In Ontario, vacation rights are governed by the Employment Standards Act, 2000 (ESA), but confusion persists about the distinction between vacation pay and vacation time. Understanding these concepts is critical for employees to ensure they receive fair compensation and time off. Below, we break down the differences, eligibility rules, and employer obligations under Ontario law.

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Vacation Time vs. Vacation Pay: Key Definitions

While often conflated, these terms refer to distinct entitlements:

1. Vacation Time: The days off an employee is entitled to take.
   
   • Minimum Entitlement:
     
     • 2 weeks/year for employees with <5 years of service.
     • 3 weeks/year for employees with ≥5 years of service.
   • Scheduling: Employers can decide when vacations are taken but must ensure employees use their time within 10 months of earning it.
2. Vacation Pay: The money employees receive during their time off, calculated as a percentage of earnings.
   
   • Minimum Rates:
     
     • 4% of gross wages for employees with <5 years of service.
     • 6% of gross wages for employees with ≥5 years of service 16.
   • Inclusions: Gross wages cover salaries, overtime, commissions, and non-discretionary bonuses.

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How Vacation Entitlements Work

1. The Vacation Entitlement Year

• Standard Year: A recurring 12-month period starting on the hire date (e.g., hired June 1, 2024 → entitlement year ends May 31, 2025).
• Alternative Year: Employers may set a different start date (e.g., January 1). Employees earn a pro-rated “stub period” for the time between their hire date and the alternative year start.

Example: An employee hired September 1 with an alternative year starting January 1 earns vacation time for the September–December stub period (e.g., 4 months = 2 weeks × 4/12 = 0.67 weeks).

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2. Accrual During Leaves of Absence

• Vacation Time: Continues to accrue during approved leaves (e.g., parental, sick leave).
• Vacation Pay: Only accrues if the employee earns wages during the leave.

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3. Termination and Payouts

• Employees must receive all unpaid vacation pay upon termination, including amounts earned during their notice period.

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Common Employer Obligations

1. Payment Timing:
   
   • Vacation pay can be paid:
     
     • In a lump sum before the vacation.
     • Per paycheque (with written agreement).
     • As paid time off (e.g., salaried employees continue receiving wages during vacation).
2. Record-Keeping: Employers must track and retain records of vacation time and pay for 3 years.
3. Anti-Retaliation: Employers cannot penalize employees for asserting their vacation rights.

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Critical Pitfalls to Avoid

• Misclassifying Employees: Employers cannot deny vacation pay by mislabeling workers as independent contractors 6.
• Excluding Commissions/Overtime: Vacation pay must include all earnings.
• Ignoring “Stub Periods”: Pro-rated vacation time/pay applies when employers switch to an alternative entitlement year.

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Employee Rights and Enforcement

1. Dispute Resolution:
   
   • Employees can file a complaint with the Ministry of Labour within 2 years of a violation.
   • Employers face penalties for unpaid vacation pay, including retroactive payments.
2. Public Holidays During Vacation:
   
   • If a statutory holiday falls during vacation, employees are entitled to a substitute day off or pay.
3. Use-It-or-Lose-It Policies:
   
   • Employers cannot enforce these for the statutory minimum (2–3 weeks). However, extra vacation time granted beyond ESA requirements may be forfeited.

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Key Takeaways for Employees

• Vacation Time ≠ Vacation Pay: Time off and compensation are separate entitlements.
• Track Your Earnings: Ensure vacation pay includes overtime, commissions, and bonuses.
• Act Promptly: Dispute unpaid entitlements within 2 years to avoid losing claims.

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Free Consultation with London Employment Lawyers

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Ontario’s laws provide critical protections for employees during mass layoffs, ensuring they receive fair notice, severance pay, and support. If you’re affected by a group termination, understanding your rights and seeking professional advice can help you navigate this challenging time and secure the compensation you deserve. Please do not hesitate to contact our experienced Ottawa employment lawyers for a free legal consultation. Randy Ai Law Office can be contacted at (548) 489-2006 or fill out the contact form.