How is vacation pay calculated and when does an Ontario employer have to pay it out?
Under the Employment Standards Act, 2000, vacation pay in Ontario is calculated as a percentage of the wages an employee earned during the applicable vacation entitlement year, at a minimum rate set by the Act, with a higher minimum percentage applying once an employee has enough completed years of service to qualify for a longer vacation entitlement. Vacation pay is separate from vacation time itself; it's the money tied to the time off, calculated on gross earnings rather than a fixed number of hours' pay.
Employers generally have to pay vacation pay either as it accrues, on each regular pay cheque, or in a lump sum before the vacation time is taken, depending on what the employer and employee have agreed to and how payroll is structured — an employee can't simply be left to accrue vacation pay indefinitely without ever receiving it. If employment ends before vacation is taken, any accrued but unpaid vacation pay has to be paid out as part of the final wages owed.
Because vacation pay calculations depend on what counts as "wages" for this purpose, and timing rules can trip up payroll systems not built with Ontario's ESA in mind, it's worth confirming your payroll process actually matches the statutory requirement.
Key takeaways
- Vacation pay is a minimum percentage of earned wages, with a higher rate once an employee qualifies for more vacation time.
- Vacation pay is distinct from vacation time; it's calculated on earnings, not a flat hourly rate.
- Vacation pay must actually be paid out, either as it accrues or before vacation is taken, not left to accumulate indefinitely.
- Unpaid accrued vacation pay must be included in an employee's final wages when employment ends.