Restaurant payroll: tips, split shifts, stat pay, and constant turnover

Controlled vs direct tips: the CPP and EI fork

CRA splits gratuities by who controls them, and the split decides everything downstream. Controlled tips pass through the employer's hands on the employer's terms — a mandatory service charge on a banquet, an automatic gratuity added to large parties, a house tip pool you collect and redistribute through the pay run. They are wages: pensionable, insurable, taxed at source, and reported on the T4. Direct tips never come under your control — cash left on the table, card tips paid out in full under a distribution the servers themselves run. They carry no CPP or EI, stay off the T4, and each employee reports them as income on their own return.

Design your tip-out deliberately: the moment management sets the formula and moves the money, you have converted direct tips into controlled ones and bought a payroll obligation. Neither answer is wrong — but drifting between them mid-year is.

Ontario's tip rules sit on top of CRA's

The ESA protects the tips themselves. An employer cannot withhold or deduct from gratuities except under a statute, a court order, or a tip pool — and owners may only share in a pool if they regularly perform, to a substantial degree, the same work as the staff in it. A manager who runs the floor from the office does not qualify. Deductions from wages are their own minefield: uniform costs, breakage, and dine-and-dash losses mostly cannot come out of pay, and anything that can needs specific written authorization. Two more Ontario facts shape the pay run: tips are not "wages" under the ESA, so vacation pay and public-holiday pay are calculated on wages excluding gratuities; and the lower liquor-server minimum wage is gone — since 2022 servers earn the general minimum like everyone else.

Scheduling: split shifts, the three-hour rule, and stats

Hospitality scheduling is legal in shapes other industries never use, but each shape has a price. Split doubles are fine; the employee still needs 11 consecutive hours free in the day. A closer cut loose early after a dead service triggers the three-hour rule — anyone who regularly works more than three hours and gets sent home short is paid for three. On public holidays, a restaurant that opens can agree in writing with staff to work it, paying either premium pay plus public-holiday pay, or regular wages plus a substitute day off. The holiday pay itself is mechanical: regular wages in the four work weeks before the holiday week, divided by twenty — commissions from banquet staff count, direct tips never do.

Turnover is the operating condition

Kitchens and floors churn, so the machinery must be fast by design. ROEs go through ROE Web within five days of an interruption of earnings — miss it repeatedly and Service Canada notices. Vacation pay at 4% paid on every cheque, with written agreement, suits hospitality better than accrual most of the time. Onboarding should be digital: TD1s collected before the first shift, direct deposit from day one, and scheduling data flowing from 7shifts or your POS into Wagepoint so hours never get rekeyed. WSIB covers restaurant work, so register when you hire, and the Employer Health Tax only starts once Ontario payroll clears the $1 million exemption. Where controlled tips are shared with the kitchen, run the allocation through the same pay run every period — ad-hoc envelopes are how CPP shortfalls and ESA complaints begin.

The owner's cut, and the franchise edge

Your own compensation from the operating company follows the modelling logic every owner faces — deductible salary with RRSP and CPP against flexible dividends — with one hospitality-specific note: lenders and franchisors read your statements, and owner pay that swings wildly makes covenant conversations harder. Keep it boring. If you operate a US franchise brand, the royalty and ad-fund payments heading south raise withholding questions that payroll never touches; they live in our cross-border guide for restaurant owners, alongside US expansion planning. Daily POS-to-books flow feeds all of it — see our restaurant bookkeeping for that side.

Source: Ontario — Employment Standards Act guide, tips and other gratuities.