Understanding vacation entitlements under the Employment Standards Act, 2000 can be confusing for employers.
Vacation pay and vacation time are two separate issues in Ontario. Most employees are entitled to vacation pay, which must be at least four per cent of the employee's gross wages earned in the 12-month vacation entitlement year, whether or not they take the vacation time. Employees cannot give up their entitlement to vacation pay.
Vacation pay must generally be paid to the employee in a lump sum before the vacation begins; on each pay day, if agreed to in writing by the employee; on or before the pay day for which the vacation falls; or at a time agreed to in writing by the employee.
Most employees are also entitled to at least two weeks of vacation time after each 12-month vacation entitlement year. Employers have an obligation to facilitate and schedule vacation time within 10 months after the vacation entitlement year during which the vacation time is earned. Employees can only forgo vacation time with both the permission of the employer and the approval of the Director of Employment Standards, pursuant to the Employment Standards Act, 2000 s. 41(1):
s.41(1) If the Director approves and an employee's employer agrees, an employee may be allowed to forego taking vacation to which he or she is entitled under this part. 2000, c. 41, s. 41 (1)
This means that if both employee and employer agree that the employee will not take vacation time, they must submit their request to the Director of Employment Standards for approval. Approval must be sought for each new vacation entitlement year where the parties are seeking to forgo vacation – the Director of Employment Standards will not grant a blanket approval.
Some employees prefer to forgo vacation time to earn additional income. However, if employers want employees to take the vacation time to which they are entitled, employers can require their employees to do so. In order for the employee to forgo the vacation time, the employee needs both the employer's agreement and the approval of the Director of Employment Standards.
Upon termination of employment, employers are obligated to pay to the employee all vacation pay that the employee has accrued but that has not yet been paid out. Vacation pay is payable on termination pay paid in lieu of notice under the Employment Standards Act, 2000, but not on severance pay.
Employers are required to maintain records of vacation pay and vacation time for three years after they are made.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.