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FAQs: Tips and Other Gratuities

NOTICE: This resource is about new rules around the handling of tips and other gratuities in the workplace that take effect on June 10, 2016.

What are tips and other gratuities?

Under the Employment Standards Act, 2000 (ESA), a “tip or other gratuity” is:

  • a payment voluntarily made or left by a customer to an employee
  • a payment voluntarily made or left 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 amongst employees. Examples of tips and other gratuities include:

  • payment given to an employee by a customer for a service in any form, including cash or other electronic payments such as debit or credit card
  • service charges at banquet halls or other establishments that are meant for employees

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Are “service charges” considered tips and other gratuities?

If service charges are being included on invoices, banquet hall rental agreements, etc., employers should be explicit about who and what that money is intended for (e.g., tips for servers or facilities charges). Otherwise, the whole amount of the service charge may be considered to be tips and other gratuities that were intended for employees.

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Can an employer prohibit tipping in his or her workplace?

Employers can decide if tipping is allowed in their businesses. If tipping is not allowed, the employer should make it clear to his or her customers that tips and other gratuities will not be accepted by employees or the employer.

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When and how does an employer have to pay out tips and other gratuities to his or her employees?

There is no requirement for employers to establish a regular period for paying out tips and other gratuities to their staff. However, it is a good idea for employers to establish and stick to a regular period for paying out tips and other gratuities.

Employers are required to distribute tips and other gratuities to employees in cash, cheque or direct deposit.

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How should tips and other gratuities be tracked?

Employers should:

  • establish a clear policy for the handling of tips (e.g, how tip jars will be divided, when and how tips paid electronically will be paid out to employees)
  • post the policy in the workplace where employees can see it
  • track tips and other gratuities paid by electronic methods and the amount given to employees

Employees should also track the tips they receive, including amounts received from a tip pool and how much they pay into tip pools. A number of downloadable mobile apps are available to help track tips and other gratuities.

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Are employers entitled to a portion of their employees’ tips and other gratuities?

As of June 10, 2016, employers generally cannot withhold, make deductions from, or make employees return their tips and other gratuities to the employer.

Employers are prohibited from withholding or making deductions from his or her employees’ tips and other gratuities for such things as spillage, breakage, losses or damage, etc.

Employers are allowed to keep the tips and other gratuities that they receive themselves.

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What if an employer kept a portion of their employees’ tips and other gratuities before June 10, 2016?

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. Note, however, that other laws not administered by the Ministry of Labour may contain prohibitions or restrictions on this, as may an employee’s employment contract or collective agreement.

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Can an employee agree to let his or her employer take a portion of his or her tips and other gratuities?

An employee’s right to keep tips and other gratuities, except in limited circumstances, is an employment standard. An employee cannot contract out of or waive this 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 to cover spillage, breakage, losses or damage, etc.

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Are there any circumstances in which it’s okay for an employer to withhold, made deductions from or make an employee return his or her tips and other gratuities?

Employers are allowed to withhold, make deductions from, or make an employee return tips and other gratuities if they are:

  • required by law or court order, or
  • administering a tip pool

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What is a tip pool?

A tip pool is a collection of employees’ tips that is redistributed among some or all of the employer’s employees. This includes tip-outs, which are payments from one employee to other employees because it is required by their employer’s policy.

An employer may withhold, make a deduction or require an employee to give them a portion of their tips and other gratuities if the amount that is collected will be redistributed as part of a tip pool.

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Does there have to be a tip pool arrangement in the workplace?

No. Employers can decide if there will be a tip pooling arrangement in the workplace, including who will participate in a tip pool and how it will be distributed (e.g., the amount received by employees, when and how shares will be distributed, and how and when to vary or change the arrangement, etc.).

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How should tip pool arrangements be tracked?

Employers should:

  • establish a clear policy for the tip pool and post it in the workplace where employees can see it
  • track the amounts collected and redistributed as part of a tip pool

There are a number of online tools available to help employers track and calculate tip pools.

Employees should track how much they pay into and the amounts they receive from a tip pool.

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Do employees have to agree to a tip pool before an employer can make a deduction from their tips and gratuities?

No. Employers do not need to get their employees’ written or oral agreement to take a deduction from their tips and other gratuities if the amount will be redistributed among some or all of the employees as part of a tip pool.

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Can employers keep their tips and participate in tip pools?

Yes. Employers are allowed to keep the tips they earn themselves. However, an employer cannot share in a tip pool unless:

  • the employer is a sole proprietor, partner, director or shareholder in the business; and
  • the employer spends most of his or her time performing the same work as:
    • some or all of the employees who share in the redistribution, or
    • employees of other employers in the same industry who commonly receive tips and other gratuities.

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Can managers keep their tips and participate in tip pools?

Managers can keep their tips and can generally participate in a tip pool.

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What happens if an employer violates the prohibition against taking an employee’s tips and other gratuities?

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. The debt will be enforceable under the ESA as if it were wages owing to an employee.

Remember that the prohibition against taking tips and other gratuities does not apply until on or after June 10, 2016.

Employees who believe their employer – or former employer – has not complied with the ESA can file a claim with the Ministry of Labour. The claim must be submitted on a designated form for the ministry to investigate. The claim form is available on the ministry’s website and at select ServiceOntario Centres. Please be aware that there are time limits that apply to the filing of a complaint.

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Do the new rules about the handling of tips and other gratuities apply to service charges for events that were booked and paid for before June 10, 2016?

No. The general prohibition against making deductions from, etc., employees tips and other gratuities does not apply to service charges for events taking place after June 10, 2016, that were booked and paid for (either fully or partially) before June 10, 2016. Claims for tips and other gratuities are valid only if the tip or other gratuity is paid on or after June 10, 2016, for services performed on or after June 10, 2016. This is because prior to June 10, 2016, there was no general prohibition on an employer making deductions, etc., from employees’ tips and other gratuities.

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Can an employee file a claim against another employee for withholding tips and gratuities?

For example, if a server is required to tip out 2% of sales to the bartender but only tips out 1%, or if a hairstylist is required to put in 5% of her tips into the tip pool but only puts in 2%.

No. Employees can only file claims against their employers. If an employee believes another employee is withholding tips and gratuities, they should speak to their employer about it.

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Can an employer take a portion of tips or other gratuities that are paid by credit card? What about debit card?

O. Reg. 125/16 excludes a portion of credit card processing fees from the definition of "tips or other gratuity".

Under the regulation, where tips and gratuities are paid by a customer on a credit card, an employer could deduct or withhold a portion of the credit card processing fee from the tip or gratuity provided to the employee. Employers are able to deduct the greater of a flat rate of 1.5% of the tip or the pro-rated share of the processing fee associated with the tip on the specific credit card transaction.

Employers are not able to deduct a portion of debit card processing fees from tips or other gratuities.

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