Restaurant tips, gratuities and payroll
Tips your restaurant controls, such as a tip pool you run or a mandatory gratuity paid out to staff, go through payroll with CPP, EI and income tax deducted, and appear on the T4. Tips guests give straight to staff don't, but staff still report them as income. In BC, employers can't keep tips or deduct from them.
Who controls the tips? That decides the payroll.
CRA sorts tips into two kinds. The difference is whether the restaurant collects, holds or decides how tips are shared, or whether guests give them straight to staff.
| Topic | Controlled tips | Direct tips |
|---|---|---|
| What they are | Tips the restaurant collects, holds or shares out by its own rules before staff get them. | Tips guests give straight to staff, where the restaurant is only passing them along, if it handles them at all. |
| Common examples | A mandatory gratuity or service charge on the bill; a tip pool the restaurant runs and divides by a formula it sets; tips paid out on the pay cheque. | Cash left on the table; a pool staff run and divide among themselves. |
| CPP and EI | Deducted through payroll, with the employer's share. | Not deducted through payroll. |
| Income tax | Deducted through payroll, like wages. | Not deducted. Staff report the tips on their own return. |
| On the T4 | Yes, as employment income. | No. |
Card tips can fall on either side, depending on how they reach staff and who decides how they're shared. If staff get both kinds, only the controlled part goes through payroll. We look at how your tips actually move before we set anything up.
Pools and tip-outs, written down
Most restaurants share tips somehow: servers tip out the kitchen and the bar, or everything goes into one pool split by hours or role. Either way, the payroll treatment depends on who runs the pool. If the restaurant collects the tips and decides the split, they're generally controlled tips. If staff collect and divide them among themselves, they're generally direct tips.
In BC, an employer can require tips to be pooled and can decide who shares in the pool and how much. The employer can only take a share if they do similar work to the staff who earned the tips.
A short written tip policy helps everyone: who is in the pool, how it's split, when it's paid and how it shows on the pay stub. It also tells us how to run payroll.
Pool run by the restaurant
Collected and divided by your formula, then paid through payroll with CPP, EI and income tax, and shown on each person's pay stub and T4.
Pool run by staff
Collected and divided by the staff themselves. Generally direct tips, so they stay out of payroll, but staff still report them as income.
What can't come out of tips in BC
Employers can't deduct from tips or a tip pool, including card tips, or charge staff for things like a dine-and-dash fund or breakages.
Mandatory gratuities are not the same as tips
A gratuity added to every large-party bill and a tip a guest chooses to leave look alike on the receipt. Sales tax and payroll treat them differently.
The guest decides
- No GST and no BC PST.
- Kept out of your sales in the books.
- Payroll depends on who controls it: controlled or direct.
Added to the bill
- CRA generally treats it as part of the price, so GST applies.
- No BC PST, even on a bill that is all liquor.
- Paid to staff by the restaurant, so it's a controlled tip for payroll.
It still belongs to staff
- BC employment standards count mandatory gratuities and service charges as gratuities.
- The restaurant can pool them but can't keep them.
- Your point of sale should record them apart from food and drink sales.
Tips on T4 slips, and the records behind them
Controlled tips are employment income, so they're included on each person's T4 slip with the CPP, EI and income tax taken off them through the year. Direct tips aren't on the T4. Staff report those themselves on their income tax return.
The T4 is only as good as the pay records behind it. If the tips on the pay stubs don't match what the point of sale and the bank say was paid out, it shows up at year-end, when it's hardest to fix.
What we keep each pay period
- Card and cash tips from your point-of-sale reports, kept out of sales
- Who got what from the pool or tip-outs, by person
- Controlled tips run through payroll with CPP, EI and income tax
- Remittances to CRA on your schedule
- T4 slips and records of employment that match the pay stubs
Tip rules in BC and Alberta
CRA's payroll rules apply in both provinces. Who keeps the tips is a matter of provincial employment standards, and the two provinces differ.
Employment Standards Act
- Employers can't withhold tips, deduct from them or make staff give them back, unless a law or court order requires it, such as a garnishment.
- Employers can pool tips and decide who shares and how much.
- Employers can only share in a pool if they do similar work to the staff who earned the tips.
- Tips are not wages for vacation pay, so vacation pay is worked out on wages only.
Employment Standards Code
- Alberta's employment standards treat tips differently from wages and don't set out tip-pool rules the way BC does.
- That makes a clear written tip policy, agreed with staff, more important.
- CRA's controlled and direct tip rules apply the same way as in BC.
- Rules can change, so we check the current Alberta position with you before setting up payroll.
This is general information, not legal advice. Read the rules for yourself: BC tips and gratuities (gov.bc.ca), Alberta employment standards (alberta.ca) and CRA tips and gratuities (canada.ca). For a dispute about tips, the provincial employment standards office is the place to ask.
