Ontario Vacation Pay 101
Short answer: In Ontario, most employees earn vacation time and vacation pay under the Employment Standards Act (ESA). Time is measured in weeks; pay is a percentage of wages. After 12 months with the same employer you’re owed vacation time; from day one you’re earning vacation pay on every dollar of “wages.”
The TL;DR
Entitlement:
Under 5 years of service: 2 weeks of vacation time and 4% vacation pay.
5+ years of service: 3 weeks of vacation time and 6% vacation pay.
When you can take time: After completing each 12-month “vacation entitlement year.” Employers can set a common “alternative” 12-month year; stub periods are prorated.
How pay is calculated: A % of gross wages (e.g., salary/hourly, overtime, commissions, and non-discretionary bonuses). Tips and true discretionary gifts don’t count.
When pay is due: Usually a lump sum before vacation—unless there’s a proper written agreement to pay it another way (e.g., each paycheque).
Scheduling: By default, vacation is taken in one-week blocks (or two/three one-week blocks). Shorter chunks require the employee’s written request and employer agreement.
Use it or lose it? Not for ESA minimums. Employers must ensure statutory vacation time is taken within 10 months after the entitlement year.
On termination: Any unpaid vacation pay must be paid out no later than 7 days after employment ends or on the next regular payday, whichever is later.
Vacation time vs. vacation pay (they’re different)
Vacation time = time off work, measured in weeks.
Vacation pay = money, calculated as 4% or 6% of eligible wages earned in the entitlement year (or stub period). You earn pay even in your first year, before you’ve earned the right to take time off.
What counts as “wages” for vacation pay: regular pay, overtime, commissions, and non-discretionary bonuses. Not included: tips/gratuities, expense allowances, and other discretionary bonuses. (Severance pay is not part of the vacation-pay base.)
The vacation entitlement year (and “stub periods”)
Standard year: the 12 months starting on your hire date.
Alternative year: the employer can use a common 12-month period for everyone (e.g., Jan-Dec).
Stub period: the short period between hire date and the start of the employer’s alternative year is prorated for both time and pay.
Scheduling rules (and shorter chunks)
If you’re entitled to 2 weeks, the default is one 2-week block or two 1-week blocks.
If you’re entitled to 3 weeks, the default is one 3-week block, one 2-week + one 1-week block, or three 1-week blocks.
Shorter periods (single days, half-weeks, etc.) require the employee’s written request and the employer’s written agreement.
When vacation pay must be paid
Default: pay the full amount for the earned year before the employee takes that vacation time.
Other ways (must be in writing):
Pay on each paycheque as it accrues (common for hourly/commission roles).
Pay on or before the payday for the period in which the vacation falls (e.g., where wages are paid by direct deposit).
Any other timing the employee agrees to in writing.
Special case: If vacation is taken in periods of less than one week, the related vacation pay must appear on or before the payday for the period in which that vacation falls.
2024 update: If you don’t pay vacation in a lump sum before the vacation, you now need a written vacation-pay agreement describing the alternate method (for example, “on each pay” or “during the pay period when vacation is taken”).
“Use it or lose it” policies
Statutory minimum vacation time cannot be forfeited. Employers must ensure ESA-minimum time is taken within 10 months after the entitlement year.
Employers may set separate rules for any extra (above-ESA) vacation—but those rules can’t undercut ESA minimums.
Public holidays during vacation
If a public holiday lands during vacation, the employee is still entitled to public-holiday entitlements (e.g., a substitute day off with public-holiday pay or, if properly agreed, public-holiday pay instead). Handle the stat separately from vacation.
Leaves of absence and variable earnings
Leaves: Time-based vacation entitlement continues to accrue during most protected leaves. Vacation pay is still a % of wages earned—so unpaid leave periods reduce the dollar amount but not the weeks owed.
Commissions, overtime, bonuses: Include commissions, overtime, and non-discretionary bonuses in the vacation-pay base. Do not include tips or discretionary gifts.
On termination (quit or let go)
Pay all outstanding vacation pay for completed years plus any accrued amounts in the current year.
Timing: no later than 7 days after the job ends or on the next regular payday, whichever is later.
If termination/notice pay is owed, vacation pay generally applies to the wages that would have been earned during the ESA notice period.
Common pitfalls (and how to avoid them)
Paying on base only: Vacation pay must be calculated on gross wages (e.g., include commissions/overtime where applicable).
No written agreement for “on-each-pay”: Since 2024, you need a written agreement to pay other than a lump sum before vacation.
Letting minimum time lapse: You must schedule ESA-minimum time within the 10-month window.
Forcing short chunks: Less-than-one-week periods require the employee’s written request and employer agreement.
Confusing time vs pay: Time (weeks) and pay (percentage) are separate entitlements; getting one right doesn’t excuse getting the other wrong.
Quick tips
For employers
Specify the vacation entitlement year (and how stub periods work).
Use a written vacation-pay method (lump sum vs on-each-pay).
Configure payroll to include commissions/overtime in the vacation-pay base.
Track the 10-month deadline and schedule proactively.
Keep clear records and show vacation pay on wage statements.
For employees
Ask how your employer calculates and pays vacation pay (lump sum vs on-each-pay).
If you want shorter blocks, make the request in writing.
Check that your commissions/overtime are included in the vacation-pay base.
On exit, verify your payout timeline (7 days or next payday).
FAQs
Do part-time employees get vacation?
Yes. Time is measured in weeks (based on your schedule); pay is 4% or 6% of your wages—part-time workers earn vacation pay the same way as full-time.
Can I be paid out instead of taking time?
The ESA expects minimum time to be taken. Employers must ensure statutory vacation time is taken within 10 months after the entitlement year. Above-minimum arrangements can differ, but ESA minimums cannot be waived.
What happens when I hit 5 years mid-year?
Your entitlement becomes 3 weeks/6% for vacation entitlement years that begin after you complete five years of service. Employers often “true up” on the next entitlement year.
My employer pays vacation on each pay—legal?
Yes if there’s a written agreement and pay stubs show the vacation pay separately.
Bottom line
In Ontario, vacation is two things: a time-off entitlement measured in weeks, and a cash entitlement calculated as a percentage of wages. Get both right—use written vacation-pay agreements, include all eligible earnings in the calculation, schedule time within the 10-month window, and pay out promptly on termination.
This article is legal information, not legal advice. For guidance on your specific situation, contact Vanguard Law.