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Hospitality accounting in Canada trips up most owners on one thing: tips. If the tips pass through your hands, you owe CPP and EI on them. If customers hand them straight to staff, you don’t. The CRA calls these controlled tips and direct tips, and the line between them decides how you run payroll.
Which tips does a restaurant owner have to put through payroll?
A tip is controlled when you manage it or hold it before it reaches the employee. The CRA lists mandatory service charges, tip pools the employer sets up and tips deposited into the business bank account and paid out later. Those count as pay you’ve made to the employee, so CPP contributions and EI premiums come off at source where the job is pensionable or insurable.
A direct tip goes from customer to employee with no employer control over the amount or who gets it. Cash left on a table is the classic case. Staff who voluntarily pool their own tips among themselves also count as direct. No CPP or EI deduction is required on these, though the employee can choose to pay CPP on them using form CPT20.
Direct tips are paid directly by the customer to the employee. The employer has no control over the tip amount or its distribution.
Tips and gratuities, CPP and EI explained, canada.ca
Here’s the trap. A card terminal that adds the tip to the bill and pays it out through your account turns a direct tip into a controlled one. So the way you take payment can change your payroll.
| Type of tip | Examples | CPP and EI at source |
|---|---|---|
| Controlled | Service charge, employer tip pool, tips paid through the business account | Yes |
| Direct | Cash on the table, tips staff share among themselves | No |
Quebec has an extra rule. Employees in a regulated establishment there must declare their direct tips to the employer, and those declared tips are subject to EI alongside the controlled ones.
What do controlled tips add to the payroll bill?
Take a server in Ontario paid $1,500 every two weeks. The payroll remittance calculator shows $382.19 to send the CRA for that pay period: $161.03 of income tax, $81.24 of CPP and $24.45 of EI held back, plus your own $81.24 of CPP and $34.23 of EI.
Now say $300 of controlled tips runs through payroll that period, so gross pay is $1,800. The remittance jumps to $482.44. That’s $100.25 more, and $24.70 of it is your employer cost, the extra CPP and EI you add.
Small money per person. With six servers, the same $1,800 period comes to $2,894.64 to remit and $11,641.00 for the full cost of payroll.
The tool estimates on yearly numbers spread over the periods, and it leaves out workers compensation and other payroll levies. Treat it as a planning figure.
How do you keep hospitality accounting straight day to day?
Hospitality has a lot of small transactions, so the discipline is in the daily close. Whatever the point of sale is, reconcile it to the bank deposit every day or every week, not at month end. Sales, tips, service charges, comps and voids should sit on separate lines.
A few splits pay off.
- Food and drink cost, so you can see what each plate and pour really costs.
- Tips collected for staff, which aren’t your revenue.
- Wages against tips paid out, by pay period.
- Deposits and gift cards, which you owe to customers until they’re used.
How GST/HST applies to each of those items is something the CRA pages cover by province, so check yours before you set up tax codes. If you need to back the tax out of a receipt, the HST reverse calculator does that, and the profit margin calculator turns food cost and sales into a margin.
What does a good closing routine look like?
Picture a small café in Halifax at 9 p.m. The owner counts the till, prints the sales report and checks that card sales match what the processor says it will deposit. Tips from the terminal get their own line, and so do any service charges. It takes fifteen minutes. Skip it for a month and a few bucks of mismatch a day turns into a puzzle nobody can solve at tax time.
Whoever closes should sign the sheet, and a second person should look at the deposit the next day. In a small place that second person can be the owner.
What about the staff side?
Employees report their tips as income. The CRA has a page saying all tips and gratuities are taxable, so a server should keep a daily log of what they took. A server can check what’s left of a cheque with the take-home pay calculator.
Want a short test for your own setup? Ask where the tip money sits at the end of the night. If it’s in your till or your account, it’s probably controlled. If it’s in the server’s pocket, it’s direct.
Our sources
The tip rules come from two CRA pages on tips and gratuities, one on CPP and EI treatment and one on tips received by employees. The payroll figures come from our 2026 calculator data for Ontario. We didn’t check provincial rules on who may keep a service charge, and we make no claim about GST/HST on tips. This site is independent and has no tie to the CRA.
Frequently asked questions
Do restaurants pay CPP and EI on tips?
On controlled tips, yes. The CRA says CPP and EI come off at source where the job is pensionable or insurable. Direct tips need no deduction.
What is a controlled tip?
One the employer manages or holds first, such as a mandatory service charge, an employer tip pool or tips paid through the business account.
What is a direct tip?
A tip paid by the customer straight to the employee, with no employer control, such as cash left on the table.
Do servers have to report tips?
Yes. The CRA says tips and gratuities are taxable, so keep a daily log.
Does Quebec treat tips differently?
Yes. Employees in a regulated establishment must declare direct tips to the employer, and declared tips are subject to EI.
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