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Questions about Vacation Time and Pay

What exactly does this provision do?

The vacation provision increases the vacation entitlement for employees with five or more years of employment with their employer to a minimum of three weeks of vacation time with a minimum payment of 6 per cent vacation pay. Employers are required to record vacation pay earned by employees and to keep all vacation records for a period of five years.

Why is this significant?

Employees will be entitled to vacation time and pay based on their length of employment. This provision recognizes employees with 5 years or more of employment with an additional week of vacation time and increases the percentage of vacation pay to 6 per cent.

Employers will now have to keep vacation time and pay records for a period of five years.

How is the new provision different from existing provisions in the Employment Standards Act, 2000 (ESA)?

Before – The minimum standard for entitlement to vacation time and pay was two weeks of vacation time per vacation entitlement year paid at a minimum of 4 per cent of gross wages.

After – The minimum standard remains the same for employees with less than five years of employment. For employees with five years or more, the minimum standard will be that they are entitled to three weeks of vacation time per vacation entitlement year paid at a minimum vacation pay of 6 per cent of gross wages.

What happens to the percentage of vacation pay and vacation time if an employee is on a standard vacation entitlement year (begins on date of hire)?

Five years of employment will be reached on the last day of the fifth vacation entitlement year.

Example:

Ava is hired on June 1, 2014. She has a standard vacation entitlement year that runs from June 1 of each year to May 31 of the following year. Ava earns two weeks paid at 4 per cent of gross wages earned in each of the following four vacation entitlement years: June 1, 2014 to May 31, 2015; June 1, 2015 to May 31, 2016; June 1, 2016 to May 31, 2017 and June 1, 2017 to May 31, 2018.

On May 31, 2019 (the end of the next vacation entitlement year), she has completed five years of employment and so will be entitled to three weeks of vacation paid at 6 per cent of gross wages earned for the vacation entitlement year June 1, 2018 to May 31, 2019. Her vacation time entitlement will be three weeks for each completed vacation entitlement year thereafter.

What happens to the percentage of vacation pay and vacation time if an employee starts their vacation entitlement year with less than five years of employment, but reaches five years partway through the vacation entitlement year?

If an employee has an alternate vacation entitlement year and has been employed for five years at the end of the vacation entitlement year (five years may be reached anytime during this vacation entitlement year) the employee will be entitled to three weeks of vacation time and must receive 6 per cent vacation pay for the entire vacation entitlement year. This will include the portion of the vacation entitlement year prior to the date the employee reached five years of employment.

Example:

At the start of his current alternative vacation entitlement year, Andrew has only been employed for over four years with his employer. Andrew reaches his five-year anniversary with his employer partway through his alternative vacation entitlement year.

Andrew is entitled to three weeks of vacation time paid at 6 per cent of gross wages earned for the entire alternative vacation entitlement year.

If an employee is paid vacation pay on each pay cheque, when does the employee begin receiving 6 per cent vacation pay?

If the employee does not reach five years of employment during the vacation entitlement year, there is no change in how the vacation pay is calculated or paid out for the employee. The employee who does not have five years of employment at the end of the vacation entitlement year will be entitled to two weeks of vacation time and will receive 4 per cent vacation pay.

When an employee reaches five years of employment they must begin to receive 6 per cent vacation pay on each pay cheque. Since the employee is entitled to 6 per cent vacation pay for the entire vacation entitlement year, the employer will have to pay an additional 2 per cent vacation pay for the portion of the vacation entitlement year prior to when the employee has reached five years of employment. (This would include situations where the employer is using an alternative vacation entitlement year). The employee will be entitled to three weeks of vacation time for that vacation entitlement year.

If a standard vacation entitlement year is used by the employer, the employee will reach 5 years of employment on the same day the vacation entitlement year is completed. The employee will be entitled to three weeks of vacation time and 6 per cent per cent vacation pay. If the employer has paid 4 per cent on each paycheque, the employer will be required to pay an additional 2 per cent for the completed vacation entitlement year.

What happens if the employee’s employment ends?

If the employee was employed for less than five years when employment ends, the employee must receive 4 per cent accrued vacation pay.

If the employee was employed for five years at the time employment ends, the employee must receive 6 per cent accrued vacation pay. If the five years of employment is reached part way through the final (partially completed) vacation entitlement year, the employee must receive 6 per cent vacation pay for the whole vacation entitlement year including the portion of the vacation entitlement year which was prior to the employee reaching five years of employment.

An employee’s vacation entitlement year ends on December 31, 2017. That employee has five or more years of service by that date. As this change takes effect on January 1, 2018, does this mean that employee has to wait another year to get the increased vacation entitlement?

No, an employee does not need to wait another year to get the increased entitlement. An employee whose vacation entitlement year ends on or after December 31, 2017 will receive the increased vacation entitlement (three weeks and 6 per cent of gross wages earned if employed for five years or more) even though the law didn’t come into force until January 1, 2018.

Note: Employees who receive vacation based on the calendar year are entitled to three weeks vacation time and 6 per cent vacation pay for the 2017 calendar year.

How much vacation pay is an employee eligible for when taking a leave of absence under the ESA?

An employee who takes a statutory leave of absence will be eligible to 4 per cent or 6 per cent (depending on length of employment) vacation pay on gross wages earned during the vacation entitlement year. Note that leaves taken still count towards period of employment when determining if the employee has achieved the five-year threshold for the greater time and pay entitlements.

Are there new recordkeeping requirements for employers in relation to vacation pay?

Employers are required to keep records of the vacation pay earned by an employee during the vacation entitlement year and how the amount was calculated. This was effective January 1, 2018. This is in addition to the requirement to keep records of the vacation pay paid to the employee during the vacation entitlement year and how that vacation pay was calculated.

How long does an employer have to keep an employee’s vacation pay and vacation time records?

There is a new requirement that vacation pay and time records be kept by employers for five years after they are made. Previously, records had to be kept for three years.

Does the new vacation entitlement affect how much vacation pay an employee is eligible for if the business is sold?

The ‘continuity of employment’ provisions have not changed. If an employee was employed for five years of more and is therefore eligible for 6 per cent vacation pay and three weeks of vacation time prior to a business being sold, this will continue after the sale.

If the employee was employed for less than five years with the seller prior to the sale of the business, the employee’s length of employment will continue with the purchaser. When the employee has five years of employment (with seller and purchaser combined) the employee will be eligible for 6 per cent vacation pay and three weeks of vacation time.

The continuity of employment provisions recognize the employee’s period of employment with the seller as employment with the purchaser.

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