The confusion around restaurant tip outs

Restaurant work can be a challenge at times—hangry customers, overwhelmed staff and long hours on your feet. But the promise of tip money can make the more unsavoury aspects of service industry work worthwhile.

We leave tips for service workers with the hope that it will end up in their pockets. However, it’s not always that simple. Tip pools can be handled in a multitude of ways—the BC Gratuity Act lays out a typical approach: “an employer requires that servers put 15% of the tips they receive into a pool. At the end of each shift, the pool is shared with other employees who do not receive tips (e.g. hosts, bussers and cooks). The pool is distributed according to a formula agreed on by the employees.”

With this approach, servers will pocket the other 85% of tips earned, making up a significant portion of their wages. Other restaurants might specify tipping out a percentage of sales. But since there’s no clear standard enforced across the industry, each restaurant can take a varying approach—and when the money doesn’t add up, employees are not clear on what they can do. Apparently it’s equally mystifying for the managers, leaving many questioning: when does it constitute stealing? This question is top of mind for Victoria restaurant workers, but there are no clear answers on how to properly execute a tip pool.

How tipping laws work

Sean Marzinzik, an employment lawyer, says that the law can be a bit of a “quagmire—it really depends on a case-by-case basis.”

“The act definitely defines tips,” said Marzinzik. “Employers are not supposed to be taking tips from employees, but they can redistribute them to other employees so long as it is done properly.”

Marzinzik says a best practice for a tipping pool would be to collect a certain amount of gratuities to be redistributed, based on a formula, to other staff. He says that if a formula is established, it should be followed every time.

“If we’re starting to expand that [formula] out and change [it] at someone’s arbitrary discretion, that starts to potentially change the whole equation of things, and the tipping pool might not be carried out under which the intent of the act allows [the pool] to exist in the first place,” said Marzinzik.

Marzinzik points out that tip outs should be pre-established, made clear to all employees and should be a fairly simple formula to dissect “so you can follow the math.”

“Say $1,000 goes in, they should be able to show where that $1,000 goes, relatively simply, to show it’s going toward employees,” according to Marzinzik. Essentially, tip practices should be pre-established, checkable, and consistent, but that is not the case at many local restaurants.

Alternative approaches to tipping create more confusion

When Ashley*—who requested her name be changed for anonymity (her and other sources in this story cited fear of retaliation from employers as a concern, given the small size of Victoria’s restaurant industry)—first began her job at 10 Acres, a popular spot in Victoria, she was confused by the policy outlining that, instead of receiving tips based on the amount given by customers, she would instead get a consistent $20 an hour on top of her hourly wage of $15. She found she was averaging $80 an hour in tips during her shifts and her coworkers could rake in up to $1,200 in one night of work—so where was it all going?

When she began working, her employee contract stated:

“You will be entitled to participate in the 10 Acres employee tip pool in place from time-to-time”—wording that she felt was confusing— “please note that all gratuities received by employees while working on company premises, for the company or during work hours are received for the benefit of all company employees and are subject to allocation and distribution by the administrator appointed under the employee tip pool policy.”

The contract also stated that employees were solely responsible for paying taxes on tips, despite the restaurant preemptively taking those taxes off. Surprised by this, she decided to wait to sign her contract until it could be explained.

But when she asked her managers about the tip pool structure, she received vague and confusing responses. Her emails questioning the system would go unanswered for weeks and would divert her to another person each time. When she asked other front of house (FOH) staff how the tipping worked, nobody could explain it—though, Ashley said, it seemed everyone was as new to the job as she was.

When she got through to the owner, Mike Murphy, he told her this was a standard approach to tipping, though Ashley had never experienced a tip pool like it in her 15 years of hospitality work. Murphy told Capital Daily that at 10 Acres they choose to treat tips as another type of wage, paying EI and CPP taxes on tip paycheques to align with the CRA guidelines for wages. This aligns with the BC Gratuities Act, which clearly states that the only allowable deductions from tips are EI or CPP payments. But at 10 Acres, if there’s a surplus, it isn’t clear to employees where it goes.

