Vacation – “Use it or Lose it” Policies

Employees can lose their vacation time by failing to take vacation BUT employees cannot lose their vacation pay. This is often misunderstood. Many employers have a “use it or lose it” policy with respect to vacation. But this simply means that an employer can require an employee to take vacation time or lose the vacation time but this does not alleviate the employer’s obligation to pay that employee the vacation time. For example, when a salary worker who is entitled to 2 weeks’ vacation time per year but fails to take the 2 weeks’ vacation time, and his/her employer does not force him/her to take the vacation time, the employer is required to pay the employee an extra 2 weeks’ pay.

Ontario’s Employment Standards Act, 2000 (“ESA”) provides a minimum entitlement of 2 weeks’ vacation time to all workers to be paid at 4% of gross wages. Employers and employees can agree to more but not less. Some employed persons are exempted from the ESA such as some qualified or registered practitioners (for example, architects, lawyers, accountants, dentists, massage therapists, pharmacists, and others).

Vacation TIME – minimums under ESA How Much Deadline for What time away Foregoing Scheduling Taking from work is Vacation Vacation Time Vacation included? • 2 weeks upon • Earned vacation • l a y o f f • Employee can • Employers are completion of time must be • sickness/injury give up some or required to every 12- taken with 10 • leaves of all of his/her schedule months from months absence under earned vacation vacation time in date of hire following ESA t i m e BUT the blocks of 1 • If employer completion of • any other employer must week or 2 weeks establishes an the vacation approved leaves still PAY the unless the alternative entitlement year employee employee and vacation or stub period vacation pay employer agree entitlement • Employer has • in other words, in writing to year, employee the right to you may lose schedule shorter is entitled to 2 schedule the your vacation periods. weeks vacation vacation time as time if you fail • Vacation time time after each well as an to take the earned for Stub alternative obligation to vacation time Period is vacation year ensure the within the time calculated as plus a pro-rated vacation time is required to do single days. If amount of scheduled so, BUT the vacation time vacation time before then end employer must earned is 2 to 5 for the “stub of the 10 month still pay the days, the period” period employee for vacation days (preceding the the vacation must be taken start of the first time not taken consecutively alternative unless agreed vacation otherwise entitlement year)

Vacation PAY – minimums under ESA How Much When to Pay End of Vacation Employment Records • A minimum of 4% Must be paid to employee in a lump sum • Employee is of gross wages sometime before he/she takes the vacation entitled to be Employees may time earned EXCEPT: paid vacation request a statement Gross wages include: 1. vacation time is taken in periods of pay earned but of employer’s • regular earnings less than 1 week – employee must be not yet paid vacation records and • commissions paid vacation pay on or before the • Vacation pay is employers are • bonuses/gifts payday for the period in which payable on required to provide • overtime pay vacation falls termination pay the statement no • public holiday pay 2. when employee has agreed in writing but not later than 7 days that his/her vacation pay will be paid after the request or • termination pay severance pay on each pay cheque as it accrues the 1st pay day after • allowances for • Unpaid (employee’s wage statement must the employee makes room and board vacation pay clearly show amount of vacation being the request, which is must be paid paid) later. Gross wages do not either within 7 3. when employee and employer agree in include: days of the writing otherwise • vacation pay employment 4. if employer pays the employee wags ending or on • tips/gratuities by direction deposit into an account at the next regular • discretionary a financial institution (employee must pay day bonuses/gifts be paid vacation pay on or before the • expenses and payday for the4 period in which the travelling vacation falls) allowances • living allowances • benefit contributions/pay ments • federal employment insurance benefits • severance pay

VACATION RECORDS Record Details Request for Statement Requests Deadline Current Exception Vacation Entitlement Employers must Employees may Employer must Employer must If the employee has keep records of: request in writing a provide vacation provide vacation agreed that vacation 1. vacation time statement of the statement to statement to pay will be paid on earned employer’s vacation employee within 7 employee within 7 each pay cheque as it 2. vacation time records, days after the days after the start of is earned, the taken request or the 1st p a y the next vacation employer does not 3. balance of Employer required day after the request, entitlement year or need to keep vacation time to provide which is later the 1st pay day after separate records or remaining information the stub period or provide statements 4. vacation pay statement with vacation entitlement (but the vacation paid and how it respect to each year ends, whichever amount paid must be was calculated vacation entitlement is later clearly set out on year or stub period each pay cheque) only once

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Christina J. Wallis is a Partner specializing in Employment Law at Dale & Lessmann LLP, a Toronto, Ontario, Canada, a full service business law firm. To speak to Christina please call 416-369-7832 or send an email message to her at mailto:[email protected]. To download a pdf of this article, please click here.

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