- Ontario employees are entitled to 2 weeks of vacation and vacation pay equal to 4% of gross wages for the first five years of employment.
- After 5 years, entitlement increases to 3 weeks and 6% of gross wages.
- Vacation pay applies to all employees — full-time, part-time, casual, and seasonal.
- Vacation pay must generally be paid before the employee takes their vacation (or rolled into each pay period with a written agreement).
- All accrued vacation pay must be paid out at termination — it cannot be waived.
- Commissions, bonuses tied to employment, and overtime pay are all included in the vacation pay calculation — not just base salary.
Table of Contents
- What Is Vacation Pay in Ontario
- Vacation Time vs. Vacation Pay: The Key Difference
- Ontario Vacation Entitlements by Length of Service
- Who Qualifies for Vacation Pay
- How to Calculate Vacation Pay
- When Vacation Pay Must Be Paid
- Vacation Pay on Variable and Commission Earnings
- Vacation Pay at Termination
- Carryover and Accrual Rules
- Common Employer Mistakes
- Frequently Asked Questions
What Is Vacation Pay in Ontario
Vacation pay is a statutory entitlement under Ontario’s Employment Standards Act, 2000 (ESA). It is separate from, though related to, vacation time. Every employee covered by the ESA is entitled to both vacation time (actual days off) and vacation pay (a percentage of wages earned during the entitlement year).
Unlike some jurisdictions where vacation pay is folded into regular wages using a “rolled in” approach by default, Ontario requires employers to pay a defined percentage of gross wages — and that payment must generally be made before the employee takes their vacation, not during or after.
Vacation pay is not a discretionary benefit. It is a mandatory floor set by provincial law. Employment contracts, policies, or offers of employment may provide more than the minimum — but they cannot lawfully provide less.
Ontario’s Employment Standards Act, 2000, Part XI (sections 33–41) governs vacation entitlements. The Ministry of Labour also publishes a plain-language guide that employers and employees can reference.
Vacation Time vs. Vacation Pay: The Key Difference
Many employers conflate vacation time and vacation pay. They are related but distinct obligations — an employee is entitled to both, and one does not substitute for the other.
| Concept | Definition | ESA Minimum |
|---|---|---|
| Vacation Time | The actual calendar days off the employee is entitled to take | 2 weeks (first 5 years); 3 weeks after 5 years |
| Vacation Pay | A percentage of gross wages paid to the employee for their vacation period | 4% of wages (first 5 years); 6% after 5 years |
An employee must receive both. Paying vacation pay without providing time off is not compliant. Providing unpaid time off and calling it vacation is not compliant. Both obligations are independent and both must be satisfied.
Ontario Vacation Entitlements by Length of Service
| Years of Service | Vacation Time Entitlement | Vacation Pay Rate |
|---|---|---|
| Under 1 year | Prorated — earned from Day 1; may be taken after the first year of employment | 4% of wages earned since hire |
| 1 to 4 years (inclusive) | 2 weeks per vacation entitlement year | 4% of wages earned in the prior entitlement year |
| 5+ years | 3 weeks per vacation entitlement year | 6% of wages earned in the prior entitlement year |
The Vacation Entitlement Year
The default vacation entitlement year runs from the employee’s hire anniversary date to the following anniversary. Employers may establish an alternative entitlement year (such as a calendar year or fiscal year) by written agreement or a clearly communicated company policy. However, over any 12-month period, the employee’s total entitlement cannot fall below the ESA minimum.
The 5-year threshold: The increase to 3 weeks and 6% kicks in on the first vacation entitlement year that begins on or after the employee’s fifth work anniversary — not immediately on the anniversary date if the entitlement year is already in progress.
Who Qualifies for Vacation Pay
Ontario’s ESA applies to most employees working in Ontario regardless of hours worked, job type, or employer size. Vacation pay obligations extend to:
- Full-time employees
- Part-time employees
- Casual and on-call workers who work regularly
- Seasonal employees (including short-term or summer hires)
- Fixed-term contract employees
- Employees in their probationary period
Who is generally excluded:
- Genuinely independent contractors (self-employed persons — but misclassification risk is significant; see the contractor vs. employee guide)
- Federally regulated employees (banking, telecommunications, interprovincial transportation — covered by the Canada Labour Code, not the ESA)
- Certain professionals governed by O.Reg. 285/01 (a narrow exemption — does not apply to all professions)
How to Calculate Vacation Pay
The Basic Formula
Vacation pay = Total gross wages earned in the entitlement year × applicable percentage (4% or 6%)
Salaried Employees on Fixed Hours
For an employee earning a consistent salary, the 4% calculation typically results in an amount that equals (or is close to) two weeks of their regular pay — which is usually how employers pay vacation in practice. For a salaried employee, two weeks of regular pay almost always exceeds 4% of annual wages (which equals exactly two weeks of gross pay only if the employee works 50 weeks per year). Either way, paying regular salary during the vacation period satisfies the ESA obligation as long as it equals or exceeds the 4% floor.
