On December 7, 2015 Ontario passed an amendment to its Employment Standards Act to protect employees’ tips from being usurped by business managers and owners. The amendment will come into effect six months after it receives Royal Assent.
Most of us think of restaurant servers when we think of tips and gratuities, but employees in salons, spas, nail establishments, hotels, florists, valets and taxi drivers, to name a few, would be included in this category and the laws governing tips will apply to more employers than one might first consider.
In most provinces, tips and gratuities are specifically excluded from the definition of “wages” in employment standards laws and such amounts are not included for other purposes which are determined on the basis of “wages” including vacation pay and holiday pay.
Ontario follows the provinces of Quebec, New Brunswick, Prince Edward Island and Newfoundland and Labrador in legislating the protection of employee tips, but has been criticized in that it stops short of protecting employee tips and gratuities from having credit card charges deducted by employers prior to being paid to employees. Quebec, Newfoundland, and Prince Edward Island all prohibit employers deducting credit card charges from employees’ tips, and British Columbia’s Employment Standards Act prohibits deductions of an employer’s “business costs”, although it contains no other specific protection for tips.
In general, the protections in the provincial employment standards acts recognize that tips (and even surcharges added by an employer in lieu of tips) are meant by the customer to go to the employee and prohibit an employer from requiring an employee to share a portion of tips with the employer, a manager or supervisor. Most provinces with such protections, however, allow tips to be pooled and shared by employees but still provide that employers have no proprietary interest in the shared pool of tips. Ontario provides an exception to this that allows an owner, director or shareholder to share in pooled tips if he or she is performing the same work as those in the pool.
According to Canada Revenue Agency, some employee tips must be included as pensionable and insurable earnings. CRA has published a CPP/EI ruling in this regard, dated March 16, 2012 (which can be accessed on its website here), that explains that “controlled tips” are subject to CPP contributions and EI premiums, whereas “direct tips” are not.
Controlled tips are defined as
- “The employer adds a mandatory service charge to a client’s bill to cover tips;
- The employer adds a percentage to a client’s bill to cover tips;
- Tips allocated to employees using a tip sharing formula determined by the employer;
- Tips that an employer includes in his business income, later expenses and redistributes to employees in the form of pay;
- Tips that the employees are required to turn over to their employer and are later distributed to the employees;
- Cash tips that are deposited in the employer’s bank account and become the property of (or even commingled with the property of) the employer and subsequently paid out to the employees.”
Direct tips are defined as:
- “A client leaves money on the table at the end of the meal and the server keeps the whole amount;
- A client gives a tip directly to a bellhop, door person, car attendant, porter; etc.
- Tips pooled and/or shared among employees in a manner determined by the employees (as opposed to the employer);
- When paying the bill by credit card, a client includes an amount for a tip on the credit card and the employer returns the tip amount in cash to the employee;
- When paying the bill by debit card, a client includes an amount for a tip and the employer returns the tip amount in cash to the employee.”
In the Quebec Taxation Act requires that employers attribute a percentage of “tippable sales” to some employees’ incomes for the year and employees are required to report in writing the tips received in a pay period.
So, it is advisable that employers who have employees who receive tips review their policies on pay principles or tips to ensure that they are in accordance with the legislation in the applicable jurisdiction.
Look for a discussion and sample policy on tips and gratuities in an upcoming Human Resources PolicyPro release.