Five Steps To Get Your Vacation Policy Into Shape

Understand the distinction between Vacation Time and Vacation Pay

Vacation Time is a period of time off from work.

Vacation Pay is the wages that are payable to an employee during a vacation.

Pursuant to the Ontario Employment Standards Act, 2000 (the “ESA”), an employee who has completed one vacation entitlement year is entitled to
  • Two weeks of Vacation Time and
  • Vacation Pay in the amount of 4% of the wages earned during the vacation entitlement year, excluding Vacation Pay.

An employee becomes entitled to Vacation Time only after he or she completes a vacation entitlement year. By contrast, an employee accrues Vacation Pay starting from his or her first day of employment.

Ensure that your company is calculating Vacation Pay correctly

Because many employers think of vacation as “paid time off work”, it is commonplace for an employer to simply continue paying an employee’s regular salary when he or she is on vacation.

While in many cases such a practice would be in compliance with, or even exceed, the minimum entitlement under the ESA, under certain circumstances it could lead to an employer underpaying Vacation Pay. Under the ESA, “wages” include not only regular salary but also other monies paid to an employee such as:
  • overtime pay
  • public holiday pay
  • allowances for room or board
  • non-discretionary bonuses, the payment of which is related to an employee’s hours of work, productivity or efficiency
  • profit-sharing bonuses
  • commissions

Check that all employees, not just full-time employees, are given Vacation Time

“Our part-time employees don’t get time off. We just pay out their Vacation Pay.”

Regardless of whether an employee is employed on a full-time, part-time, casual, seasonal or fixed-term basis, an employer is required to give him or her two weeks of Vacation Time if the employee completes a vacation entitlement year.

The only exception is where an employee belongs to a category of employees that is specifically exempted by the ESA and its Regulations (e.g., Crown employees, certain professionals and secondary school students performing work under a work experience program authorized by the school board, etc.).

Obtain approvals for agreement to forego Vacation Time

“The employee said that he didn’t want to take vacation and just wanted to be paid Vacation Pay because he needed extra money.”

Under the ESA, an employee cannot simply agree to forego his or her Vacation Time. Such an agreement between an employer and an employee is valid only if it is approved by the Director of Employment Standards.

An employer must pay an employee his or her Vacation Pay even if the employee has chosen to forego Vacation Time pursuant to a valid agreement.

Keep accurate records of Vacation Time and Vacation Pay

The ESA requires an employer to keep the following records for each vacation entitlement year for at least three years:
  • the amount of Vacation Time earned and taken
  • the balance of Vacation Time not taken
  • the amount of Vacation Pay paid
  • the wages on which Vacation Pay was calculated and the period of time to which the wages relate

Furthermore, an employer should keep accurate records of Vacation Time and Vacation Pay for other, practical reasons.

If the employer is unable to produce records that satisfy the Ministry of Labour that Vacation Time and/or Vacation Pay were in fact given to the employee, the Ministry of Labour may choose to accept the employee’s allegations and make an order against the employer. Therefore, keeping accurate records not only ensures statutory compliance but also protects the employer’s interests in the event that a dispute arises.

About the author - Sherrard Kuzz LLP is one of Canada's leading employment and labour law firms representing the interests of employers, unionized and non-unionized. Sherrard Kuzz operates in both the public and private sectors.

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