FAQ: New Legislative Changes to Public Holiday Pay
***Update*** Following consultations with business owners and other stakeholders, on May 7, 2018 the Government of Ontario announced that it has temporarily reinstated the pre-existing laws regarding public holiday pay. The Government also noted that it will conduct a review over the next 18 months, and plans on having a new public pay holiday rule system in place by 2020. Nevertheless, we advise all employers to familiarize themselves with the (temporarily paused) changes highlighted below, since it is likely that some aspects or policies will be retained when the new rules ultimately take effect.
However, there is another aspect of Bill 148 that is causing some confusion — and as will be explained in a moment, some criticism as well: changes to public holiday pay. We have prepared this FAQ to clarify the main issues.
What is the public holiday pay formula as of January 1, 2018?
Public holiday pay on Ontario is now calculated by dividing normal wages earned in the pay period before a public holiday, by the number of days worked during that pay period. The calculation is based on the past two weeks.
Here is an example for an employee making $18/hour:
- An employee who works one 8-hour shift in the two weeks prior to a public holiday, is now entitled to 8 hours of holiday pay. At $18/hour, this calculates to $144.
- An employee who works two 6-hours shifts in the two weeks prior to a public holiday, is now entitled to 6 hours of holiday pay. At $18/hour, this calculates to $108.
- An employee who works one 8-hour shift one 6-hour shift in the two weeks prior to a public holiday, is now entitled to 7 hours of holiday pay. At $18/hour, this calculates to $126.
What was the public holiday pay formula prior to January 1, 2018?
Before Bill 148 came into effect, public holiday pay was calculated by taking the amount earned in the four weeks prior to the holiday, and then dividing that amount by 20 days. Using the same hourly rate of $18/hour as above:
- An employee who worked one 8-hour shift in the four weeks prior to a public holiday, was entitled to .4 hours of holiday pay. At $18/hour, this calculated to $7.20.
- An employee making $18/hour who worked two 6-hours shifts in the four weeks prior to a public holiday, was entitled to .6 hours of holiday pay. At $18/hour, this calculated to $10.80.
- An employee making $18/hour who worked one 8-hour shift one 6-hour shift in the four weeks prior to a public holiday, was entitled to .7 hours of holiday pay. At $18/hour, this calculated to $12.60.
Why are some employers critical of the changes?
As these two sets of examples vividly demonstrate, employers are now required to pay significantly more in holiday pay. This is because even though the pay period for calculation purposes has been cut in half from 4 weeks to 2 weeks, the denominator (i.e. the number that the hours worked is divided by) is now the number of days worked — not 20.
Employers with a workforce comprised 100% of full-time employees will not see their holiday pay costs rise. However, those with temporary or part-time workers have already seen their costs rise per the Family Day holiday on February 19, 2018.
Why are some employees critical of the changes?
Overall, virtually all part-time employees — except those who were working very close to full-time hours — will see a rise in take-home pay as a result of changes to public holiday pay rules. However, not everyone will benefit equally.
As the examples above illustrate, an employee who worked one 8-hour shift in two weeks prior to a public holiday will get more holiday pay vs. an employee who worked one 8-hour shift and one 6-hour shift (on two separate days) Again, this is because the denominator used for calculation purposes is now the number of days worked. The first employee worked one day, and therefore has their wages divided by one. The second employee worked two days, and therefore has their wages divided by two.
Employees on the short end of this calculation — i.e. those that have worked more days — are criticizing the government for what they consider as a financial penalty for working more.
What actions should employers take?
To start with, employers must ensure that they’re in compliance with the new rules. This means updating all payroll systems. Failure to properly pay employees will result in fines, and it could lead to reputation damage. Even if mistakes are 100% unintentional (and they usually are)l, the last thing that an employer wants to be known for — both among customers and current/prospective employees — is not paying on time and in full.
In addition, employers should re-assess their staffing strategies and plans to minimize their staffing costs. For example, it may make more sense to have part-time employees work four 4-hour shifts a week instead of two 8-hour shifts. For employees making $18/hour (and all else being equal), this would reduce the holiday pay due from $144 to $72.
With this in mind, there are additional new rules per Bill 148 that govern how part-time workers are compensated (along with casual, temporary and seasonal workers). As such, cost-savings generated by staffing re-allocation may be offset by other costs. Plus, changes for the purpose of lowering holiday pay can damage morale and reduce productivity, which could ultimately make the move counter-productive. Organizations need to carefully explore all of their options, and make decisions based on all relevant facts and details.
To learn more about ensuring that your HR team is on top of all legislative changes — including but not limited to those related to the new public holiday pay provisions — contact the PIVOTAL team today at 1-855-407-3921.