Photo: Robyn Bell / Capital Daily

“Our tip pool is split up very very fairly,” said Murphy, explaining that the kitchen gets 5%, so about a third of tips. Bussers receive an additional tip wage of $6.25 on top of their $16.75 minimum wage, new servers get $13.25 an hour in tips, more experienced servers get $18.25 and $23.25 goes to “the best servers.”

“It’s not equally distributed, it depends on performance, what their actual tips were and what their contribution was,” said Murphy. “The extra money goes into the support staff. We’ve been doing this for eight years—it’s definitely allowed for us to do this.”

According to Murphy, managers make the smallest amount of tips, with low-end managers right now making a total of $72,000: $48,000 in normal salary and $24,000 from the tip pool.

“Unless a little old lady actually puts the money in your hand, the money is the house money. It’s not the servers’,” said Murphy.

Gillian MacGregor, an HR specialist with the BC Restaurant and Food Services Association, disagrees with this point. According to MacGregor, tips “are not wages—they’re tips.”

“It’s an entirely different thing,” said MacGregor. “They should also be paid out that night. If someone goes to work and earns $200 in tips, that $200 should be paid out at the end of the work day or no later than the following day.”

Murphy says that with 10 Acres’ approach, everyone gets four cheques a month: two cheques for hourly wages, two for tip wages.

Marzinzik says having a tipping bank that holds employee tips long term is strange—“it’s not the proper purpose of redistributing gratuities to other staff”—though the legality would depend on the specific case.

The Gratuities Act clarifies that employers cannot withhold tips or deduct from a tip pool—this includes tip payments made from credit or debit cards, money that belongs to the workers as much as cash tips.

Murphy explained that 10 Acres’ approach guarantees staff make steady wages even during the slow season, when there are fewer customers to tip—but Ashley says a consistent paycheque is still not promised.

“I just got hired in the slow season, so much so that my hours had been cut,” said Ashley. “I would go in for two or three hours and then they sent me home. I still made an average of $80 an hour in tips and I had small sections in the back corner—I just know there’s a lot of money missing.”

This level of unpredictability is common in the restaurant industry—hours can never be guaranteed and workers may find themselves cut from the floor after two hours of working or told to stay on long past their scheduled shifts. Summer months typically lead to a boom in customers, while colder seasons are quiet. Workers will also find themselves on-call for shifts, where it isn’t clear until about two hours prior whether they’ll make money that day. Therefore the supplemental income of tips is crucial to ensure workers are making a living wage.

Eventually, after back and forth between her and Murphy, he said he would give her $350, which Ashley said felt like she was being “paid off.” When she expressed an interest in continuing work at 10 Acres, she was told that her position was filled.

“So basically, I worked there, I asked what I was signing, nobody could tell me. Two weeks later, I get a bullshit excuse, then he takes my job away,” said Ashley. “I’m all in for everybody getting a portion of the tip pool, but there’s so much money missing.”

She’s not the only employee who felt quickly dismissed after asking Murphy too many questions about tips. When Dan* took a management position at a 10 Acres establishment, he was told his yearly salary would be $60,000. When he received his first pay cheque, he was struck by the fact that part of his wages seemed to be coming from the tip pool. He estimates that about 25% of his salary was coming out of the tips, saying “that’s not tips.”

But when he brought up his concerns about this, he was dismissed from his job with little explanation.

“As soon as someone starts asking questions, they get let go,” said Dan. “Retaliation for bringing this up should be illegal.”

Though Murphy is adamant that this approach offers stability for his employees, Dan says that this tipping structure undermines what tips are for.

“Our whole industry relies on tipping, whether you agree with it or not,” Dan said. “We don’t need to be more hurt right now.”

People eat on the patio of 10 Acres. Photo: Robyn Bell / Capital Daily

Young workers don’t know the rules

Justine* wasn’t experienced with how restaurants worked when she began hosting at the Flying Otter, located on the waterfront near HarbourAir. She remembers handling the tip outs some days and noticing that managers were making a cut of the tip. She assumed this was normal at the time—and it is, so long as the managers were working on the floor for a significant portion of their shift.

According to MacGregor, if an owner or manager serves tables and there’s a tip left—”the owner, since they served that table, they’re entitled to take that tip. But they can’t take everybody’s tips, only those that are designated to them.”

