Hotel nixes plan to skim employee tips

Employer backs down after media coverage but practice legal in some jurisdictions
By Amanda Silliker
|Canadian HR Reporter|Last Updated: 08/14/2012

In June, the Rosseau Muskoka hotel in Minett, Ont., came under fire after it sent a letter to spa staff announcing it was charging customers a higher 20 per cent gratuity fee on manicures, body wraps and other treatments — but only one-half of the tips would go to the employees performing the services.

The remainder would be given to the spa’s administrative associates (1.25 per cent) and the hotel (8.75 per cent), according to a June 27 article in the Toronto Star.

“Should continuing your employment with the Rosseau… under this new policy not be acceptable to you, your employment will terminate at the end of the four-week period as outlined in this letter,” hotel general manager Tony Tamburro wrote to spa staff.

After public and media backlash, Tamburro released a statement saying: “We believe it to be prudent to reverse this decision and to maintain the gratuity structure as it is.”

While the hotel ultimately decided against taking a portion of employees’ tips, the practice is quite common, said Michael Prue, an NDP MPP from Toronto. In June, he introduced a private member’s bill in the Ontario legislature — Bill 107: Protecting Employees’ Tips Act — which has received first reading and is up for second reading in the fall. It was originally introduced in 2010 but died ahead of the last election.

The bill calls for an amendment to the Employment Standards Act to simply include the line “An employer shall not take any portion of an employee’s tips or other gratuities.”

“The law is clear no employer may take a portion of an employee’s wages as a condition of them working in a place, but the law is silent on tips and what this has allowed is — largely in restaurants but not exclusively — for employers to demand a portion of tips for people to continue working there,” said Prue.

Prince Edward Island, New Brunswick, Nova Scotia and Quebec all have comprehensive legislation around this issue.

The bill affects all workers who receive tips including servers, bartenders, hotel workers, hairdressers, valet parking attendants and taxi drivers, said Prue.

The most common practice is for an employee to be required to pay an owner five per cent of gross sales, he said.

“If somebody comes in and has a $100 meal, then the employer expects the employee will give them $5 for the privilege of having served the meal,” he said. “And the sad part is if somebody doesn’t leave a tip, the person who served the meal pays the employer $5 for the privilege of having worked.”

Since the minimum wage for servers and bartenders is $8.90 per hour in Ontario — compared to the standard minimum wage of $10.25 per hour — very few people could afford to do the job if it wasn’t for the tips, said Christine Sismondo, vice-president of the Ontario chapter of the Canadian Professional Bartenders Association in Toronto.

“If you were working 40 hours a week, after tax, it’s something along the lines of $325. So that’s $1,300 a month and if you live where I live, you know you can’t do that. So you have to imagine they’re earning a substantial amount extra (from tips),” she said.

There are many different variations of tipping-out across the bar and restaurant industry, said Sismondo.

“It became really clear to me, about three or four years ago, that it was almost epidemic in the high-end bar industry that (owners or management) were taking minimally one per cent but often as high as three or four,” she said.

But the practice is “not that common,” said Stephanie Jones, Ontario vice-president of the Canadian Restaurant and Foodservices Association (CRFA), who isn’t in favour of Prue’s bill.

“We have 400,000 employees in Ontario and we don’t want to see a knee-jerk reaction in any kind of legislative way to a few cases,” she said. “We don’t want to see administrative burden added to Ontario’s largest employer of use, already grappling with the lowest profit margins in the country.”

The CRFA encourages members to refer to the guidelines set out by the Canada Revenue Agency (CRA) before they handle employees’ tips, said Jones.

“As soon as an employer takes possession of a tip from an employee, then it is considered income so the employee needs to pay tax on it and the employer needs to pay all the applicable payroll taxes.”

There are a variety of reasons why some owners are taking a portion of employees’ tips. At one restaurant in Toronto, employees are required to give 7.5 per cent of gross sales — which is one-half of the tip most employees receive — for restaurant renovations, said Prue.

At another Toronto restaurant, the owner takes 1.5 per cent from employees to fund media appearances to promote the business and a book the owner has for sale, said Sismondo.

In some cases, the owners are taking a percentage from employees because they are trying to make ends meet, said Mike von Massow, assistant professor of hospitality at the University of Guelph in Ontario.

“If you look back at sort of the last 10 years, minimum wages have come up considerably, food prices have come up considerably, we’ve had some tougher economic times and restaurants have been squeezed,” he said.

Some employers take a cut of workers’ tips to pay for credit card transaction fees — usually about two per cent of the cost of the meal, said Prue.

A need for flexibility

One of the concerns with the Protecting Employees’ Tips Act is it may prevent restaurants from enacting their own tip-pooling procedures — where tips are gathered and split amongst those involved in the dining experience, such as servers, bartenders, busboys, hosts and line cooks, said Jones.

“We need to ensure that any kind of regulation around this allows for flexibility — we do not want to reduce the opportunity to share amongst teams… and to recognize team effort,” she said.

Aside from ensuring an owner is not receiving a cut, general tip-sharing practices will not be covered by the bill, said Prue.

Another concern is the bill doesn’t address what would happen if an owner also works at the restaurant either on a regular basis or from time to time, said Jones.

“What happens when the owner is the server and is the bartender and is the chef? That owner who is wearing all those different hats, greeting customers on a daily basis… they should really be part of being eligible to be recognized as part of the team,” she said.

An owner who is working as part of the staff would be entitled to a portion of the tips, said Prue. While the bill doesn’t currently address this issue, Prue has met with the minister of labour and her staff and they are preparing some amendments and clarification to the bill.

“I understand some of the small ma and pa shops where the owner/manager may have to come in and do the shift — the bartender phones in sick, then they’re on duty and if they’re on duty, they’re entitled,” said Prue. “The bill is intended for that. It’s not intended for somebody sitting in the backroom to skim it off for having done nothing but own the place.”

Deducting wages

Illegal deductions in Ontario

An employer in Ontario is not allowed to deduct from the wages of employees — even with signed authorization from the employee — if there is:

• a loss due to faulty work — for example, a mistake in a credit card transaction, work that is spoiled or rejected, or damage to a company’s tools or vehicles (which would include dishes).

• a cash shortage, lost or stolen property if a person other than the employee had control over or access to the cash or property — for example, if customers leave without paying the bill (commonly referred to as “dine and dash”).

Source: Ontario Ministry of Labour

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