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The Question

As a sales manager receiving payroll and commissions on product sales, I used to receive commission with vacation pay. However, my employer has now told me that was not correct. They started to pay me only commission. I am mostly working from my employer’s office with about 25 per cent travel overseas. I receive commission on the sales of the company products from these overseas customers. Ontario regulations state employers shall make commission payments plus vacation pay. Is this correct? What should I tell my employer?

The First Answer

Natalie C. MacDonald, MacDonald & Associates, Toronto

In general, employees are entitled to vacation pay calculated based on their base pay and commissions. However, this depends on the language in any employment contract, or commission plan, or whether one qualifies as a salesperson under the exemption of the Employment Standards Act, 2000 (ESA), which provides the basis for employer obligations.

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Under the ESA, employers in Ontario must pay their employees vacation pay at a minimum of 4 per cent of their gross wages. “Wages” is defined under the ESA and includes commissions.

The exception to this is for a salesperson who earns commission in respect of sales normally made away from the employer’s place of business. This exemption is intended to remove certain obligations to pay vacation pay to salespersons of whom the employer has little or no control over their time sheets.

Given that it appears you predominantly work from your employer’s office and only 25 per cent of your sales are completed away from the office, you may not qualify for this exemption.

It is possible for employers to draft a commission plan that clearly states that any sums paid by these plans are inclusive of vacation pay gross-up for that sum. Absent clear language on this point, vacation pay should be calculated based on gross wages, which includes commissions.

The best approach is to speak with your employer and explain your concerns. Ask for your employer to justify its rationale. Failing such, you may have a claim for payment of vacation pay, or even constructive dismissal given that your employer may be significantly altering your pay.

The Second Answer

Amiri Dear, lawyer, Hummingbird Lawyers LLP, Toronto

The Employment Standards Act provides that employees are entitled to receive vacation pay at the rate of at least 4 per cent of their gross annual wages. The term “wages,” as defined by the ESA, includes any monetary remuneration payable by an employer to an employee pursuant to either a written or oral contract. This includes commissions. Therefore, you should receive vacation pay of at least 4 per cent calculated on your gross wages including payroll and commissions.

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Your employer may be relying on an exemption contained in the regulations to the ESA to avoid paying vacation pay on commissions. Ontario Regulation 285/01 provides, among other things, that salespersons who receive all or part of their remuneration as commissions on the sale of goods or services that are normally made away from the employer’s place of business are exempt from receiving vacation pay calculated on their commissions.

However, both the Ontario Labour Relations Board and the courts have interpreted this exemption narrowly. Where an employee works most of their time at an employer’s offices and only spends a small portion of time away from the employer’s premises, the employer still exercises a significant level of control over the employee’s work and cannot rely on the exemption.

You work primarily from your employer’s office. You spend approximately 75 per cent of your time there and only a limited amount of your commissions come from time spent working at other locations. Your employer still sufficiently controls and manages your employment and you should be entitled to vacation pay on your total wages including your commissions. You should explain this to your employer.

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