How to Calculate Vacation Pay in Ontario

Ontario Vacation Pay

How to Calculate Vacation Pay in Ontario

To calculate vacation pay in Ontario isn’t that difficult to do. In fact, Ontario is one of the easier provinces (since each province has their own unique labour standards). The down side however is that it is one of those tedious, repetitive tasks That stretch out how long it takes to complete your payroll over all. If you ever decide that you’d rather use that time for, oh, say, anything other than typing payroll numbers, then consider signing up for a 30 Day Free Trial of Payroll Connected and let the software do the tedious work for you! But for those who still prefer the pen to paper approach (or finger to keyboard), here’s how to calculate vacation pay and vacation days off in Ontario.

Entitlements for Vacation Pay in Ontario

Employees in Ontario fall into two categories:
– Employed for less than five years receive two weeks of Vacation Days off at a Vacation Rate of 4% of Gross Wages
– Employed for five or more years receive three weeks of Vacation Days off at a Vacation Rate of 6% of Gross Wages

Strictly speaking, vacation time is earned in one year and then used in the next, however many employers allow vacation time to be used in the year that it’s earned.

Though they may seem like one in the same, Vacation Days and Vacation Rate are two very different things. To go into detail why paying out a Vacation Day is not as simple as just paying a ‘regular day pay’, check out that information in the article “Calculating Vacation Pay“. In short, if an employee earns $50,000 a year, and divide that by 52 weeks in a year, they earn $961.54 a week on average, or $1,923.08 every two weeks (Like 2 weeks of vacation pay? Nope!). If you take $50,000 and multiply it by the 4% Vacation Rate, the Vacation Pay for a year should be $2,000 for the two weeks they’re allowed. So you can see right away that there’s a difference between an average day’s pay and the vacation pay amount.

When figuring Vacation Pay, the Vacation Rate is applied to the employee’s Gross Wages. The definition of Gross Wages includes Regular Wages, Overtime Wages and Statutory Holiday Pay, but does not include Commission, Bonuses. It also does not include any Vacation Pay being paid out on this pay period (an important notation if this is for an employee that accrues and is using some Vacation Pay in this period).

Calculating Vacation Days

This is actually the easy one. To figure how many Vacation Days are earned each pay period, simply take the number of pay periods in the year, and divide their entitlement by that amount.

For example:
If employees are paid bi-weekly, then they get 26 pay periods in a year. If they’re entitled to two weeks off in a year, then they likely get ten business days off in a year.
So 10 vac days / 26 pay periods = 0.3846 Vacation Days earned per pay period.
Therefore after 3 pay periods, they’ll earn their first Vacation Day off since 3 x 0.3846 = 1.1538 Vacation Days.

This is more important for employees that accrue (save up) their Vacation Days to use at a later date, but it’s not a bad idea to monitor non-accruing employees as well to ensure they’re not using more Vacation Days than they’re entitled to.

Calculating Vacation Pay

Vacation Pay in Ontario is pretty simple to calculate too, but it is a bit tedious. First, calculate their Gross Wages for the period (excluding any bonuses, commissions, and vacation pay being used). Now just multiply that number by their entitled Vacation Rate to arrive at their amount of Vacation Pay for the period.

For example:
If an employee is entitled to 4% Vacation Pay, and their Gross Wages are $2,000.00 Regular Wages + $200.00 Overtime + $100.00 Stat Pay = $2,300.00 Gross Wages.
Now just multiply that amount by the Vacation Rate like $2,300.00 * 0.04 = $92.00 Vacation Pay

To Accrue or Not to Accrue?

It’s common for hourly employees with irregular shifts to have their Vacation Pay paid out on each paycheck. Especially in industries like retail or restaurants that have high employee turnover. Like this, vacation pay and often vacation days don’t need to be tracked from one pay period to the next. When the employee wants time off, they just put in a request, and so long as they’ve not used up all their vacation days for the year, they basically get scheduled for a day off and receive no extra pay (since it’s already been paid out on each paycheck as they earn it).

For employees that do accrue, or save up, vacation pay and days though, the amounts that are owed to them need to be tracked. Often by way of spreadsheets, or by using software that tracks it automatically like Payroll Connected. When the employee takes vacation time off, simply calculate how much of their Vacation Pay is being used based on the amount of Vacation Days being used. To do this, divide the total accrued Vacation Pay amount by the total amount of Vacation Days accrued. That gives you how much Vacation Pay they will receive for each day off. Then just multiply that amount by the number of Vacation Days being used to arrive at their total Vacation Pay being used for that period.

For example:
Jane has saved up $526.33 in Vacation Pay and accrued 4.32 Vacation Days. She requested 3 days off for vacation time.
To calculate how much she is using, take the Vacation Pay Accrued of $526.33 / 4.32 Vacation Days accrued = $121.84 Vacation Pay for each day off.
Now just multiply that by the three days she’s taking off $121.84 * 3 = $365.52 owed for vacation pay.
This leaves her with $160.81 Vacation Pay and 1.32 Vacation Days accrued left to use.

For in depth information on calculating vacation pay in Ontario, please consult the provincial government’s employment standards website at https://www.ontario.ca/document/your-guide-employment-standards-act-0/vacation

 

 

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