To Tip or not to Tip-Slip Money to the Waiter “to Insure Promptitude

What was that; some of you were saying, about minimum wage, and or below minimum wage; in the 'service/hospitality industries???

SERVICE INDUSTRY 101: A BRIEF HISTORY OF TIPPING

Though tipping the waiter/waitress may feel, to you, like something that’s always been part of the dining experience in the United States of North Central America and even in Canada; the fact is, the act of tipping is a borrowed/stolen custom-- from Europe.

According to Michael Lynn, a professor at the Cornell University School of Hotel Administration, tipping in the United States of North Central America began just after their Civil War (late 1800’s). Lynn suggests that many wealthy Self Identifying “Americans” traveling abroad to Europe witnessed tipping and brought the “Aristocratic” custom back with them as just another way to “show off,” or prove their elevated education and class.

Tipping—which may have originated in the taverns of 17th Century England, where drinkers would slip money to the waiter “to insure promptitude”[In Europe, servers in taverns and dining halls often received no salary from the establishment/service provider; quite the opposite; they had to pay the management for the “privilege” of being allowed to serve in the establishment—NO LABOUR COST, which is usually at least 40% to the establishment-- or T.I.P for short—definitely, was not embraced by all Americans; North, Central or South, when the custom began to make its way into those nations. Most notably in Canada, a strong movement against tipping began in the late 1890’s as many Americans believed that tipping was the “vilest of imported vices” went against all sense of justice or morality; and allowed a clear servile class that would be financially dependent on a higher class.

A Servile Attitude, For a Fee???

According to an article that appeared in The New York Times in 1897, there was a movement brewing against tipping anywhere in the America. The anti-tipping group believed that tipping was the “vilest of imported vices” because it created an aristocratic class in a country that fought hard to eliminate a class-driven society. In 1915 six state legislators from Wisconsin, Illinois, Iowa, Nebraska, Tennessee and South Carolina attempted and failed to pass an anti-tipping bill that would make leaving gratuities unlawful.

In 1916, William Scott wrote a stinging diatribe against tipping in his book, “The Itching Palm,” in which he stood up against the policy of paying for a service twice (once for the employer and once for the employee). He decried tips to be “democracy’s mortal foe” and creates “a servile attitude for a fee.”

In the American democracy to be servile is incompatible with citizenship. Every tip given in the United States is a blow at our experiment in democracy. The custom announces to the world…that we do not believe practically that “all men are created equal.” Unless a waiter can be a gentleman, democracy is a failure. If any form of service is menial, democracy is a failure. Those Americans who dislike self-respect in servants are undesirable citizens; they belong in an aristocracy.

Scott continues, “If tipping is un-American, some day, some how, it will be uprooted like African slavery”.

While diners and servers alike haven’t stopped grumbling about the tip system, there hasn’t been a serious legislative effort to end the practice since. What do you think?

In Canada, it seems to be customary to tip approximately 15% of the total bill before tax although this is not required. However if you receive exceptional service, some people show their gratitude by tipping more. Restaurants may include a mandatory tip with your bill (usually 18%) once the size of your group reaches around 6 or more people. So make sure you ask about this practice if you are making a reservation for a large party. Those who earn tips on a general basis, such as restaurant servers, generally earn around the minimum wage. In fact liquor servers tend to earn even less than servers who only serve food.

What Happens to Your Tip?

There are no laws around tipping or how tips are divided up by a business’ staff members. It is my understanding that some restaurants pool all tips together, give a portion to the support staff such as the cooks, buser or dishwashers, and then divide the remainder amongst the wait staff. Other restaurants allow a server to keep all of the tips they earn and pay a portion of that amount to the support staff. If you’re curious about where your tip is going, ask your server about how the restaurant’s tipping system works.

Of course it’s ultimately up to you to decide what you want to leave as a tip. Here’s our question to you: Do you always leave a tip no matter how satisfied you are with the services you received?

CBC News Posted: Apr 02, 2012: A restaurant server has filed a complaint with B.C.'s Employment Standards Branch against a high profile Vancouver restaurant group because management required her to hand over her tips at the end of shifts.

"The last night I worked I made $320 in cash tips, and I walked out of the restaurant with not a penny in my pocket," says Charlotte Zesati.

"The manager wouldn't let me go until I put

[some cash from tips] in the envelope … faced this camera in the office and put it in the safe."

Zesati says that happened after she'd already cashed out and split some of her tips with the bartender and busser. She had given each of them cash equal to one per cent of her sales.

She says she was told the money she had to put in the safe would go to "the house."

"I asked [the manager] who was getting this ... I was pushed aside, told, this is how much you have to pay."

Zesati is a single mother who recently moved to Vancouver from California. She worked briefly at Black + Blue, a high-end steakhouse owned by the Glowbal Group, which runs seven prominent Vancouver restaurants, with the others being Glowbal Grill, Sanafir, Coast, Italian Kitchen, Trattoria and Society.

Records show a manager later gave her $124 back — for her $320 night — which is less than half of what customers tipped her.

Many Canadians in the hospitality or service industry, and those with control over the ubiquitous tip jar, will want to know how the law treats tips and gratuities.  In particular, do tips added to the bill or extra cash left behind belong to the employer or to the employee?  Is an employee required by law to report tips to the employer?

In theory, there are arguments on both sides of the “who’s tips?” question.  On one hand, customers have a legal and contractual relationship with the business entity only, and employees are mere agents performing services and receiving payments for the employer.  Under the control principle, the business hires, trains and accepts risks for the employee.  Customers only have a legal obligation to pay the employer.  Tips may be considered as rewards to the business.  If employees please customers, why should the employer not reap the benefits, including gratuities, for successful business service?

