Sometimes an employer will calculate vacation pay based only on the employee’s salary rather than including the salary and any bonus or commission payments. This is important for the employee as sometimes bonuses and commission payments can make up a substantial part of the employee’s income. However, some jobs may be exempt from paying vacation with pay. Ontario’s Employment Standards Act, 2000 (“ESA”) sets out provisions with respect to how and in what amounts an employee is entitled to vacation pay.
To be clear, it does not matter how the employer pays the employee. The employer owes the employee vacation pay on all income including wages or salary, commissions or bonuses. This amount must be on top of the employee’s wages or salary, commissions or bonuses. Vacation pay cannot be calculated as an inclusive amount with respect to wages or income. For instance, an employee who works as a salesperson may make a certain commission as income based on the sales that they make. The employer would need to pay an amount in vacation pay in addition to the employee’s commission amounts.
It is common for employers to fail to pay vacation pay particularly on commissions or bonuses owed to the employee. Vacation pay must be at least 4% of the gross wages earned. Employees who have worked for at least 5 years of employment should be paid at least 6% of the gross wages earned. However, it does not matter how long an employee works with respect to vacation pay. The employee is still entitled to vacation pay the minute they start to work. It is only that the employee must complete the full entitlement year in order to qualify for vacation time (not pay) under the ESA.
Normally vacation pay is paid to the employee as a lump sum just before they actually take vacation time. However, there are two exceptions to this. The first is that if the employee takes less than one week’s vacation, the employee should be paid vacation pay the next time they are paid their regular wages. The second is that when the employee agrees in writing that the vacation pay will be paid on each paycheque. This means that the employee will be paid vacation pay each time they are paid their regular wages.
The employee is also owed any outstanding vacation pay owing to them when the employment ends. It does not matter that the employee was terminated. The employee is owed any vacation pay that they are entitled to that has not yet been paid by the employer. Finally, under the ESA an employer will owe vacation pay on statutory termination pay or notice but not on any severance pay owed.