Receiving tips from customers is one of the major benefits of working in some industries. Waiters/waitresses, taxi drivers, baristas, and valets all commonly receive tips on top of their basic wages.
It’s key you understand the different types of tips and how to manage them to ensure your staff receive them fairly. Failure to pay your staff correctly could result in a breach of the applicable employment standards legislation.
In this guide, we’ll discuss what tips and gratuities are, when you’re allowed to withhold them, and what the different provincial legislations say regarding tips in Canada.
What Are Tips and Gratuities?
Tips and gratuities are voluntary payments left by customers to your employees. Tips are typically left after an outstanding service has been provided, for example, a server in a restaurant.
However, as an employer, you need to be aware of the rules and guidelines that surround tips and gratuities. As per the Canada Revenue Agency (CRA), tips and gratuities received by employees are classed as income.
What Are the Different Types of Tips and Gratuities?
There are two types of tips that you need to be aware of:
These are tips and gratuities that are managed by the employer before reaching employees. Examples of these are:
- Automatic service charges that are part of the total bill.
- An employer distributing the tips equally to employees. This is known as tip pooling.
- Tips applied to credit or debit cards that are given electronically to employees.
Deductions must be made on controlled tips for Canada Pension Plan, Employment Insurance, and income tax. These deductions must be documented and included on the employee’s T4 form.
Direct tips are paid directly to the employee. Examples of these are:
- A cash tip that is given to the employee directly by the customer.
- Tip pools in which employees handle the distribution.
- Tips are given to credit or debit cards that are returned as cash to your employees.
Is It Illegal to Take Tips from Employees?
It’s illegal to withhold tips and gratuities from your employees throughout Canada. Failure to pay your staff correctly could lead to legal claims.
There are different provincial legislation that outline the laws surrounding tips and gratuities. Make sure you’re aware of the legislation for the area in which you’re based:
Ontario Tips and Gratuities
The tips and gratuities law In Ontario is controlled by the Protecting Employees’ Tips Act, 2015. This act states that employers cannot withhold, make deductions from, or make their employees return any tips they receive.
Employers can only withhold tips if they will be later redistributed in a tip pool.
Alberta Tips and Gratuities
Unlike in Ontario, tips and gratuities in Alberta aren’t classed as wages. This means that they’re not regulated by the Employment Standards Code (ESC).
You should create a policy that works for your business surrounding tips. Be mindful to remember that tips could be an important part of someone’s income and not paying tips, it could have a negative effect on staff retention.
British Columbia Tips and Gratuities
Under the Employment Standards Act, employers in British Columbia are prohibited from withholding tips and gratuities. You can only hold employees’ tips if they’re part of a tip pool.
Employers may not take a share of the tips unless they do similar work to the employees who are receiving them.
Manitoba and Saskatchewan Tips and Gratuities
There is no employment standards legislation in both of these provinces for employee tips, leaving it up to the employer to create their own policy.
It’s recommended that you ensure employees receive their tips where applicable, as this will help with employee morale and retention and reduce staff turnover.
Get Help With Your Tips and Gratuities With BrightHR.
Making sure your employees receive tips to which they are entitled is a legal requirement. You need to ensure your employees get paid correctly, failure to do so could result in a breach of the applicable legislation. This could lead to heavy fines for you to pay.
If you need any assistance with your employee pay, BrightHR has a range of tools that will help simplify offering employee benefits.
Make sure you don’t lose your staff and attract the best on offer. Our payroll navigator will help you to manage your employee pay, creating payroll reports in seconds.