Canada: Vacation – "Use it or Lose it" Policies

Last Updated: April 12 2014
Article by Christina Wallis

Employees can lose their vacation time by failing to take vacation BUT employees cannot lose their vacation pay. This is often misunderstood. Many employers have a "use it or lose it" policy with respect to vacation. But this simply means that an employer can require an employee to take vacation time or lose the vacation time but this does not alleviate the employer's obligation to pay that employee the vacation time.  For example, when a salary worker who is entitled to 2 weeks' vacation time per year but fails to take the 2 weeks' vacation time, and his/her employer does not force him/her to take the vacation time, the employer is required to pay the employee an extra 2 weeks' pay.

Ontario's Employment Standards Act, 2000 ("ESA") provides a minimum  entitlement of 2 weeks' vacation time to all workers to be paid at 4% of gross wages. Employers and employees can agree to more but not less. Some employed persons are exempted from the ESA such as some qualified or registered practitioners (for example, architects, lawyers, accountants, dentists, massage therapists, pharmacists, and others).

Vacation TIME – minimums under ESA

How Much

Deadline for Taking Vacation

What time away from work is included?

Foregoing Vacation

Scheduling Vacation Time

  • 2 weeks upon completion of every 12-months from date of hire
  • If employer establishes an alternative vacation entitlement year, employee is entitled to 2 weeks vacation time after each alternative vacation year plus a pro-rated amount of vacation time for the "stub period" (preceding the start of the first alternative vacation entitlement year)
  • Earned vacation time must be taken with 10 months following completion of  the vacation entitlement year or stub period
  • Employer has the right to schedule the vacation time as well as an obligation to ensure the vacation time is scheduled before then end of the 10 month period
  • layoff
  • sickness/injury
  • leaves of absence under ESA
  • any other approved leaves
  • Employee can give up some or all of his/her earned vacation time BUT the employer must still PAY the employee vacation pay
  • in other words, you may lose your vacation time if you fail to take the vacation time within the time required to do so, BUT the employer must still pay the employee for the vacation time not taken
  • Employers are required to schedule vacation time in blocks of 1 week or 2 weeks unless the employee and employer agree in writing to schedule shorter periods.
  • Vacation time earned for Stub Period is calculated as single days. If vacation time earned is 2 to 5 days, the vacation days must be taken consecutively unless agreed otherwise


Vacation PAY – minimums under ESA

How Much

When to Pay

End of Employment

Vacation Records

  • A minimum of 4% of gross wages


Gross wages include:

  • regular earnings
  • commissions
  • bonuses/gifts
  • overtime pay
  • public holiday pay
  • termination pay
  • allowances for room and board


Gross wages do not include:

  • vacation pay
  • tips/gratuities
  • discretionary bonuses/gifts
  • expenses and travelling allowances
  • living allowances
  • benefit contributions/payments
  • federal employment insurance benefits
  • severance pay
Must be paid to employee in a lump sum sometime before he/she takes the vacation time earned EXCEPT:

  1. vacation time is taken in periods of less than 1 week – employee must be paid vacation pay on or before the payday for the period in which vacation falls
  2. when employee has agreed in writing that his/her vacation pay will be paid on each pay cheque as it accrues (employee's wage statement must clearly show amount of vacation being paid)
  3. when employee and employer agree in writing otherwise
  4. if employer pays the employee wags by direction deposit into an account at a financial institution (employee must be paid vacation pay on or before the payday for the4 period in which the vacation falls)
  • Employee is entitled to be paid vacation pay earned but not yet paid
  • Vacation pay is payable on termination pay but not severance pay
  • Unpaid vacation pay must be paid either within 7 days of the employment ending or on the next regular pay day

Employees may request a statement of employer's vacation records and employers are required to provide the statement no later than 7 days after the request or the 1st pay day after the employee makes the request, which is later.



Record Details

Request for Statement



Current Vacation Entitlement


Employers must keep records of:

  1. vacation time earned
  2. vacation time taken
  3. balance of vacation time remaining
  4. vacation pay paid and how it was calculated


Employees may request in writing a statement of the employer's vacation records,


Employer required to provide information statement with respect to each vacation entitlement year or stub period only once

Employer must provide vacation statement to employee within 7 days after the request or the 1st pay day after the request, which is later Employer must provide vacation statement to employee within 7 days after the start of the next vacation entitlement year or the 1st pay day after the stub period or vacation entitlement year ends, whichever is later If the employee has agreed that vacation pay will be paid on each pay cheque as it is earned, the employer does not need to keep separate records or provide statements (but the vacation amount paid must be clearly set out on each pay cheque)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Christina Wallis
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