Example: Employee earning $78,000/year with 2 years of service:
- Vacation pay minimum: $78,000 × 4% = $3,120
- Two weeks of salary: $78,000 ÷ 26 biweekly periods × 2 = $6,000
- → Paying two weeks of regular salary satisfies the ESA obligation
Hourly Employees with Variable Hours
For hourly employees whose hours fluctuate, the percentage calculation is the most accurate and safest approach:
Example: Hourly employee earns $42,000 in total gross wages over the entitlement year (4 years of service):
$42,000 × 4% = $1,680 vacation pay
What Counts as “Wages” for Vacation Pay Purposes
| Included in Vacation Pay Calculation | Excluded |
|---|---|
| Regular wages (hourly or salary) | Vacation pay itself (no compounding required) |
| Overtime pay | Genuinely discretionary bonuses with no employment commitment |
| Commission income | Expense reimbursements |
| Bonuses paid per a formula or employment arrangement | Severance pay |
| Public holiday pay | Tips not controlled or directed by the employer |
| Shift premiums and allowances | Gifts unrelated to employment performance |
Common error: Excluding commissions from vacation pay is one of the most frequently cited ESA violations during Ministry audits. Commissions are wages — vacation pay accrues on them.
When Vacation Pay Must Be Paid
The timing of vacation pay matters as much as the amount. Under the ESA, vacation pay must generally be paid:
- Before the vacation begins: No later than 7 days before the employee starts their vacation, OR on the last regular pay day before the vacation starts — whichever is later.
- Written agreement — rolled into regular pay: Employer and employee may agree in writing to include vacation pay in each regular pay period (the “rolled in” model). If this approach is used, the percentage must be clearly identified on every pay statement.
| Payment Method | When to Pay | Required Conditions |
|---|---|---|
| Lump sum before vacation | At least 7 days before vacation OR on last pay day before vacation starts | Default ESA rule — no written agreement needed |
| Rolled into regular pay | Each regular pay period | Written agreement required; percentage must be itemized on pay stub |
| Annual lump sum | End of entitlement year (if vacation time deferred) | Permitted only where vacation time is deferred by written agreement |
Pay Stub Disclosure Requirement
Ontario’s ESA requires that pay statements show vacation pay separately. If you roll vacation pay into regular wages, the amount (e.g., “Vacation Pay — 4%: $84.80”) must appear as a distinct line item — not buried in a total earnings figure.
Vacation Pay on Variable and Commission Earnings
Variable pay structures require particular attention:
- Commission-only arrangements: Vacation pay is 4%/6% of all commissions earned during the entitlement year. This applies even if commissions are reconciled and paid out quarterly or annually.
- Draw against commissions: A draw received in advance is treated as wages when paid. When the actual commission statement is reconciled, any additional amounts owed are also subject to vacation pay at that stage.
- Performance bonuses: Whether a bonus is subject to vacation pay depends on whether there is an employee expectation (explicit or implicit) of receiving it based on employment performance. A contractual year-end bonus based on hitting targets is wages — vacation pay accrues. A surprise one-time award with no prior commitment is likely not wages — but be cautious, as courts apply a substance-over-form test.
- Overtime pay: Vacation pay accrues on overtime pay received during the entitlement year. This is sometimes missed by employers who track vacation pay on regular hours only.
Vacation Pay at Termination
When employment ends — for any reason — all accrued but unpaid vacation pay must be paid out in the final pay. This obligation cannot be contractually waived.
This includes:
- Vacation pay accrued during the current partial entitlement year (from the last anniversary to the termination date)
- Any vacation pay from prior years that was not taken or previously paid out
Vacation pay during the notice period: During a period of working notice (when the employer provides actual notice of termination and the employee continues to work), wages continue to accrue — and so does vacation pay on those wages. At the end of the working notice period, the outstanding vacation pay on all wages (including the working notice wages) must be paid in the final pay.
For more on termination obligations in Ontario, see the termination and severance pay guide.
