New Legislation Dealing with Gratuities: The Tip Act
Topic: Family Law February 24, 2016 by LMR Website Team
As a server, what can your employer deduct from your tips? As an employer, can you pool tips and what, if anything, can you deduct from tips?
A new Ontario statute addresses these issues, the Protecting Employees’ Tips Act, 2015 (the “Tip Act”) will be coming into force on June 10th, 2016.
The Tip Act amends Ontario’s Employment Standards Act and protects tips or other gratuities received by employees.
Tip or gratuity is defined as follows:
- a payment voluntarily made to or left for an employee by a customer of the employee’s employer in such circumstances that a reasonable person would be likely to infer that the customer intended or assumed that the payment would be kept by the employee or shared by the employee with other employees,
- a payment voluntarily made to an employer by a customer in such circumstances that a reasonable person would be likely to infer that the customer intended or assumed that the payment would be redistributed to an employee or employees,
- a payment of a service charge or similar charge imposed by an employer on a customer in such circumstances that a reasonable person would be likely to infer that the customer intended or assumed that the payment would be redistributed to an employee or employees, and such other payments as may be prescribed.
The Tip Act also sets out what is not included in the definition of tips and gratuities:
- such payments as may be prescribed; and
- such charges as may be prescribed relating to the method of payment used, or a prescribed portion of those charges.
By excluding charges that may be prescribed as a result of the method of payment used, the legislature has carved out a – to be determined – amount of deduction from tips and gratuities. What this likely means is that employers will be able to deduct from tips and gratuities credit card fees charged where tips are paid by credit cards. What that charge will be is presently unknown. This information will be available when the government regulations under the Tip Act are published. It would seem only fair however, to assume that only a portion of credit card service charges may be deducted. In other words employees should not be paying the full credit card service charge through a deduction to their tips.
Employers will be prohibited under the Tip Act from withholding tips or other gratuities from an employee, making a deduction from employee’s tips or gratuities or causing an employee to return or give his or her tips to the employer unless authorized to do so under the Tip Act. For example, an employer, under the new legislation, may not withhold tips or gratuities from a server because the server broke dishes.
The issue of oversight may still be a problem under the Tip Act. A draft of the Tip Act included a provision that when tipping out occurred an employee representative was to be present, this provision did not make it into the final version of the Tip Act.
Pooling of tips is also regulated. Employers can pool tips among employees, but can only share in the tips themselves in certain defined situations, e.g. where the employer is a sole proprietor, partner, director, or shareholder and regularly performs to a substantial degree the work performed by some or all of the employees who share in the redistribution or the employees of other employers in the same industry who commonly receive or share tips or other gratuities.
Determining “regularly performs to a substantial degree” will likely become a frequent analysis performed by the Ministry of Labour. The Ministry has enforcement powers under the complaint process presently existing in the Employment Standards Act.
The Tip Act permits an employee to make a complaint under the Employment Standards Act. Any amount improperly withheld, deducted, returned or given to the employer is deemed to be a debt owing to the employee and is enforceable as if it were wages owing to the employee.
Interestingly, there has been no attempt to limit or restrict the definition of an employee in the Tip Act, so it is possible for an employer to pool tips with a non-service employee.
For employees who are governed by a collective bargaining agreement in force on June 10th, 2016 which addresses the treatment of tips or gratuities, the provisions of the collective agreement will apply if there is any conflict between the Tip Act and the collective agreement. Collective agreements entered into or renewed after June 10th, 2016 will be required to comply with the Tip Act.
As noted above, the provisions of the Tip Act come into effect on June 10th, 2016. Given the wide variety of tipping practices that employers have, employers in the service industry should watch carefully for the regulations and review their practices in advance of June 10th, 2016.
Employees should inform their employer of the Tip Act, and work with their employer to make sure that there is compliance.
The lawyers in LMR’s Employment and Labour Law group are able to assist employers and employees in this transition.
Update
In an earlier blog post I wrote about the Tip Act.
I noted in my post that the government had excluded from the definition of tip charges amounts relating to processing fees. At the time that the Tip Act was passed, the exact amount of the processing fee was not yet prescribed. The processing fee exclusion has now been published in O. Reg. 125/16 Tips and Other Gratuities (the “Processing Regulation”).
The Processing Regulation provides that the definition of “tip or other gratuity”, for the purpose of or the purposes of subsection 14.1 (2) of the Employment Standards Act, 2000 , does not include the portion of a service charge or similar charge imposed by a credit card company on an employer for processing a credit card payment made to the employer by a customer.
The portion of a service charge or similar charge is determined by multiplying the total amount of the tip or other gratuity by the greater of:
(i) the per cent charged by the credit card company for processing the payment; and
(ii) 1.5 per cent.
Employers now have concrete allowable processing fees to begin to work with as they ensure compliance with the Tip Act. A reminder that the Tip Act comes into force on June 10th, 2016.
The lawyers in LMR’s Employment and Labour Group can provide assistance to employer’s in ensuring compliance.
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