Tips for Employers about Tips

I was noticing on one of our more wintery days an appreciative customer giving the gas attendant a tip. I wondered if the attendant would be able to keep it for himself or if it would have to go into a tip pool? Then I started thinking about whether the employer might get part of the money. With those questions in mind I started looking for rules for employers when it comes to gratuities.

I started with the Canada Revenue Agency (CRA) for taxation guidelines. They refer to two different categories of gratuities or tips: Direct Tips and Controlled Tips. An example of direct tipping would be a cash tip given to a gas bar attendant. An example of a controlled tip would be a gratuity charged at a restaurant that automatically appears on your bill. According to CRA, employers do not have to report direct tipping as part of employee wages and it is the responsibility of the employee to report those earnings to CRA. That means that the employer must pay minimum wage to employees without including the value of those tips. In the case of controlled tips, the employer does have to record the gratuity as part of the employee’s wages and as such those gratuities are eligible as CPP and EI earnings.

But that only covered the matter of taxation. There is still the legal question of who owns the tip money and that I found out is not an easy question to answer? Some provinces, but not all, have legislation that prevents employers from taking portions of the tip money prior to distributing it to the employees. In general, ownership of the tip is determined by who the customer indended to reward. But that still leaves many grey areas for the business to address. Since the rules vary by province it is important to investigate the code in your particular province. In Manitoba check the Employment Standards Code.

To sort out the grey areas, one of the best things business owners can do is create clear policies on what happens to the tip money, ensuring that the policy is compliant with regulations. Employees should understand the policies and know what they are agreeing to when they are hired. Sometimes it is tip sharing; sometimes it is tip pooling; sometimes the tips are for the person they are given to alone. All of the systems have their merits and all involve the need for honesty from both employers and employees. The goal is to have a fair system that motivates workers to provide great service while still encouraging them to get along with their co-workers.

My tip at the end of all of this…know the law, know your business, and know what is going on with your staff. Ensure that gratuities are properly handled so that staff feel properly rewarded.

– Cindy Ruth