MacGregor also feels that, while it may be legal for managers to take some tips in that scenario, “it’s not a good look.”

“It’s demoralizing for employees to share tips with the guy who owns the place and gets all the profits from it,” said MacGregor. “It will cause employment problems down the line—so don’t do it.”

The BC Gratuities Act is also clear on this point. Employers may only take part in the tip pool if they regularly do the same type of work as other employees, such as an owner who also cooks or serves tables nightly.

Another aspect of the tip-out process at Flying Otter that struck Justine as odd was talk of an alleged dine-and-dash fund. She would overhear servers complaining occasionally about the need to tip out for the fund, but didn’t know what the implications of it were. Dine and dashes are considered a cost of doing business and cannot legally be taken from employees’ tips.

Justine worked at Flying Otter leading up to pandemic closures and a representative of Flying Otter has since confirmed this is not part of the tip out process in 2023.

“[Dine and dash] must be covered by the employer,” said MacGregor. “It’s like theft in a retail store. If someone steals a leather jacket, you don’t expect the people working in the store that day to pay for the jacket. It’s covered by the business’ insurance—the same is true of restaurants.”

“I thought it was really strange, but it was my first job ever so I didn’t really question it,” said Justine.

Justine is not alone in feeling this way—many young people work in the hospitality industry as their first job and often don’t know what labour practices are normal. Many don’t realize the issues until they leave and begin to work elsewhere.

Tipping is mystifying to employees and employers

It could be easy to chalk this up to malice or greed on the side of the employer, but even for those in charge the laws aren’t clear—and there’s no guidebook on what to do. When employers don’t create an easy to follow formula or keep the formula hidden from employees, it becomes even harder to understand for the employees earning these tips.

When Quinn* decided to search for the tip sheet at Dumpling Drop—a small food cart turned restaurant in the downtown core—to see what they would receive for the month, they found that the tip distribution for workers didn’t quite add up to 100%. They said that they found the tip sheet on the main till which showed that some people received a flat rate, but not everyone.

“I had someone else look two days later to see what was going on,” said Quinn. “I was looking at the sheet and said ‘wait, the numbers on this sheet are not at all what we received.’ ”

What they received seemed arbitrary—“someone was missing $20, someone was missing $100, someone was missing $50. It was very inconsistent.”

Quinn and their coworkers decided to wait to say anything. “We were like, maybe it was just that one month and it was a mistake or something we just don’t understand,” they said.

But they began to look over the tip sheet for previous months, comparing them to the e-transfers they received for tips, and found the inconsistencies had been going on for some time. One month they would get less than they were owed, other months they would get more.

They went to their manager at the time—they were worried that looking at the tip sheet would get them in trouble, though the manager said it was fine. However, Quinn was let go soon after.

“I genuinely liked my job and wanted to stay there—I just wanted to not have our money stolen from us,” said Quinn.

Another employee, Faye* said that in the three month period she worked at Dumpling Drop, the tips started to get “a little funky” after the manager who initially handled the payments left, leaving it up to the owner, Tarn Tayanuth.

“We used to get immediate payment on the day and the amount was clear. Then it changed to ‘ok, here are some tips’,” said Faye, saying it wasn’t clear how the amount was tallied.

When she quit the job, she had to follow up repeatedly to get her tips and last paycheque from Tayanuth. After several back and forths, she claims she received a random lump sum from Tayanuth’s personal bank account.

Tayanuth admits that her approach is not perfect—but says there’s no roadmap for independent restaurant owners to navigate this aspect of the business.

She divides tips based on who she believes has worked harder during their shift, which she feels is the most fair approach. She also clarified that while she sometimes works the floor, she won’t take tips for herself—instead she’ll give them to people she thinks deserve the extra cash more.

Photo: Robyn Bell / Capital Daily

“The people who sit and roll dumplings all day, they’re sitting in AC with a TV and a free lunch, snack bar, coffee bar. They expect to get paid the same as people who cook in the hot, hot heat. I don’t think it’s fair and it’s hard to tell them that,” said Tayanuth.

“[When they ask] ‘so why don’t we get tipped the same,’ how do you say it? Because you’re lazy or because you go out for smoke breaks. It’s hard to explain that to kids these days.”

