Is “Tip Pooling” or “Tipping Out” Legal?

What does the law say about tipping and gratuities? Is tip pooling or tipping out legal? Can the house legally take a cut of your tips? Servers and other workers rely on tips and gratuities to improve on a low hourly wage. But they may not necessarily take home all the tips customers pass onto them.

THE LAW OF TIPS

In Ontario, the Employment Standards Act (or the “ESA”) defines a tip or gratuity as a voluntary payment by a customer to an employee. This includes a similar charge imposed by the employer (think: automatic gratuities applied to large groups at a restaurant). The ESA puts some limits on what an employer can do with their employees’ tips. For example, employers can’t make deductions from tips or withhold your tips except in accordance with the ESA. In other words, your boss can tax your tips but can’t hold back your tips because of loss or breakage during your shift.

IS TIP POOLING OR TIPPING OUT LEGAL?

“Tip pooling” or “tipping out” is the practice of taking some or all of servers’ tips and redistributing them to other employees at the restaurant. Similar practices exist in other industries where tips are common.

Presently, the only limits the ESA places on tip pooling or tipping out is to require a clear policy. An employer’s policy should address how tips with be divided between employees as well as when and how tips will be paid out. To keep everyone honest, the policy should be posted for employees to review.

IS IT LEGAL TO MAKE YOU TIP OUT THE HOUSE?

Experienced servers have likely encountered a more nefarious practice, too: being required to tip out the house. This means that on top of sharing your tips with co-workers, you’re required to share tips with your employer or boss. Understandably, this rubs most workers the wrong way. After all, your employer already earns profit from their business.

The ESA permits employer participation in the tip pool only if they regularly do the same work as employees in the tip pool. For example, a restaurant owner who spends their time at work serving customers food and beverages can legally participate in the tip pool. A restaurant owner whose work focuses primarily on the business and administrative aspects of running the restaurant isn’t entitled to participate.

WHAT TO DO ABOUT TIP POOLING

Tip pooling or tipping out can help address some of the inequities and unpredictability associated with depending on a night’s tips to pay your bills. It also means that kitchen staff can benefit from tips for their delicious cooking even though they don’t make face-to-face contact with customers. However, it’s not always a popular practice with servers.

Some workers oppose tipping out entirely, while others believe that the ESA should step in to regulate the practice more strictly. After all, most Ontario servers are already excluded from the standard minimum wage. This means that they may be making less that $14 an hour (unlike employees at other businesses- or even kitchen staff at the same restaurant). The government and employers justify this lower minimum wage by pointing to the high level of tips a server can earn, but an unfair tip pooling or tipping out policy can quickly eat away at the benefits of earning gratuities. Anecdotally, most employers don’t write out their policy or post it in the workplace.

Other workers and restaurants oppose tipping itself. Generally, they prefer simply paying servers a higher hourly wage and passing that cost onto the customer as part of the bill. They say by removing customer discretion this makes servers’ incomes more predictable-and more fair. It’s one way to counter the pressures on servers to comply with a sexy dress code or put up with harassing or other abusive behaviour by customers in order to try to get a good tip. While I enjoyed a generous tip when I worked as a server, I favour this option since I think all workers are entitled to a liveable minimum wage. A good wage is predictable based on your hours of work, not one which fluctuates based on how good a mood your customers may be in that night.

Resources

• Ministry of Labour, New Laws for Employees’ Tips
• Ministry of Labour, FAQs: Tips and Other Gratuities