Ontario Regulation 125/16 – Tips and other gratuities
This regulation sets out how to determine which portion of service charge or similar charge imposed on an employer by a credit card company can be used to offset the amount of a tip or other gratuity owed to an employee by an employer under the Employment Standards Act, 2000.
Section 1 – Credit card charges
O Reg 125/16 came into force on June 10, 2016. Clause (f) of the definition of “tip or other gratuity” in subsection 1(1) states that “tip or other gratuity” does not include such charges as may be prescribed relating to the method of payment used, or a prescribed portion of those charges. Accordingly, this regulation sets out what is not included for the purposes of clause (f) of the definition.
The regulation excludes some of the credit card processing fees from the definition of “tip or other gratuity”. The amount that is excluded is determined by calculating the greater of: a) the amount of the tip or other gratuity multiplied by the per cent charged by the credit card company for processing the payment, or b) the amount of the tip or other gratuity multiplied by 1.5%.
By virtue of this exclusion, the amount that results from applying the formula in paragraph (1) is not governed by the rules in Part V.1 of the Act that prohibit employers from withholding tips or other gratuities from employees.
As such, where tips or other gratuities are paid by a customer on a credit card, an employer can deduct or withhold the amount that results from applying the formula in paragraph (1) from the amount of the tip or gratuity that was provided by the customer.
- A customer pays for a $100 restaurant bill on a credit card and adds a $10 tip onto the credit card that is intended for the waiter.
- The credit card processing fee is 1.5%.
- Pursuant to this regulation, 15 cents ($10 x 1.5%) of the $10 tip is considered not to be a tip or other gratuity.
- Therefore, the employer is not prohibited under Part V.1 from withholding 15 cents from the $10 tip.
This regulation addresses credit card processing fees only. Employers are not permitted to deduct or withhold from an employee’s tips or other gratuities any amounts representing debit card processing fees or any other type of processing fee.