Tayanuth says the issues brought up by Quinn and other employees led her to change the system for accounting. In May, she began sharing the system with an HR firm to ensure more than one person has eyes on it. To avoid accusations of favouritism, the work contract now states that kitchen and food runners get paid double what those rolling dumplings make in tips.

“Now [employees] can see everything,” said Tayanuth. “We write out guidelines to make sure everyone is happy. It’s now clear to employees.”

Figuring out the paperwork and financial systems has been a steep learning curve for Tayanuth, who feels more confident with the food aspect of restaurants having worked in kitchens for close to two decades. She feels there’s no support for small business owners opening their own restaurant.

“I would love to know how to do this [properly],” said Tayanuth. “Is there a better way for me to do this? I’m not saying that what I did was wrong or right, but I just don’t know what’s right or wrong.”

Tayanuth says that she wishes the industry would just get rid of tip pools, as she feels it complicates matters and leads to frustration from employees.

“No one really wants to do tip pools—it’s extra work for us,” said Tayanuth. “But if I don’t do tips, my employees might suffer. You can’t really do the right thing or make everyone happy.”

Fighting back against unfair tipping structures

For those who feel the tipping structure at their job isn’t fair, there are ways to stand up to this.

When Jenn, who asked not to have her last name used, worked at the Beagle Pub in the late ’90s, she couldn’t understand why the kitchen staff seemed to hate the servers. After all, they were tipping out close to $3,000 every other week for them. Then she and her coworkers found out that these workers never saw a dime of the tip pool.

They started questioning where the money was going, but the owners at the time refused to share this information. So one day, a bartender snuck into the management office while the owners were out in search of the tip box that held their cash.

“We found the tip box and inside were all of our tips that we pooled,” said Jenn. “$250 of it had been taken out and said ‘kitchen’ and $2,600 was divided for ‘Honda car payment’, ‘YMCA gym membership’ and ‘cash for cleaning staff at night.’”

Jenn and her team were shocked. They knew they would have to come up with a plan before standing up to the owners—”after all,” Jenn said, “who’s going to admit that they went upstairs and rifled through papers?”

They met with a lawyer to discuss options. The lawyer confirmed that it was their money and they had a right to it, but she knew that bringing it up with the owners was not likely to amount to anything, saying that they had “already proven that they’re not going to be respectful to us just asking.”

So one night, they met with Local 40, a union for hospitality workers at a “super secret offsite meeting at some crazy restaurant.” The union told the Beagle staff that all they needed was 50% of staff to say they wanted to unionize.

“Not only did we say yes, we want to unionize but our wages skyrocketed after,” said Jenn. “They were completely unable to touch our tips and we were responsible for tipping the kitchen out on our own—we no longer gave anything back to the house.”

With it, they became the only known pub in Victoria to unionize at the time. A month after unionizing, Jenn said the owners “disappeared into thin air” and new owners took over.

The Beagle Pub has since changed hands several times and the union eventually decertified in the early 2000s. The lingering lessons of holding employers accountable have remained with those who worked there during unionization. For Jenn, this experience stayed with her as she moved from the restaurant industry to the hotel industry—where she makes sure that managers never touch employees’ tips.

How to take a stance against unlawful tip outs

“I think it’s important for young people to know that while they are expected to be respectful and do their job, they’re also entitled to the money they’ve earned,” said MacGregor, the HR specialist.

MacGregor says that there are steps employees can take to ensure their managers aren’t shortchanging them.

“It’s really important that they have some idea of how much money they’re talking about,” said MacGregor. “If they could carry with them a little notebook in their pocket, if they do receive a tip, write down the amount and the date.”

With that info, if they have any problems with tips, they can file a complaint with the Employment Standards Branch (ESB).

“Within time, with any luck—if the employer is still solvent—they should get their money back,” said MacGregor, though she pointed out that the ESB often has a large backlog to work through.

There may be reason to seek legal recourse as well—Marzinzik says that if an employee asks about the tipping policy at their work and isn’t given all of the information about how they’re distributed “they need to start seeking legal advice or potentially speaking with the Workers Advisor Office free of charge.”

*Names have been changed at the request of sources, all of whom said they feared retaliation from past and future employers in Victoria’s small restaurant industry.