Carryover and Accrual Rules
When Must Vacation Be Taken
Vacation time must generally be taken within 10 months after the vacation entitlement year ends. Employers and employees may agree in writing to extend this period — but accrued vacation cannot simply be cancelled or forfeited. If it is not taken within the required period, the employer is generally required to pay it out.
Scheduling Rights
- Employers have the right to determine when vacation is scheduled — they are not required to approve specific dates requested by employees
- If the employer sets the vacation schedule, at least 2 weeks’ written notice must be given to the employee before the vacation begins
- Vacation may be split into shorter periods only with the employee’s written agreement
First Year of Employment
In the first year of employment, an employee accrues vacation pay from Day 1 but generally cannot take vacation time until completing one year of service. At the end of the first year, the employer must either allow the employee to take their 2 weeks of vacation or pay out the 4% vacation pay — they cannot simply defer it indefinitely.
Common Employer Mistakes
| Mistake | ESA Provision Violated | Consequence |
|---|---|---|
| Excluding commissions from vacation pay calculation | Section 35 ESA — commissions are wages | Order to Pay; retroactive liability for multiple years |
| Failing to pay out accrued vacation pay at termination | Section 41 — mandatory termination payment | Order to Pay; may form part of an ESA complaint or civil claim |
| Applying a “use it or lose it” vacation policy | Accrued vacation pay cannot be forfeited | Policy is void; pay remains owing regardless |
| Rolling vacation pay into wages without a written agreement | Section 40 — written agreement required | Rolled-in payments may not satisfy ESA obligation; employee could claim full vacation pay is still owed |
| Not increasing to 6% at the 5-year anniversary | Section 35.2 — entitlement increases at 5 years | Ongoing underpayment; Order to Pay with retroactive effect |
| Excluding year-end bonuses from vacation pay | Section 35 — contractual bonuses are wages | Underpayment; Ministry investigation risk |
| Providing vacation time without the corresponding vacation pay | Both time and pay are required — time alone is insufficient | Order to Pay; retroactive entitlement for unpaid vacation pay |
| Cancelling approved vacation without notice | Employer scheduling rights must be exercised with 2 weeks’ advance notice | ESA complaint; constructive dismissal risk for materially affected employees |
If you need help reviewing your vacation pay practices for ESA compliance, contact HRX Connect for a confidential consultation. Our HR consulting services include employment standards compliance reviews for Ontario employers of all sizes.
Frequently Asked Questions
Does vacation pay apply to part-time employees in Ontario?
Yes. Vacation pay under the ESA applies to all employees regardless of hours worked. Part-time, casual, and seasonal workers all receive 4% of their gross wages for the first five years of employment, and 6% after five years. There is no hours threshold to meet before vacation pay accrues — it begins from the first day of employment.
Can an employer include vacation pay in the hourly wage?
Only with a written agreement specifying that vacation pay is included at the applicable percentage (4% or 6%). The agreement must clearly identify the percentage, and each pay statement must show the vacation pay amount as a distinct line item. Without a valid written agreement, rolling vacation pay into wages is not ESA-compliant — the employee may still claim full vacation pay entitlement.
When does an employee become entitled to 3 weeks of vacation in Ontario?
After five years of employment with the same employer. The increase to 3 weeks of vacation time and 6% vacation pay takes effect starting on the first vacation entitlement year that begins on or after the employee’s fifth work anniversary. An employee hired on June 1, 2021 would cross the 5-year threshold on June 1, 2026, and their next entitlement year beginning on or after that date would carry the higher entitlement.
Does vacation pay accrue during a leave of absence?
Vacation pay accrues on wages earned. During an ESA-protected leave (pregnancy leave, parental leave, sick leave, etc.) where the employee is not receiving wages from the employer, vacation pay does not accrue on the zero-pay period. However, the leave period counts toward the employee’s length of service — so it contributes to the 5-year threshold for the higher entitlement rate.
What happens if an employee resigns before taking their vacation?
All accrued but unused vacation pay must be included in the employee’s final pay. This is mandatory under the ESA and cannot be limited or waived by the employment contract. The employer must pay the full amount outstanding — whether from the current partial entitlement year or any prior years where vacation was not taken.
Is vacation pay required on commission income in Ontario?
Yes — this is one of the most common ESA compliance gaps. Commissions are wages under the ESA, and vacation pay must be calculated on total commissions earned during the entitlement year. This applies whether the commissions are paid monthly, quarterly, or annually. Excluding commissions from vacation pay calculations is a violation that can result in retroactive Orders to Pay.