Written by Maryam Ajorloo, CPA · Reviewed by Behdad Karimi Dermeni, CPA
Ontario employment laws for small businesses come mainly from the Employment Standards Act, 2000 (ESA). It sets the minimum wage ($17.95 an hour from October 1, 2026), overtime after 44 hours a week, vacation, public holidays, leaves, and the notice or pay you owe when you end someone's job. Every Ontario employer must meet it, whatever its size.
Hiring your first employee is a great milestone. It is also the moment a small business discovers it now has a second rulebook, written by the province, that nobody handed over at registration. The good news: the core of Ontario's labour laws fits on a page, and most of it is common sense with numbers attached.
This guide walks through those numbers in the order you will meet them, from the first paycheque to the last day of employment, plus the newer rules that kick in once you reach 25 employees. Keep your books clean while you grow the team: start free for 30 days and let the AI Bookkeeper sort the transactions.
The Rule of Thumb: The ESA Is a Floor, Not a Ceiling
Here is the one idea that explains everything below. The ESA sets minimums, and you can always give more, never less. A contract that offers less than the ESA (say, one week of vacation instead of two) is not a clever deal; that part of the contract is simply unenforceable, and the ESA minimum applies anyway.
Two more things worth knowing up front:
The ESA covers most employees in Ontario, full-time, part-time, casual, and students alike. Federally regulated businesses (banks, airlines, telecom, interprovincial trucking) follow the Canada Labour Code instead.
It does not cover genuine independent contractors. That makes the employee vs contractor question the first one to get right. Calling someone a contractor does not make them one, and the ESA specifically prohibits treating an employee as a non-employee. Our guide to contractor vs employee tax rules in Canada walks through the tests, and if the answer is contractor, use a written independent contractor agreement.
Minimum Wage in Ontario
Ontario's minimum wage rises every October 1, tied to inflation. The current rates, effective October 1, 2026, per the Ontario minimum wage guide:
General minimum wage: $17.95 an hour
Students under 18 (working 28 hours a week or less during the school year, or during a school break or summer holidays): $16.90 an hour
Homeworkers (people who do paid work from their own home for an employer): $19.70 an hour
One detail catches people out: if a pay period straddles October 1, hours worked before the change are paid at the old rate and hours from October 1 onward at the new one. You do not get to wait for the next pay period.
How You Must Pay Employees
The ESA cares less about how much you pay above minimum wage and more about how you pay it.
Set a regular payday. Wages must be paid on a recurring pay period (weekly, biweekly, semi-monthly) and on a regular payday. Skipping or delaying one is a wage violation, not a cash-flow strategy.
Pay by cash, cheque, or direct deposit. Direct deposit goes to an account in the employee's name at a financial institution.
Give a wage statement every payday. It shows the pay period, the wage rate, gross wages, each deduction and what it was for, and the net amount paid. It can be electronic if the employee can print it.
Only make allowed deductions. You can withhold wages for three reasons: deductions required by law (income tax, Canada Pension Plan (CPP), Employment Insurance (EI)), a court order such as a garnishment for support, or a deduction the employee authorized in writing that states a specific amount or a way to calculate it. Even with written consent, you cannot deduct for faulty work, cash shortages, or lost or damaged property when other people had access to the cash or property.
On top of the ESA, the Canada Revenue Agency (CRA) has its own payroll rules: you open a payroll program account, withhold CPP, EI, and income tax, add the employer's share, and remit by the CRA's deadline. Our step-by-step guide on how to do payroll in Canada covers that side in detail, so this post sticks to the ESA.
Hours of Work, Breaks, and Overtime
Ontario's labour laws put a ceiling on the work week and a price on going past it.
Hours limits: the maximum is 8 hours a day (or the length of an established regular day, if longer) and 48 hours a week. Going beyond either needs the employee's written agreement.
Overtime: after 44 hours in a work week, each extra hour is paid at 1.5 times the regular rate. Overtime is counted weekly, not daily, so a 10-hour Monday does not by itself trigger it.
Eating periods: a 30-minute eating period after no more than 5 hours in a row. It can be unpaid.
Rest: at least 11 consecutive hours off each day, and either 24 hours off every week or 48 hours off every two weeks.
The three-hour rule: if someone who regularly works more than 3 hours a day is sent home after working less than 3 hours, you owe them the greater of 3 hours at minimum wage or their regular pay for the time worked.
(If your Tuesday schedule currently lives on a sticky note, this is a good week to promote it to something with a date on it.)
Public Holidays and Vacation
Ontario has 9 public holidays: New Year's Day, Family Day, Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, Christmas Day, and Boxing Day. Most employees get the day off with public holiday pay. The Civic Holiday in August and Easter Monday are not on the ESA list, however many offices treat them as holidays.
Vacation time and vacation pay grow with service:
Less than 5 years: at least 2 weeks of vacation per year, and vacation pay of at least 4% of wages earned
5 years or more: at least 3 weeks of vacation per year, and vacation pay of at least 6%
Vacation pay is a percentage of wages, so it adds up quietly in the background whether or not anyone books time off. The vacation chapter of the ESA guide has worked examples.
