By: Amelia Perfetto
It’s summertime – a season when many people take well-deserved time off, book trips, and spend time with family and friends. As vacation plans start to take shape, we often receive questions about the difference between vacation time and vacation pay. The two are not interchangeable, and the confusion can lead to missed entitlements or compliance issues. To help you make the most of your time off—whether you’re heading to the cottage or just taking a break—we’ve put together this guide so you can enjoy your vacation informed and worry-free.
Here’s a breakdown of the key differences and how each works in practice.
1. Vacation Time: Time Off Work
Under Ontario’s Employment Standards Act, vacation time refers to the period an employee is entitled to take off from work for rest and personal activities.
- Minimum entitlement: Employees are entitled to 2 weeks of vacation time after each 12-month vacation entitlement year. After 5 years of continuous employment, the entitlement increases to 3 weeks. An employee’s contract or a collective agreement might also offer more substantial vacation time or pay benefits than these statutory minimums.
- Carry-over: Under the ESA, employees must use their vacation time within 10 months of the year in which it was earned. For example, an employee who started working on January 1, 2024, earns 2 weeks of vacation that must be used by October 31, 2025. Employees who have not taken their vacation time in this 10-month period must be paid out for their vacation.
2. Vacation Pay: A Monetary Entitlement
Vacation pay is the compensation an employee earns while working, which is intended to be paid out either during their vacation time or at another agreed-upon interval.
- Minimum rate: Vacation pay must be at least 4% of the employee’s gross wages earned in the vacation entitlement year. This increases to 6% after 5 years of continuous employment.
- How it’s paid: Vacation pay can be:
- Paid when vacation time is taken, or
- Accrued and paid out on each paycheque, if agreed to in writing.
- Paid when vacation time is taken, or
- Termination: If employment ends, any outstanding vacation pay must be paid out, even if vacation time was not taken.
3. Common Scenarios and Misunderstandings
- “I get vacation pay on every cheque, so I don’t get vacation time.”
This is a common misconception. Even if vacation pay is “paid out” regularly, employees are still entitled to take vacation time off. Employers must track and provide that time off unless a written agreement states otherwise (and complies with the ESA). - “I took unpaid time off, so I took my vacation.”
Not necessarily. Vacation time must be designated and tracked as such. Taking unpaid leave doesn’t satisfy an employer’s obligation to provide paid vacation unless formally designated.
4. Best Practices for Employers
- Keep detailed records of both vacation time and vacation pay.
- Communicate clearly with employees about how vacation pay is handled (e.g., lump sum vs. accrued on paycheques).
- Ensure vacation time is actually taken, not just paid out.
5. What Employees Should Watch For
- Confirm whether your vacation pay is paid out with each paycheque or reserved for when vacation time is taken.
- Know your entitlement year and make sure you’re taking your vacation time within the correct window.
- On termination, verify that all outstanding vacation pay is correctly paid.
Final Thoughts
Vacation time and vacation pay are legally distinct entitlements under Ontario law. Employers and employees alike benefit from understanding the difference to avoid legal pitfalls and ensure compliance with the ESA. If you’re unsure whether your practices meet legal requirements consider seeking legal advice. If you would like help reviewing your vacation policy, the SWL team would be happy to assist.
