Patio season is here and restaurants and bars are opening up again and Canadians are flocking to the patios for good food and fresh air!
While you are taking good care of those patio patrons there are a few things to know about working in a restaurant or bar when it comes to your earnings and taxes.
Show me the money!
You will often earn more than just your hourly wage when you work, you may also (hopefully) receive tips from your customers for your service.
The hourly wage you earn is determined by the province and then by the employer; the employer cannot pay you less than the minimum wage authorized for the province, but they can decide to pay you more. The province where you work will mandate minimum wage amounts for workers, and some provinces have additional minimum wage amounts for students and for liquor servers (such as wait staff).
What your employer pays you on each pay cheque, based on your hours worked, is called your gross employment earnings. You will notice that these gross earnings then have some deductions taken away from them before you are paid – these are statutory deductions and will likely include CPP, EI, and income taxes; the difference, what you physically are paid, is called your net pay.
Now what about those tips?
How tips are handled in terms of employment income and income taxes is a commonly asked question. As a worker in this type of position you should understand what your responsibilities are when it comes to earning tips.
There are two types of ways you will receive tips, controlled and direct. So what do these mean and how does this impact your earnings and your taxes?
- Controlled Tips: As the name suggests, these are the tips that are “controlled” by the owner of the business you are working for. The establishment collects all tips as income for the business and then distributes them to the staff as a part of their employment earnings, whether as part of a tip pool or to specific individual employees. These tips are remuneration (earnings) to the employee and as such there are deductions to be made from the tip earnings just as would be from the hourly wage earnings. These tips, along with your hourly wages, will be paid on your pay cheque and are reported on the T4 slip you get in February. We go into further detail on the specifics in our Do I Need to Claim My Tips blog article.
- Direct Tips: These are the tips that you, as the worker, receive directly from your customer and you keep, and the employer does not control them. These tip amounts do not become part of the establishment’s earnings and the employer does not control how they are paid out to the employees. Now just because these are not controlled by your employer and paid out to you in that way does not mean they are not income. In fact, these earnings should be declared by you as income on Line 10400 of your tax return, as this is income that won’t be found on your T4 slip (your employer only reports employment income on your T4 – hourly wages, controlled tips, etc.). There are added benefits to reporting these earnings on your tax return that we go into in our Why Does it Help to Claim Your Tips article. It is important that you keep track of the amounts you are earning from tips in this way throughout the year.
Do you work in Québec?
If you are a worker in a regulated establishment in Québec, you must declare your direct tips to your employer. The employer then includes those direct tips, now termed declared tips, as part of your insurable earnings.
What about benefits?
Your employer could be providing you with certain benefits as part of your remuneration package. Things like life insurance, RRSP contributions and even counselling services are all taxable benefits. Some of these benefits will require the employer to deduct CPP and EI, but almost all of them are taxable to you; this means they will be a part of your employment earnings on your T4 and you will see an amount for the value of those benefits, usually in Box 40. To learn more about these, check out our blog Common Taxable Benefits in Canada.
Looking the part!
Depending on what establishment you work for there may be requirements for you to dress a certain way or to wear a uniform. When an employer gives items to an employee, whether in cash or a non-cash, there can sometimes be a taxable benefit (see those benefits above). This means that the value of the item could become part of the employee’s earnings that need to be taxed.
Uniforms provided by your employer are not a taxable benefit; it is also not a taxable benefit if the employer pays you an allowance to purchase your own uniform. This means there is no impact to your earnings or taxes if they are providing you with a brand specific shirt to wear, for example, at no cost to you.
According to Restaurants Canada there are rules, depending on the province you are in, as to whether you can or cannot be charged by your employer for your uniform. Be sure to ask your employer when you start if this will be an expected deduction on your pay cheque. Unfortunately, the cost of your uniform or shoes are not considered deductible employment expenses for your taxes.
Being armed with knowledge about what it means to work in a restaurant or bar (or anywhere for that matter) will make your work experience more enjoyable and decrease the chance of unpleasant surprises when it comes to your earnings and your taxes.
Here’s to an enjoyable summer season for everyone!