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Response from the Ministry of Labour

We asked Ontario’s Ministry of Labour about the “tip out” practices we documented at various popular restaurant chains. Here is what they had to say:

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.).

It’s important to note that tip pool money (including tip outs) can only come from an employee’s tips or other gratuities, not from any other source.

Deductions from tips and other gratuities to cover things like spillage, breakage, losses or damage, etc. are not allowed. However, employers can keep a portion of credit card processing fees from tips and gratuities that are paid on credit card. Employers are able to deduct the greater of:

· The percent charged by the company for processing the payment; or

· 1.5 percent.

Employers are generally not allowed to take employees’ tips, make deductions from employees’ tips, or make employees return or give their tips to employers. An employer can share in a tip pool only if 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.

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.

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

It is important to note that changes to the ESA as a result of the Fair Workplaces, Better Jobs Act, 2017, have not impacted these rules. Information on these rules can be found by visiting Ontario.ca/tipsandgratuities.

The government is dedicated to ensuring Ontario workers are protected. The Ministry of Labour is committed to making sure every worker knows their rights under the ESA, and Employment Standards Officers investigate all complaints.

Employee who believe that their employer has not followed the ESA can file a claim with the Ministry of Labour using the claim form on the ministry’s website at Ontario.ca/ ESAforms. Please be aware that there are time limits to filing. For more information, please visit the ministry’s website or call the Employment Standards Information Centre toll-free at 1-800-531-5551.

After seeking further clarification on the subject, the Ministry of Labour provided the responses below:

1.   What IS the Ministry of Labour's response to restaurants taking more money from servers to give to other staff in lieu of giving staff a wage raise to mirror the minimum wage raise?

The Ministry of Labour is dedicated to ensuring that Ontario workers are protected. It is disappointing to hear that some employers may be taking steps that are contrary to the intent of the legislation.

While the increase to minimum wage would not result in an increase to wages for employees who make more than minimum wage, we encourage organizations to work together to share best practices. 

The Ministry understands there are anxieties and we wish to see employment terms and conditions continue to improve as employers transition to the higher minimum wage.

2.   Does the Ministry have plans to change the guidelines for how much employers are able to make servers tip out?

Before June 10, 2016, the Employment Standards Act (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 their 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 their tips and other gratuities except as permitted by the ESA.   Employers are permitted to participate in a tip pool in certain limited scenarios (e.g., if they regularly perform to a substantial degree the same work as some or all of the employees who share in the redistribution; or if they are a sole proprietor, partner, director or shareholder in the business).

We believe the steps the government has taken to ensure clear and fair rules for tips serves to enhance Ontario’s already renowned food service industry for both employees and employers alike.

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A tip pool is a collection of employees’ tips that is redistributed by the employer among some or all employees. Tip outs are payments from one employee to another employee, generally by way of contributions to a tip pool and usually according to a formula established by the employer.  Examples would be an employer requiring a server to "tip out" a busser or kitchen staff, 1% of tips the server received or requiring a server to contribute the equivalent of 2% of sales to a tip pool.  That money is then distributed among several staff members.

A further example: In a tip pooling scenario, an employer has three servers and their tip pool arrangement requires servers to contribute 5% of their sales into a tip pool to be distributed among bussers, bartenders and hostesses. Server 1 has $1,000 dollars in sales during their shift and makes $150 dollar in tips, their contribution to the tip pool (tip out) would be $50. Server 2 has $100 in sales on their shift and makes $20 in tips. Server 2’s contribution to the tip pool (tip out) would be $5. Server 3 has $500 in sales during their shift, but receives $0 in tips. Server 3’s contribution to the tip pool (tip out) would be $0 because tip pooling amounts cannot come from any source other than tips. In this scenario, the tip pool amount that can be distributed among the bussers and hostesses would be $55.

Employers can decide if there will be a tip pool in the workplace, including who will participate in a tip pool, how it will be distributed as well as how and when the arrangement will change.

As mentioned previously, tip pool money (including tip outs) can only come from an employee’s tips or other gratuities, not from any other source.

As indicated above, employers could have an arrangement or policy where a percentage of sales may inform what percentage of tips (as part of the tip pool or tip out) is shared amongst employees.