Sick Days and Other Job-Protected Leaves
The ESA gives employees a set of job-protected leaves: you must hold the job, and you cannot penalize anyone for taking one. The ones a small business meets most:
Sick leave: up to 3 unpaid days per calendar year, once the employee has worked for you for at least 2 consecutive weeks. Since October 28, 2024, you cannot require a doctor's note for these days. You can still ask for evidence that is reasonable in the circumstances, such as a short written attestation.
Family responsibility leave: up to 3 unpaid days per year for an illness, injury, or urgent matter involving certain family members.
Bereavement leave: up to 2 unpaid days per year when certain family members die.
Longer leaves: pregnancy and parental leave, family caregiver and critical illness leave, and more. These are unpaid by you, but the employee may qualify for EI benefits during them.
Paid sick days are a benefit you can choose to offer (the floor, not the ceiling, again). Details are in the ESA sick leave guide.
This is exactly the kind of record that is easy to keep when your books are in one place. ReInvestWealth's AI Bookkeeper categorizes wages and payroll remittances as they hit your bank, so leave, overtime, and vacation pay show up clearly in your numbers. See how the AI Bookkeeper works.
Ending Employment: Notice, Termination Pay, and Severance
This is the part of employment law Ontario small business owners most often get wrong, because "termination pay" and "severance pay" sound like the same thing. They are not.
Notice or termination pay (almost every employer)
Once an employee has worked for you for 3 months, ending their job without cause requires written notice, pay instead of notice (termination pay), or a mix of both. The ESA minimum depends on length of service:
3 months to less than 1 year: 1 week
1 year to less than 3 years: 2 weeks
3 to 4 years: 3 weeks
4 to 5 years: 4 weeks
5 to 6 years: 5 weeks
6 to 7 years: 6 weeks
7 to 8 years: 7 weeks
8 years or more: 8 weeks
There are exceptions, such as wilful misconduct that is not trivial and was not condoned, or a genuine fixed-term contract that simply ends. "It was not working out" is not one of them. The full list is in the termination of employment guide.
Severance pay (a much narrower group)
Severance pay is separate from, and on top of, termination pay. Under the ESA it applies only when both of these are true:
The employee has worked for you for 5 years or more, and
Your business has a global payroll of $2.5 million or more, or you sever 50 or more employees within 6 months because all or part of the business permanently closes.
Most small businesses do not meet the second test, so they owe termination pay but not ESA severance. Where severance does apply, it is 1 week of regular wages per completed year of service (plus a prorated share for a partial year), capped at 26 weeks. The severance pay guide shows the calculation.
When the money is due
Termination pay, severance pay, and any outstanding wages and vacation pay are due by the later of 7 days after employment ends or the employee's next regular payday. On the CRA side, you also issue a Record of Employment (ROE) so the employee can apply for EI.
One honest caveat: the ESA is only the floor here too. An employee without a written contract that limits them to ESA minimums can sue for "reasonable notice" under common law, which is often far more than the table above. A well-drafted employment contract is the cheapest insurance in this whole guide, and an employment lawyer is the right person to draft it.
Records You Must Keep
The ESA requires you to keep employment records for 3 years after the work is done (some, like vacation records, have their own timelines). At a minimum, for each employee:
Name, address, and start date
Date of birth, for students under 18
Hours worked each day and each week
Wage rate and every wage statement
Vacation time earned and taken, and vacation pay
Leaves taken, and any written agreements (excess hours, averaging, vacation pay timing)
The CRA's rule for payroll and tax records is longer: generally 6 years from the end of the tax year they relate to. Keep everything for 6 and you satisfy both. Our guide to tracking business expenses in Canada has a simple system for the paper trail.
WSIB and the Employer Health Tax
Two Ontario obligations sit outside the ESA but land on the same desk the day you hire.
WSIB: most Ontario businesses that hire workers must register with the Workplace Safety and Insurance Board (WSIB) within 10 days of hiring their first worker, and pay premiums based on their industry and payroll. Some industries are exempt, so check your classification with WSIB.
Employer Health Tax (EHT): Ontario charges a payroll tax on Ontario remuneration, but eligible private-sector employers (generally those with total Ontario payroll of $5 million or less) are exempt on the first $1 million of annual payroll. Associated companies share one exemption. In practice, most small businesses owe no EHT until payroll passes $1 million. See Ontario's EHT page.
New-hire paperwork (the TD1 forms, the SIN, the ESA information poster, and any written employment information you owe before day one) is covered step by step in our employee onboarding checklist.
New Rules Once You Reach 25 Employees
A handful of Ontario employment laws switch on at 25 employees. Count individual people (part-time included), not full-time equivalents.
