Ontario's tip law for restaurants: what you can and cannot do with tips under the Employment Standards Act

Ontario has had a tip law since 2016. It is short, firm and often misunderstood in restaurants. If you run a business in Ontario, know the rules on tips before you set up a pool, a tip-out or a service charge. This guide is general information, not legal advice, so read Part V.1 of the Employment Standards Act on ontario.ca or call the Ministry of Labour if your case is unusual.

Who do tips belong to in Ontario?

To the employees. Under Part V.1 of the Employment Standards Act, an employer may not withhold tips, make deductions from them, or make an employee give them back, unless the Act allows it. If an employer does take money from tips improperly, the amount can be recovered as unpaid wages. The rule applies to restaurants, bars, hotels and other businesses where tips are paid.

What are the exceptions?

The Act allows two main exceptions. One is where a statute or a court order authorizes a deduction, and the other is where the employer collects tips and redistributes them among some or all employees, which is what a tip pool is. The law says the permission is to redistribute, not to keep. Money that goes into a pool must come out to staff.

What about tip-out to the house?

Employees cannot agree to give the employer a percentage of their tips, even in writing, apart from a legitimate pool. The old practice of tipping out to the house to cover spillage, breakage or losses is not allowed. You also cannot deduct for faulty work, cash shortages, or lost or stolen goods. If a customer leaves without paying the bill, the Act now says you cannot deduct that from an employee's wages either, and you should not take it out of tips.

Can owners and managers share in a pool?

An owner, director or shareholder can take part in a pool only if they regularly do substantially the same work as the employees who share it. If you share in the tips under a policy, you must post a copy of that policy where employees are likely to see it, and keep a copy for three years after the policy is no longer in effect. If a manager occasionally helps on the floor but mainly runs the business, be careful.

How do you set up a fair pool?

1. Decide who contributes and who receives.
2. Write the formula as a simple percentage or a points system based on hours.
3. Explain it to every new employee and give them a copy.
4. Pay out on a regular schedule.
5. Keep written records of totals in and out.

Make the formula one that a server, a bartender and a dishwasher can each work out on a napkin. If it needs a spreadsheet to explain, it is too complicated.

How do you pay tips out?

The Act requires tips to be paid within a reasonable time. The Act sets no fixed payout schedule, but failing to distribute tips within a reasonable time can itself count as withholding them. Since 21 June 2024, tips must be paid by cash, cheque or direct deposit. For direct deposit, the employee chooses the account and you cannot require them to use one at an institution they did not choose. Check the Ministry's tips guide on ontario.ca for the exact wording.

Are tips wages?

No. Tips are not wages, and they do not count toward the minimum wage, overtime or vacation pay calculations. They sit on top of the wage. The minimum wage in Ontario is 17.95 dollars an hour from 1 October 2026, and servers receive it in addition to their tips.

What about service charges?

A service charge that appears on the bill as a fixed amount is part of your price, and a charge that customers reasonably understand to be for staff may be treated as a gratuity. The safest course is to be clear on the menu and bill about where the money goes. If it goes to staff, handle it like a tip. If it goes to the business, do not call it a gratuity or imply that it is.

What records should you keep?

• Total tips collected each shift, by cash and card
• Pool contributions and payouts for each person
• The written pool policy and its history
• Proof of payment, such as direct deposit records

If the Ministry investigates a complaint, those records show what you did.

Where to get help

Ontario's Ministry of Labour publishes a guide to tips and gratuities and takes enquiries. Restaurants Canada and the Canadian Federation of Independent Business publish plain-language summaries. If you are changing your system, a short call to an employment lawyer is cheaper than a claim.

More guides for your business:

• AODA website rules for Ontario restaurants: who must meet WCAG 2.0 AA and what to fix first
• Running a restaurant in Niagara, Prince Edward County or Muskoka: planning for peak weekends and the shoulder seasons
• How to open a restaurant in Ontario: permits, licences and the order to get them (2026)

More in the Canadian guides for food businesses.