Reply To: Termination Pay

[Haley O’Halloran]

#97956

ESA basics: vacation pay when it’s paid at 4% each pay

Because the employee receives vacation pay on each paycheque (4%), the ESA treats vacation pay as already paid as it is earned.
That means on termination, there is no accrued but unpaid vacation for the notice period unless:
-vacation pay was not applied correctly, or
-there is unpaid vacation from prior earnings.

Vacation pay **must still be paid on:
-wages earned up to the termination date, and
-ESA statutory notice pay**, because statutory notice is considered “wages.”

So for the 2 weeks ESA notice, vacation pay does apply (4% of the statutory notice pay).

Enhanced / gratuitous 4 weeks pay — does vacation pay apply?

This is where employers often get tripped up.

Key rule:

Vacation pay is only required on “wages” under the ESA. A gratuitous or ex gratia payment is not ESA wages if it is clearly identified as such.

Practical outcome:

ESA notice (2 weeks):
Vacation pay must be included

Enhanced 4 weeks (gratuitous portion):
Vacation pay is NOT required, if
-the payment is clearly described as ex gratia / gratuitous / without prejudice, and
-it is not characterized as notice, severance, or wages

Many employers intentionally exclude vacation pay from the enhanced portion to avoid unintentionally increasing ESA entitlements.

How to word this clearly in the termination letter

The goal is to:
-Meet ESA requirements
-Clearly separate statutory entitlements from the enhanced payment
-Avoid accidentally creating ongoing obligations

Sample wording

Termination and Statutory Entitlements

Your employment with [Company Name] will end effective [date].

In accordance with the applicable Employment Standards legislation, you will receive:

Two (2) weeks’ pay in lieu of notice, and

Vacation pay at four percent (4%) on all ESA-required earnings, including statutory notice pay, as vacation pay has been paid on each paycheque during your employment.

Enhanced / Gratuitous Payment

In addition to your minimum statutory entitlements, [Company Name] is offering you an ex gratia payment equivalent to four (4) additional weeks of base pay, less applicable statutory deductions.

This payment is gratuitous, is not wages, and is not subject to vacation pay, and is provided without prejudice and without admission of liability.

Final Pay Clarification

Your final pay will include all outstanding wages earned up to your last day of employment, statutory notice pay, applicable vacation pay, and the ex gratia payment described above.

-HRInsider Staff