Job postings (since January 1, 2026): employers with 25 or more employees must include the expected pay or a pay range in publicly advertised postings (a range can span no more than $50,000, and roles paying over $200,000 are exempt). Postings must also say whether AI is used to screen or select applicants and whether the vacancy actually exists, and cannot require Canadian work experience. Anyone you interview must hear back within 45 days on whether a decision has been made, and you keep copies of postings for 3 years.
Disconnecting from work policy: if you have 25 or more employees on January 1, you need a written policy on disconnecting from work in place by March 1 of that year.
Electronic monitoring policy: same January 1 count, same March 1 deadline, for a written policy on whether and how you monitor employees electronically (email, devices, GPS, building access).
Non-Compete Agreements Are Banned (Mostly)
Since October 25, 2021, Ontario employers cannot enter into non-compete agreements with employees. There are two exceptions: the sale of a business, where the seller becomes an employee of the buyer, and certain executives. Non-solicitation clauses and confidentiality agreements are still allowed, and they are usually what a small business actually needs.
An Ontario Employer Checklist
Pull it together and the list is shorter than the law suggests:
Classify the worker correctly (employee or contractor) before the first day.
Open a CRA payroll account and register with WSIB if you are in a covered industry.
Put a written employment contract in place, ideally drafted by an employment lawyer.
Pay at least minimum wage on a regular payday, with a wage statement each time.
Track hours, overtime, vacation, and leave, and keep the records for 6 years.
Diary the annual dates: October 1 for minimum wage, January 1 for the 25-employee count, March 1 for the policies, and the last day of February for T4 slips.
Calculate notice before you end anyone's job, and pay what is owed within 7 days or by the next payday.
None of it is hard once it is written down. The businesses that get into trouble are rarely the ones breaking the rules on purpose; they are the ones running payroll out of a spreadsheet nobody has opened since the last hire.
Keep Your Books Ready for Your First Hire
Employment law tells you what you owe your team. Your books tell you whether you can afford it, and they are what your accountant needs at year-end when the T4s, remittances, and payroll costs all have to tie out.
ReInvestWealth is AI bookkeeping built by CPAs. Connect your bank, and the AI Bookkeeper categorizes every transaction, including wages and CRA remittances, while the Smart Shoebox (your receipt inbox) matches receipts as they arrive. Invite your accountant to see the same clean books, and check your financial reports any time to see what your growing team really costs. (We do not run payroll itself; pair us with the payroll provider you prefer, and we keep the books it feeds into.)
Connect your bank and let the AI handle the categorizing. CPA-level clean books, 30 days free. Start free for 30 days.
Frequently Asked Questions
How many sick days do employees get in Ontario?
Under the ESA, employees get up to 3 unpaid, job-protected sick days per calendar year once they have worked for the employer for at least 2 consecutive weeks. Employers cannot require a doctor's note for these days, but they can ask for evidence that is reasonable in the circumstances.
Do I have to pay severance when I let an employee go in Ontario?
Only if the employee has 5 or more years of service and your business has a global payroll of at least $2.5 million, or you sever 50 or more employees in 6 months because of a permanent closure. Most small businesses owe ESA termination notice or termination pay instead, which applies after 3 months of employment.
When does overtime start in Ontario?
Overtime starts after 44 hours worked in a work week, and each additional hour is paid at 1.5 times the employee's regular rate. Overtime is calculated weekly, not daily, under the ESA.
Are non-compete agreements legal in Ontario?
Since October 25, 2021, Ontario employers cannot enter into non-compete agreements with employees, except in the sale of a business where the seller becomes an employee of the buyer, and for certain executives. Non-solicitation and confidentiality clauses are still permitted.
Does the Employment Standards Act apply to independent contractors?
No. The ESA protects employees, not genuine independent contractors. Whether someone is an employee depends on the actual working relationship, not the title in the contract, and the ESA prohibits treating an employee as if they were not one.
What changed in Ontario employment law in 2026?
The general minimum wage rose to $17.95 an hour on October 1, 2026. Since January 1, 2026, employers with 25 or more employees must include pay ranges, AI-use disclosure, and vacancy status in public job postings, and must tell interviewed applicants within 45 days whether a hiring decision has been made.
A note from our CPAs: This guide is educational and covers the general employment rules for Ontario small business owners. Employment situations vary, so for advice on your specific circumstances, talk to your accountant, and to an employment lawyer before you end anyone's job. (If your accountant uses ReInvestWealth, they'll already have clean books to work from.)
Written by Maryam Ajorloo, CPA
Maryam Ajorloo is the co-founder of ReInvestWealth and a CPA who specializes in small business tax, sales tax, and everyday bookkeeping. She helps entrepreneurs keep clean, audit-ready books and make sense of write-offs, filing deadlines, and the numbers behind their business. Read more · Connect on LinkedIn
Reviewed by Behdad Karimi Dermeni, CPA
Co-founder of ReInvestWealth and a founding community builder at Stripe. Behdad built ReInvestWealth to give smart, busy entrepreneurs CPA-level accounting without the CPA-level price tag. Read more · Connect on LinkedIn