Setting up payroll for a restaurant
Shifts change every week and people come and go. A payroll set up for that from the start is easier to run every pay.
Payroll account and pay schedule
A CRA payroll account before the first pay, then a schedule, such as every two weeks, that suits your sales cycle and your staff.
Hours from the schedule
Hours from your scheduling or point-of-sale system each pay, including split shifts, overtime and anyone working at more than one location.
Vacation pay
In BC, at least 4% of wages, and at least 6% after five years. Alberta has its own rules. Paid out each pay or when vacation is taken, as agreed.
Statutory holidays
Who qualifies for stat holiday pay, and how much, follows provincial rules. Restaurants open on holidays need it set up before the first one comes round.
WorkSafeBC or WCB Alberta
Register for workers' compensation before your first employee starts, report payroll to them as they ask, and pay the premiums.
Tips in the same run
Controlled tips added to each pay, direct tips left out, and the tip policy written down so the same rule is followed every time.
Payroll with tips is part of the full suite
We don't price payroll on its own for restaurants. It comes with the monthly books and GST/HST filing.
Business full suite
Monthly books by location, payroll with tips, GST/HST filing and year-end files.
- Monthly bookkeeping and bank reconciliation
- Payroll, with T4 and T4A slips
- GST/HST filing
- Year-end files prepared
Restaurant CFO
Labour and prime cost against your own target, a forecast of where you're heading, and a monthly planning meeting with a senior manager.
- Monthly analysis of sales, prime cost and profit
- Comparisons with your own targets
- A forecast of where this pace takes you
How pricing works
Pricing is explained on the business membership page. We confirm your price before any work starts.
Restaurant tips and payroll, answered
Do tips go through payroll in Canada?
Controlled tips do. These are tips your restaurant collects, holds or shares out, such as a tip pool you run or a mandatory gratuity paid out to staff. They have CPP, EI and income tax deducted and go on the T4. Direct tips, which guests give straight to staff, generally don't go through payroll.
Can a restaurant keep part of the tips in BC?
No. Under BC's Employment Standards Act, an employer can't withhold tips, deduct from them or make staff hand them over, unless a law or court order requires it. You can pool tips and decide who shares in the pool and how much, but you can only take a share yourself if you do similar work to the staff who earned them.
Is a mandatory gratuity the same as a tip?
Not for sales tax. CRA generally treats a mandatory gratuity or service charge added to the bill as part of the price, so GST applies to it, while a tip the guest chooses to leave has no GST. BC PST doesn't apply to either. In BC, mandatory gratuities still belong to staff under employment standards.
Do staff pay tax on tips they receive directly?
Yes. Direct tips are taxable income, even though no CPP or EI is deducted from them and they aren't on the T4. Staff report them on their own income tax return, so it helps if they keep a simple record of the tips they receive each shift.
Do tips count for vacation pay in BC?
No. BC employment standards say employees aren't entitled to vacation pay on tips. Vacation pay in BC is at least 4% of wages, rising to at least 6% after five years of employment. Alberta has its own vacation pay rules, and we set payroll up for the province you're in.
What does restaurant payroll cost with Finvo?
Payroll, including tips, is part of the business full suite, with bookkeeping and GST/HST filing. Your price depends on how many employees, pay schedules and locations you have. We confirm your price before any work starts. Prices are on the business membership page.
Sources, checked 4 Nov 2026. Rules have exceptions and can change. This page is general information, not legal or tax advice for your situation.
- CRA, Tips and gratuities (CPP and EI explained), canada.ca: controlled and direct tips, CPP and EI, T4 reporting.
- Government of BC, Tips and gratuities (last updated 15 Sep 2026) and Gratuities, Employment Standards Act section 30.3 (interpretation guidelines), gov.bc.ca: employers can't withhold or deduct from tips, tip pools, mandatory gratuities, no vacation pay on tips.
- Government of BC, Annual vacation (last updated 31 Jan 2024), gov.bc.ca: vacation pay of at least 4%, and 6% after five years.
- Government of BC, Food and beverage service providers and retail liquor sellers (published 22 Apr 2026), gov.bc.ca: no PST on mandatory gratuities.
- Government of Alberta, Employment standards, alberta.ca: the Alberta rules on pay, vacation and deductions.
- CRA GST/HST guidance on tips and gratuities, canada.ca: mandatory service charges are subject to GST, voluntary tips are not.
Let's set up tips and payroll the right way
Book a free 15-minute call by video or phone. Tell us how tips work in your restaurant today, how many people you employ and how often you pay them, and we'll explain what we'd do and what it would cost.
Which office?
Book a free 15-minute call15-minute calls every weekday at 10 am and 2 pm Pacific (11 am and 3 pm Mountain), except holidays.
Typical next slots, confirmed when you book:
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