With the winter holidays fast-approaching, as well as the end of the year, we thought it would be a good time to address issues surrounding employee vacations and statutory holidays. While it may seem relatively straight-forward, it’s a topic that can become complicated very quickly. Some issues always come up, such as the calculation of vacation pay. Others arise specifically at this time of year, and they can sometimes turn a good deed (like closing the office over the holidays) into a source of controversy.
In order to understand how vacations work, you should understand the following key concepts:
Vacation Entitlement Year – the 12 month period over which employees earn vacation. Some employers use each employee’s anniversary of hire date (a “standard vacation entitlement year”), while others might use the calendar year, their financial year, or some other date (an “alternative vacation entitlement year”). A vacation entitlement year incudes any time the employee is off from work because of sickness, layoff, or statutory leave of absence.
Stub Period – a partial year between an employee’s hiring date and the start of the Vacation Entitlement Year.
Vacation Time – the actual time an employee is entitled to take off from work.
Vacation Pay – the pay given to an employee for vacation.
As with many issues in the employment relationship, the minimum vacation requirements are set out in applicable employment standards legislation – in Ontario, the Employment Standards Act, 2000 (the “ESA”).
Pursuant to the ESA, companies are not required to provide any vacation time for the first 12 months of employment. You “earn” a certain amount of vacation per year, so the entitlement is only accrued after one year has been completed.
Thereafter, the Company must provide most employees with a minimum of two weeks of vacation time. The two weeks is equal to two weeks of the employee’s regular or average work schedule. An employee who works 5 days per week would therefore get 10 vacation days, whereas one who works 2 days per week would get 4 vacation days. Employees can give up their vacation time, but this requires both the agreement of the employer, and the approval of the Director of Employment Standards with the Ministry of Labour. It is not as simple as just paying employees for unused vacation time.
Additionally, employers are required to provide their employees with a minimum of 4% vacation pay. This is required from day one. The 4% is calculated based on “earnings” which encompasses more than just base pay. It also includes things like commissions, non-discretionary bonuses, overtime pay, holiday pay, and allowances for room and board. Unlike vacation time, an employee cannot give up their entitlement to vacation pay.
Many employers will pair vacation time and vacation pay together, and simply continue to pay employees while they are on vacation.
Provincially-regulated Ontario employers are not required to provide longer vacation entitlements for longer-service employees. This is different than some other jurisdictions, where vacation entitlement increases with length of service.
Can I carry over my unused vacation to next year?
If an employee is fortunate enough to be provided with additional vacation time beyond the statutory minimum requirement, they may want to “carry over” their vacation time; that is, use the vacation time after the 12-month period following the date it was earned. Employees cannot carry over their statutory minimum vacation time. The issue of carrying over is one that gives rise to many conflicts; for example, an employee who has not taken her full vacation entitlement for 10 years and suddenly demands that she be permitted to take all 10 years of vacation time at once. In order to prevent these conflicts, employers should clearly set out the rules for carrying over vacation time in their policy manual, and employees should make sure they are aware of the rules, and take whatever steps are necessary to carry over their vacation time.
What Happens to Vacation upon Termination?
Upon termination of an employee’s employment, for whatever reason, be it resignation, retirement, termination without cause, or termination with cause, the Company must pay out their accrued but unused vacation pay. This is because the employee has already earned that vacation pay. Some employers might allow employees to take vacation time and vacation pay before it is earned, and require employees to pay back any such advanced vacation upon their employment ending. If an employee is entitled to statutory termination pay, they are also entitled to vacation pay for that period.
Can my employer shut down between Christmas and New Years and force me to use vacation days?
Yes. In Ontario, employers are permitted to schedule employees’ vacation. They are required to do so in two one-week blocks or a block of two weeks, unless the employee requests in writing that it is scheduled otherwise, and the employer agrees.
If I am away on vacation over the holiday period, what happens to statutory holidays?
Christmas day, Boxing Day, and New Year’s Day are all public holidays. However, what happens is someone is on vacation? In that case, the day counts as a vacation day, and the employee can have a substitute day off work with Holiday Pay. Alternatively, the employer can pay Holiday Pay for that day without giving the employee a substitute day off work, if the employee agrees in writing.
Can employers give employees an extra day off but require them to work on a statutory holiday?
As long as the employee agrees in writing, the employer can require an employee to work on a public holiday and pay them their regular rate, and provide them with a substitute holiday. The employer must pay the employee Holiday Pay for the substitute holiday.