in Part I, s. 1(1) of the Employment Standards Act, including:
- monetary remuneration (i.e. hourly pay or salary) payable by an employer to an employee under the terms of an employment contract, oral or written, express or implied, and
- any payment required to be made by an employer to an employee under the Employment Standards Act (this is a catch-all provision).
In line with Part I of the Employment Standards Act, the Ontario courts have confirmed that the above-noted catch-all includes:
- Bonuses must have vacation pay added to them – see Studio Sound Limited v Hobbs and Taylor (October 25, 1985), ESC 1968 (Sherwood) and Tim Wilkins Pontiac Buick Ltd. d.b.a. Lorne Brett Motors Ltd. v Ojamae et al (October 2, 1980), ESC 878 (Davis).
- Commissions must have vacation pay added to them – see Studio Sound Limited v Hobbs and Taylor and Lorne Brett Motors Ltd. v Ojamae et al.
- Overtime must have vacation pay added to it – see Bruce’s Appliance Service v Doyle (June 20, 1974), ESC 223 (McNish).
- Termination pay must have vacation pay added to it – see Inco Ltd. v. United Steelworkers of America (1984), 6 C.C.E.L. 263 (Ont. Div. Ct.).
Are employees entitled to vacation pay over the notice period following termination?
If an employer does not provide working notice but gives the employee pay in lieu of notice, the employer is required to pay the employee the amount the employee would have received “had notice been given”. Consequently, the pay in lieu would include vacation pay on the wages the employee would have earned during the notice period. If it were otherwise, an employer would realize a monetary advantage in choosing to provide pay in lieu instead of giving the employee notice. In other words, employees are entitled to vacation pay added to their severance package. The rule that vacation pay is payable on termination pay has been confirmed by the Ontario Divisional Court in Inco Ltd. v. United Steelworkers of America (1984), 6 C.C.E.L. 263 (Ont. Div. Ct.) and the Ontario Court of Appeal in Oxman v. Dustbane Enterprises Ltd. (1988), 23 C.C.E.L. 157.
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.