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Vacation pay in Ontario is a percentage of your wages that your employer must set aside and pay to you — on top of your regular pay — to compensate for time taken off. It is mandatory for almost every employee in Ontario, and the minimum rate is set by law. Most employees are entitled to at least 4% of their total wages as vacation pay.
Vacation pay is mandatory — here is what it actually means
Vacation pay is money your employer is legally required to pay you in addition to your regular wages, in recognition of your entitlement to take time off. Under Ontario’s Employment Standards Act, 2000 (ESA), every employee — full-time, part-time, casual, and most temporary workers — is entitled to both vacation time and vacation pay once they have worked for at least one year.
And yes — it is mandatory. An employer cannot opt out of paying it, cannot ask you to waive it, and cannot substitute it with something else unless the substitution is equal or better. Any employment contract that tries to eliminate vacation pay is unenforceable under the ESA.
The vacation pay rate — and how much you are owed
The ESA sets two different rates depending on how long you have worked for the same employer:
4%
of total wages earned
Employees with less than 5 years of service — equals 2 weeks of vacation time
6%
of total wages earned
Employees with 5 or more years of service — equals 3 weeks of vacation time
These are legal minimums. Your employment contract or company policy may offer more — for example, 8% for senior employees — and that higher amount is what you are owed if it is written into your agreement. But no employer can go below 4% regardless of what the contract says.
The percentage applies to your total wages — including regular pay, overtime pay, commissions, and most bonuses. It does not apply to vacation pay itself, tips that are not controlled by the employer, or certain expense reimbursements.
How vacation pay is calculated — with real examples
Vacation pay is calculated as a percentage of everything you earned during your vacation entitlement year — the 12-month period used to calculate how much time and pay you have accrued. The formula is straightforward:
THE FORMULA
Total wages earned × vacation pay rate (4% or 6%)
EXAMPLE 1 — LESS THAN 5 YEARS OF SERVICE
An employee earns $52,000 in total wages over the year. Their vacation pay rate is 4%.
$52,000 × 4% = $2,080 in vacation pay
EXAMPLE 2 — 5 OR MORE YEARS OF SERVICE
An employee earns $65,000 in total wages over the year. Their vacation pay rate is 6%.
$65,000 × 6% = $3,900 in vacation pay
EXAMPLE 3— PART-TIME OR IRREGULAR HOURS
A part-time employee earns $18,000 in total wages over the year. Their vacation pay rate is 4%.
$18,000 × 4% = $720 in vacation pay
For hourly employees, some employers choose to pay vacation pay as an ongoing addition to each paycheque — shown as a separate line on your pay stub — rather than accruing it and paying it out at vacation time. Both methods are permitted under the ESA, but the total must add up to at least the minimum percentage over the year.
When vacation pay is actually paid out
Under the ESA, vacation pay must be paid to you before your vacation begins — either as a lump sum payment before you take your time off, or as a continuation of your regular pay if you are receiving your regular wages during the vacation period. An employer cannot hold your vacation pay until after you return to work.
There are also three other situations where vacation pay must be paid out:
● When your employment ends — any accrued vacation pay that has not yet been paid must be included in your final paycheque, regardless of why the employment ended
● At the end of the vacation entitlement year — if you have accrued vacation pay that was not taken during the year, it must be paid out
● On each pay period — for hourly or irregular employees where the employer pays vacation pay as a percentage added to every paycheque
Watch for these common violations:
— Your employer pays vacation pay as part of your regular hourly wage instead of as a separate amount — this is only permitted if it is clearly shown on your pay stub
— Your final paycheque does not include your accrued vacation pay — this is a common and easily overlooked violation
— Your employer calculates vacation pay on base salary only, excluding commissions, overtime, or bonuses that should be included
The bottom line: Vacation pay in Ontario is simple in principle — 4% of your wages if you have been with your employer under 5 years, 6% after that. It is mandatory, it applies to almost every employee, and it must be paid before your vacation begins or in your final cheque when your employment ends. If your employer is not calculating or paying it correctly, you have the right to file a complaint with the Ontario Ministry of Labour — or speak with an employment lawyer about recovering what you are owed.
