By: Brian Tsui

What is vacation pay?

Vacation pay is the money paid to an employee while taking time off work. Vacation pay begins to accumulate the moment an employee starts work. In Ontario, the minimum vacation pay employees are entitled to is 4% of their gross wages during their vacation entitlement year (the 12-month vacation entitlement year starts on the hiring date). For example, if an employee was hired on January 7, 2022, their vacation entitlement year would be from January 7, 2022, to January 6, 2023.

Employees who have worked for the same employer for less than five years are entitled to the minimum vacation pay rate (4% of their pay earned in the vacation entitlement year). Employees who have worked for five or more years at the same employer will increase their vacation pay to 6% of the gross wages earned in the vacation entitlement period.

When is vacation pay paid?

In Ontario, vacation pay collected during a vacation entitlement year must be paid in a lump sum before the employee takes vacation time.  However, there are certain exceptions to the lump sum payment:

  • When the vacation time taken is less than one week.
  • When the employee has agreed that their vacation pay will be paid on each pay cheque as it accumulates.
  • When the employee agrees that the employer can pay the vacation pay at any time agreed to by the employee.
  • When the employer pays the employee their wages by direct deposit

Am I owed vacation pay?

Under Ontario’s Employment Standards Act (ESA), the right to vacation pay is a right that most employees have. However, the ESA applies to employees and not to independent contractors. If you are an independent contractor, it is not guaranteed that you will be entitled to vacation pay. Nevertheless, as an independent contractor, you could still be entitled to vacation pay if it is stated in your contract or if you were misclassified. Misclassification means as an independent contractor, you could be deemed an employee when considering the true nature of the relationship between yourself and your employer. Independent contractors who act more like employees can seek protection against the loss of employment benefits, such as the entitlement of vacation pay when they have been misclassified. [1]

Employment classification (determining whether you are an employee or an independent contractor) can get tricky due to the details of the employment relationship. However, recently, MyOpenCourt has released a tool – “Classification Tool” – that would help users find out their employment classification. The “Classification Tool” asks the users a series of questions. With the given answers, it will analyze prior cases dealing with employment classification and then predict whether the user is an independent contractor or employee. In addition, the “Classification Tool” is free to use and will not store your personal data.

That being said, even if you are an employee, it does not guarantee you will receive vacation pay because, under the ESA, specific jobs are exempt from vacation pay. For example, lawyers and articling students are not entitled to vacation with pay. For more information on the industries and jobs that exempt from vacation pay, the list can be found here.

Also, when your employment ends (e.g. you had quit your job or had employment terminated), you may still be entitled to vacation pay that had not been paid out yet. The unpaid vacation pay is required to be paid out within seven days of the employment ending or on the employee’s next payday, whichever is later.

Figuring out whether one has a right to vacation pay can be complicated because of all the rules and exemptions. Soon, MyOpenCourt is launching a “Vacation Pay Tool.” This new tool will ask a series of questions to the user, and depending on the answers, it will predict whether the user is entitled to vacation pay and at what rate.