PTO

What’s the difference between holiday pay and time in lieu?

‘Holiday pay’ and ‘Time in lieu’ are actually very different. Holiday pay is pay for ‘standard’ holidays, either public or at least consistently recognized by the employer. Time in lieu is paid time off in exchange for overtime work.

Holiday pay is pay for days that an employee doesn’t have to work, because they are public holidays. In Ontario, these days are: New Year’s Day, Family Day, Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, Christmas Day, and Boxing Day. Public holidays vary in different jurisdictions. Also, some employers choose to provide holiday pay for days which are not official public holidays, but are frequently observed. For example, in Ontario, employers often acknowledge Civic Holiday the first Monday in August. Public holiday pay is based on the previous four weeks of work, and can be calculated here. The calculation i:s (regular wages from 4 weeks previous + vacation pay from 4 weeks previous) / 20. You add up the last month of earnings and divide by 20 because there are 20 working days in a normal month.

In the entertainment field — and others — it’s not uncommon for employers to ask their staff to work on a public holiday. Employees have the option to agree in writing to work the day and receive either public holiday pay plus premium pay for the hours worked on the holiday OR their regular rate plus holiday pay on a ‘substitute’ day off. In this case, the holiday rate would be calculated on the four weeks previous to the substitute holiday, not the original holiday. Some jobs do not entitle employees to take public holidays off. More details on public holiday pay in Ontario can be found here.

‘Time in lieu’ is paid time instead of overtime pay. The Employment Standards Act sets out rules on overtime pay; in most cases it is time-and-a-half (1 ½ times regular pay) for hours worked beyond 44 in a week. An employee and employer can agree in writing to time in lieu, also sometimes called ‘banked time’. In Ontario, if an employee has agreed to bank overtime hours, the employer must provide 1 ½ hours of paid time off for each hour of overtime worked. The time off must be taken within 3 months or, if an agreement is made in writing, within 12 months. If employment ends before the employee takes the paid time off, the employer must pay him or her overtime pay instead.

Find more information on paid time off in Ontario here.

What are my vacation pay obligations when an employee departs?

When a staff member leaves, you must review their vacation pay entitlement. This is done by calculating vacation pay earned and subtracting vacation time used. If the employee has not used their vacation time, you must pay out the amount owing in cash.

What are the repercussions of not taking time off?

First, a reminder of how and when vacation time is earned: Employees earn their vacation time upon completion of a year of work (the Ontario Ministry of Labour calls it a “12-month vacation entitlement year”), and each subsequent 12-month period. If the employer deviates from the standard entitlement year, the employee is entitled to their minimum vacation time as well as a pro-rated amount of vacation time for the ‘stub period’ which precedes the start of the first alternative vacation entitlement year.

The Ontario Ministry of Labour dictates that vacation time earned (whether based on a completed entitlement year or stub period) must be taken within 10 months. The employer has the right to schedule the employee’s vacation time and/or ensure vacation is scheduled and taken.

Upon obtaining written agreement from their employer and the approval of the Director of Employment, an employee can give up some or all earned vacation time. The employer is still obliged to issue the employee vacation pay. You can give up vacation time, but you do not give up your right to the remuneration associated with that time.

You can learn more about vacation time from the Ontario Ministry of Labour website or by visiting the labour website applicable to your region.

How do I calculate vacation pay for my staff?

Updated January 2018

There are 2 methods to calculate vacation pay: you can include vacation pay in each paycheque, or your can pay it out in a lump sum when employees take their holiday (or when their contract ends). For our examples, let’s assume an employee receiving the Employment Standards Act minimum of 2 paid weeks per year worked, or 4% of earnings. (Update as of January 2018: Under the ESA employees who have seniority of 5 years or more are entitled to 3 paid weeks per year worked or 6% of earnings).

Method 1 – Pay with each cheque:

Vacation pay can be rolled into regular pay, so the employee receives it as they earn it. This means that the employee has to do their own saving-up for time off. This method is often used for part-timers, temporary and hourly-paid staff.

Example: An employee earns $1,000.00 per pay cheque. The employee has vacation paid on each cheque, therefore they receive $1,000.00 in pay + 4% ($40.00) for a total of $1,040.00 of gross pay each pay period. If they have seniority of 5 years or more, they would receive $1,000,00 in pay + 6% ($60.00) for a total of $1,060.00 of gross pay each pay period).

Method 2A – Pay with holiday – Salary:

Salaried employees get “paid vacation”, which means they receive their normal salary without interruption even when on vacation. There is no change in the rate or frequency of their pay; they just get paid time off. In the payroll records, 4% vacation pay is accrued each week. (For employees with 5 years or more of seniority, it would be 6%). That is, the employer sets aside the vacation pay amount as money owing to the employee for their holiday. Since the process is seamless for both the employer and the employee, the accrual process may be omitted: if the employee gets their regular pay, the requirements have been fulfilled!

Method 2B – Pay with holiday – Non-Salary:

Part-time, casual and hourly-paid staff often have an irregular stream of earnings. From the employer’s viewpoint, the accounting is the same: you accrue 4% of each week’s earnings, setting it aside as an amount owed to the employee. (Again, this would be 6% for employees with 5 years or more in seniority). However, when the employee takes time off, their vacation payout will not correspond to a normal paycheque — so from their point of view vacation pay is a lump sum.

Example: The employee is about to take her/his annual vacation, and no vacation pay has yet been paid. Therefore, the employer bases vacation pay on the employee’s total gross pay since the last time they took vacation. In this case, the employee has earned $13,978.65 in gross earnings since his or her last vacation. 4% of those gross earnings warrants vacation pay of $559.15.

Visit the Ontario Ministry of Labour website (or a comparable website for your area) for more information on vacation pay.