Vacation Pay in Ontario: The 4% and 6% Rules Explained

Vacation time and vacation pay are two separate entitlements, and that's where most mistakes start. Time off is earned year by year. Vacation pay is earned on every hour worked, from the first one. Here's how the Ontario government's ESA guide sets it out.

Vacation time and vacation pay at a glance

Length of employment	Vacation time	Minimum vacation pay
Less than five years	Two weeks after each 12-month vacation entitlement year	Four per cent of gross wages earned in the year
Five years or more	Three weeks after each 12-month vacation entitlement year	Six per cent of gross wages earned in the year

The entitlement is decided by the employee's period of employment when each vacation entitlement year ends. The guide's example: an employee who reaches five years 10 months before the end of the entitlement year and one who reaches it a day before both get three weeks for that year.

A contract or collective agreement can give more time or a higher percentage, never less.

Vacation pay is earned from the first hour

An employee who doesn't complete a full vacation entitlement year (or stub period) doesn't qualify for vacation time under the ESA. But they still earn vacation pay as they earn wages. So if someone works just one hour, they're entitled to at least four per cent of that hour's wages as vacation pay, or six per cent depending on length of employment.

The vacation entitlement year and stub periods

A standard vacation entitlement year is a recurring 12-month period starting on the date of hire. An employer can instead set an alternative year, for example January to December for everyone. When it does, the employee also earns a pro-rated amount for the stub period before the alternative year starts. The guide's example: with a January to December year and a September 1 hire, the stub period is September 1 to December 31.

Time away for certain reasons, including some leaves, still counts towards the entitlement year and stub period.

When vacation time must be taken

Vacation time earned for a year or stub period must be taken within 10 months after that year or stub period ends. The employer has the right to schedule it, and the obligation to make sure it's scheduled and taken before the 10 months run out.

An employee can give up some or all of their earned vacation time only with the employer's electronic or written agreement and the approval of the Director of Employment Standards. Vacation pay can't simply be traded away.

When vacation pay must be paid

1. The default: as a lump sum sometime before the employee takes the vacation time earned.
2. Vacation taken in periods of less than one week: on or before the pay day for the period in which the vacation falls.
3. With the employee's electronic or written agreement: on each pay cheque as it accrues, shown separately on the wage statement or on a separate statement.
4. With the employee's electronic or written agreement: at any other time agreed with the employee.
5. If wages are paid by direct deposit, the ESA guide sets out its own timing rule for paying vacation pay too.

What counts as wages for vacation pay

Included in gross wages	Not included
Regular earnings, including commissions	Vacation pay itself
Non-discretionary bonuses, or those tied to hours of work	Tips and other gratuities
Overtime pay	Discretionary bonuses and gifts unrelated to hours, production or efficiency
Public holiday pay	Expenses, travelling and living allowances
Termination pay	Benefit plan contributions and payments such as sick pay
Room and board allowances, and domestic or sexual violence leave pay	Federal employment insurance benefits and severance pay

The guide's own example: an employee who passes five years partway through a year with gross wages of $16,000 is entitled to six per cent, which is $960. Those figures are the Ontario guide's, in Canadian dollars, as of October 2026.

If you pay vacation pay on each pay cheque at four per cent and the employee reaches five years mid-year, you must top up the earlier part of the year. The guide's example tops up four per cent with an additional two per cent on wages earned earlier in that entitlement year.

Vacation pay when employment ends

When an employee quits or is terminated, they're entitled to all vacation pay they've earned and haven't been paid. If they had less than five years, that's four per cent of wages in the last, partly completed entitlement period plus anything outstanding. If they'd reached five years before or during that last period, it's six per cent of all wages in it.

The deadline is tight: the guide says vacation pay owed on termination must be paid within seven days of the date employment ended or by what would have been the next pay day, whichever is later. And one detail catches payroll teams out: vacation pay is payable on termination pay, but not on severance pay. Our Ontario Employment Standards Act guide covers termination and severance in more detail.

Public holidays during vacation

If a public holiday falls during an employee's vacation, the day stays a vacation day, and an employee who qualifies for the holiday gets either a substitute day off with public holiday pay, taken within three months (or 12 months if they agree electronically or in writing), or, with their agreement, public holiday pay for the day without a substitute day. The holiday dates and the holiday pay rules are in our statutory holidays Ontario guide.

How to calculate Ontario vacation pay

1. Find the employee's period of employment at the end of the vacation entitlement year or stub period.
2. Add up gross wages earned in that year or stub period, leaving out vacation pay itself.
3. Apply four per cent for less than five years, or six per cent for five years or more.
4. Pay it as a lump sum before the vacation, or by one of the exceptions above.
5. Show the amount on the wage statement or a separate statement.

The verdict

Keep two ledgers: vacation time earned by year, and vacation pay earned on every dollar of wages. Most Ontario disputes come from treating them as one. Schedule the time within 10 months, top up to six per cent the moment someone reaches five years, and pay out every unpaid cent when employment ends.

Frequently asked questions

How much is vacation pay in Ontario?

At least four per cent of gross wages for employees with less than five years of employment, and at least six per cent for five years or more.

How much vacation time do Ontario employees get?

Two weeks after each 12-month vacation entitlement year with less than five years of employment, and three weeks with five years or more.

Do part-time and short-term employees get vacation pay in Ontario?

Yes. Employees earn vacation pay as they earn wages, even if they work only one hour.

When must vacation time be taken in Ontario?

Within 10 months after the end of the vacation entitlement year or stub period in which it was earned.

Is vacation pay paid on severance pay in Ontario?

No. Vacation pay is payable on termination pay but not on severance pay.

Can vacation pay be added to every pay cheque?

Yes, if the employee agrees electronically or in writing that it will be paid on each pay cheque as it accrues.