Tips and other gratuities
A “tip or other gratuity” is:
- a payment voluntarily made or left by a customer to an employee
- a payment voluntarily made by a customer to the employer for employees
- a payment of a service or similar charge imposed by the employer
Where a reasonable person would believe that the payment would be kept by an employee or shared among employees.
Whether a payment or service charge is a tip or other gratuity will depend on the circumstances.
Examples of tips and other gratuities include:
- money left on a table for a server
- a tip added to a credit card or debit card payment for an employee
- gratuity or service charges imposed by banquet halls or other establishments
Employers can decide if tipping is allowed in their businesses. If tipping is not accepted, the employer should make it clear to the customers that tips and other gratuities will not be accepted by employees or the employer.
There is no requirement under the Employment Standards Act, 2000 (ESA) for employers to establish a regular period for distributing tips and other gratuities to employees. However, the failure of an employer to distribute tips and other gratuities within a reasonable time frame may constitute the withholding of those tips and other gratuities. Whether a delay in the distribution of tips and other gratuities to employees is reasonable will depend on the circumstances.
Employers should distribute tips and other gratuities to employees in cash, cheque or direct deposit.
Tips and other gratuities are not considered wages for the purposes of the ESA. They are not included when calculating minimum wage, termination pay, severance pay, vacation pay, public holiday pay or the regular rate used for calculating overtime pay.
The right to keep tips and other gratuities
Before June 10, 2016, the ESA did not cover tips and other gratuities. This means that employers were not prohibited from withholding, making deductions from, or making an employee return his or her tips to the employer if the tips were earned and received before June 10, 2016.
As of June 10, 2016, an employer generally cannot withhold, make deductions from, or make an employee return his or her tips and other gratuities except as permitted by the ESA.
An employer is also prohibited from making deductions, etc., from his or her employees’ tips and other gratuities for such things as spillage, breakage, losses or damage.
If an employer is found to have violated the prohibition against taking an employee’s tips and other gratuities, the amount wrongfully kept will be considered a debt owing by the employer to the employee and is enforceable under the ESA as if it were wages owing to an employee.
An employee’s ability under the ESA to keep tips and other gratuities, except in limited circumstances, is an employment standard. An employee cannot contract out of or waive this employment standard, even if the employee agrees to do so in writing or verbally.
For example, an employee cannot agree to:
- give the employer all of his or her tips and other gratuities in exchange for a higher rate of pay
- waive the right to minimum wage in exchange for keeping all or a higher percentage of his or her tips
- give the employer a certain percentage of his or her tips other than for a tip pool (e.g. tipping out to “the house” to cover things like spillage, breakage, losses or damage, etc. is not allowed.)
Deductions from tips and other gratuities
Only three kinds of deductions can be made from an employee’s tips and other gratuities:
1. Statutory deductions
Certain statutes may require an employer to withhold or make deductions from an employee’s tips or other gratuities. The most frequently encountered deductions authorized by statute include income taxes, employment insurance premiums and Canada Pension Plan contributions.
An employer is not permitted to deduct more than the applicable statute allows and cannot make deductions if the money is not remitted to the proper authority (e.g., Canada Revenue Agency).
2. Court orders
A court order may indicate that an employee owes money to the employer or to someone else, and that the employer may make a deduction from the employee’s tips and other gratuities to pay what is owed.
If an employee owes money to someone other than the employer, a court order may direct an employer to make a deduction from an employee’s tips and other gratuities and send the money to the court clerk or other official, to be paid in turn to a third party. The employer is not allowed to make this deduction if the money is not sent to the court clerk or other official specified in the order.
3. Pooling of tips and other gratuities
An employer may withhold, or make a deduction from an employee’s tips or other gratuities, or require an employee to give them to the employer if the amount collected will be redistributed among some, or all, of the employer’s employees. This practice is commonly known as tip pooling. Tip pools includes tip outs, which are payments made from one employee to other employees because it is required by their employer’s policy.
Employers can decide if there will be a tip pooling arrangement in the workplace, including who will participate, and how it will be distributed. For example, the employer can determine:
- How much each employee is entitled to, e.g., whether the amount received is based on number of hours worked or the employee’s position;
- When and how the tip pool shares will be distributed to employees, e.g., weekly or daily, in cash or cheque
- How and when tip pooling arrangements should be changed or varied, e.g., adding or removing employees to and from the tip pool, changing the percentage received by employees, or cancelling the tip pool, etc.
Tip pool arrangements may be written or oral. Under the ESA, employers do not need the employees’ agreement to make deductions from their tips and other gratuities if the amount will be redistributed among some or all of the employer’s employees as part of a tip pool. If an employer has a tip pooling arrangement in its workplace, participating in a tip pool could be a condition of employment.
Managers’ and employers’ participation in tip pooling arrangements
Managers are allowed to keep the tips and gratuities they receive themselves, and generally may participate in tip pooling arrangements if their employers’ policy permits them to do so.
Employers are allowed to keep the tips and other gratuities that they receive themselves.
An employer cannot share in a tip pool unless:
- He or she is a sole proprietor, partner, director or shareholder in the business;
- He or she regularly performs to a substantial degree the same work as:
- some or all of the employees who share in the redistribution,
- employees of other employers in the same industry who commonly receive or share tips and other gratuities.
- some or all of the employees who share in the redistribution,
If a collective agreement that came into force before June 10, 2016, contains a provision that addresses the treatment of tips and other gratuities, the provision of the collective agreement prevails, even if it conflicts with the ESA. If a collective agreement expires but the provision that addresses the treatment of tips and other gratuities remains in effect, it continues to prevail until the collective agreement is renewed or a new agreement is ratified.
Collective agreements that come into effect or are renewed after June 10, 2016, must comply with the tips and other gratuities provisions in the ESA.