On the other hand, we know that customers are often personal in their tipping.  They prefer tips to go to the employee.  Tips might be individual employee “gifts,” since they are given voluntarily by customers to the front line service staff.  Since customers are not required to leave tips and they determine amounts, employers are distanced from this gratuity.

There is little legislation or common law to clarify ownership.  Tips and gratuities “intended for an employee” in Prince Edward Island are the property of the employee.  If they are taken by the employer, they must be returned within 60 days.  Likewise, Quebec law states: “Any gratuity or tip paid directly or indirectly by a patron to an employee who provided the service belongs to the employee of right and must not be mingled with the wages that are otherwise due to the employee.”

Specific Intention Expressed by Tipper

Ideally, one would obtain the intention of each tipper at the time they tip, but that is not feasible.  The intention of the tipper, if manifested, will always be paramount.  Often tips are left at the point of sale without further communication.  No intention is expressed and the tip seems offered to the business like any other feedback.  If the tipper says to the employee something like “here, take this and buy yourself something nice,” it is a personal gift, even though it was given and received in the context of employment.  Words to the effect that, “you’ve given us great service, so please keep the change” suggest that the tipper was giving the money directly to the tippee, and not to the employer.

Legislation Does Not Count Tips as Wages

Provincial legislation across Canada is clear that customers’ tips cannot count as part of employees’ wages.  Employers must ensure that they pay at least minimum wage to employees.  The Alberta Employment Standards Code is typical (or “tip-ical”?).  It defines wages as “salary, pay … commission or remuneration for work, however calculated, but does not include … tips or other gratuities.”  This falls short of deciding the ownership issue, although it recognizes employee receipt of tips.

Application of Specific Employer Policy

Collective Agreements, employment manuals and contracts may contain gratuities policies binding on employees.  These provisions may stipulate that tips are pooled and distributed according to a formula, on the basis that more than one staffer makes the service complete.  The tip issue may be addressed in the employment contract, oral or written.  In Wiskerke v.Theroux (2001 ABPC 213) a taxi driver was awarded tips as part of his compensation.  His employment contract allowed him to collect tips as compensation.

Canada Revenue Agency (CRA) Treatment

At an administrative level the federal income tax department has a policy on workplace tips: those earned and collected by employees must be reported as income.  However, whether tip income form part of an employee’s pensionable (CPP) and insurable (EI) earnings depends on whether they are considered to have been paid by the employer (controlled tips) or whether they are considered to have been paid by the client (direct tips).

According to a CRA Interpretation Bulletin (CPP-1), controlled tips are considered to have been paid by the employer to the employee.  Examples of controlled tips include a mandatory service charge or a percentage to a client’s bill, distribution through the employer’s tip sharing formula, and tips that an employer collects and later pays out to employees as wages.  Controlled tips are part of the employee’s total remuneration upon which C.P.P. contributions and E.I. premiums are deducted at source.  If the employer handles the tips before redistributing them, they are taxed as employer wages: Lake City Casinos Ltd. v. Canada (2007 FCA 100).

Direct tips are paid directly by the client to the employee without employer control.  They include money left on the table at the end of the meal, a direct payment to a bellhop or porter, and tips pooled and shared among employees themselves.  These direct tips do not attract C.P.P. or E.I. contributions.

Provincial legislation prohibits employers from making payroll deductions unless they are legally authorized or agreed to.  Therefore, an employer must follow the CRA rules with respect to pensionable and insurable earnings and may not be able to deduct the amount of tips from wages unless consented to by the employee.  It cannot bring employees below minimum wage in any event.

It is important to remember this CRA Interpretation Bulletin is only an administrative statement of policy, not a legally-binding document.  While the “controlled” versus “direct” categories are interesting distinctions, this Bulletin only deals with a very minor issue: only whether there must be pensionable and insurable source-deductions on those tips.  It does not deal with the broader question of who is entitled to the tips in the absence of an agreement or policy.

Reasonable Expectations and Trade Custom

The hospitality and food service industries have the most minimum wage earners at 26.5%.  These employers pay minimum wage because they expect tips (In truth, although not government, they expect to be allowed to impose an “invisible tax) to supplement this.  In Riverspot Restaurants Ltd. v. National Automobile [2003 CanLII 62568 (BC L.R.B.)], it was agreed that while tips are not technically “wages,” in the hospitality industry tips are regarded as employees’ regular earnings, not as “gifts” or “additions.”

Likewise, in a Manitoba case, Nychka v. Red Lobster (2008 MBQB 47), tips were viewed as regular income.  When Dawn Nychka was dismissed, she claimed that she expected tips as part of her compensation, and the opportunity to earn tips was lost.  Tips were so “expected,” that both sides could accurately estimate tips based on gross sales each night.  The Court awarded Nychka tips which she could have earned during her employment.

Conclusion

There is no obvious answer to the question of who – employer or employee – can legally collect tips given by customers.  Provincial legislation only says employers cannot count tips as part of their obligation to pay minimum wage.  The Income Tax Act includes tips under the definition of “income” so they must be declared on one’s income tax return.  They are taxed like wages.  The Canada Revenue Agency further distinguishes controlled tips from direct tips in determining whether one pays CPP and EI contributions at source.

This uncertainty has not led to disputes about whether tips are employee income or employer profit.  Workplaces have policies on how tips are to be handled and distributed.  Most employees start with clear understanding about who gets the tips.  Employers know that tips are an employee performance incentive; they take advantage of this by paying lower fixed wages.  This gives rise to an implied understanding, recognized by courts as custom of the hospitality trade that tips contribute to total employment compensation.

It is wise to include this issue in the employment contract.  The contract should specifically outline to whom tips and gratuities belong, and how they will be handled.

Source: Peter Bowal, Professor of Law, University of Calgary

Thomas D. Brierton, Associate Professor, University of the Pacific, Stockton, California