As August rolls by, many of us are heading to cottages, beaches, and other exotic places to enjoy some well-earned R&R in the sun. For most (not within the blessed leisure classes) this means requesting time away from work and using our paid vacation time.
In Ontario, all provincially regulated employees have a right pursuant to the Employment Standards Act, 2000 (“ESA”) to take vacation each year, and to earn vacation pay. In this way, the province looks to ensure workers are able to take a break while limiting the financial impact of not earning a wage while being away.
Vacation Rights and Obligations
The ESA sets out minimum standards with which all provincially regulated employers must comply.
Part XI of the ESA (ss. 33-41.4) addresses employee entitlement to vacation time and vacation pay. These concepts, while inter-related, cannot be conflated as they provide separate employee entitlements.
A. Vacation Time
Employees with less than five years of employment with a given employer are entitled to two (2) weeks of vacation time after each vacation entitlement year. Employees with five or more years of employment are entitled to three (3) weeks of vacation time after each 12-month vacation entitlement year. Ordinarily, a vacation entitlement year is a recurring 12-month period beginning on the date of hire.
Vacation time continues to accrue when an employee is away from work because of temporary lay-off, sickness, or any other ESA-protected leave where there is no break in the employment relationship (such as pregnancy leave, parental leave, declared emergency leave, etc.).
Vacation time earned for a vacation entitlement year must be taken within ten (10) months of completing that year. In accordance with the ESA, employers have an obligation to ensure vacation is scheduled and taken before the end of that 10-month period.
B. Vacation Pay
Vacation pay serves to provide employees with a sum they can draw upon during their scheduled vacation time. It is calculated as a percentage of an employee’s gross wages during the applicable vacation entitlement year.
Vacation pay accrues at minimum rates of 4% of gross wages for employees with less than 5 years of employment and 6% of gross wages after 5 years of employment.
Vacation pay may be issued to employees in four different ways:
as a lump sum payment prior to the employee taking earned vacation time;
on each pay cheque (i.e., accruing each pay period), where agreed in writing with the employee;
at any other time agreed in writing with the employee; or
if the employee is paid by direct deposit, on (or before) the pay day for the pay period in which the vacation time falls.
Practical Considerations for Ontario Employers and Employees
Have a written policy: by having a written policy in place, employers can help ensure a clear and consistent process for addressing vacation requests and approvals. Among other things, a vacation policy can:
a. confirm an individual’s annual entitlement;
b. describe how and when vacation pay will be issued;
c. specify the process for requesting vacation (i.e., in writing to whom, and in what circumstances a request may be denied);
d. confirm that the employer has the right to schedule vacation time; and
e. address any carry-forward entitlements (i.e., can an individual carry forward and continue to accrue unused vacation, or will any entitlement beyond ESA minimums be forfeit).
Ensure proper calculation of vacation pay: some employers make the mistake of calculating vacation pay only as a percentage of salary. The ESA, however, mandates that individuals receive vacation pay as a percentage of gross wages, which is defined to include: salary; commissions; overtime pay; public holiday pay; and termination pay (but not expenses, travelling allowances, discretionary bonuses or severance pay).
As such, if staff are receiving overtime payments or recurring commissions and bonuses, employers must ensure that vacation pay is being issued on these amounts. A failure to do so reflects a breach of the ESA and may result in (potentially large) unintended liability.
Use as an opportunity to shape workplace culture: it is well-recognized that taking a vacation is good for peoples’ health. It allows employees to rest and recharge. There is also research to suggest that vacations help improve mental health and reduce work-related stress and anxiety. That said, the Harvard Business Review reported earlier this year that more than half of all American workers failed to use their vacation time (with many employees reporting burn out at work).
Employers can choose to create a workplace culture where vacations are encouraged and respected. By promoting time away from work (at all levels of an organization), employees will feel able to take vacation without worrying about how this may be perceived or whether it may impact their long-term future with the employer. In addition, where employees are able to take time away, they will be mentally and physically fresher as a result.
If you have questions about vacation time or vacation pay rights and entitlements, please contact one of our employment lawyers to discuss further. For additional information, you may also wish to review the following links:
Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.