Tips in Quebec: What Employers and Employees Need to Know

Tips are common in the service industry, but the way they are received affects how employers handle payroll and how employees report their income. In Quebec, additional reporting rules apply to employees working in certain establishments.

The key distinction is whether a tip is controlled by the employer or received directly by the employee. In Quebec, some direct tips must also be declared to the employer. These descriptions can therefore overlap: a declared tip is not necessarily a third, separate way of receiving money.

1. Controlled tips

A tip is generally considered controlled when the employer controls or possesses it and then pays it to an employee. Examples include:

• a mandatory service charge added to a customer’s bill;

• tips shared among employees according to a formula set by the employer;

• tips collected by the employer and later distributed through payroll.

Controlled tips are treated as amounts paid by the employer. Payroll deductions generally apply, including income tax and Employment Insurance (EI) premiums. In Quebec, the employer must also account for the applicable Québec Pension Plan (QPP) and Québec Parental Insurance Plan (QPIP) contributions, as well as relevant employer contributions.

A credit or debit card payment does not, by itself, determine whether a tip is controlled. How the tip is handled and distributed matters.

2. Direct tips

A direct tip is paid by the customer to an employee without the employer controlling the amount or its distribution. For example:

• a customer leaves cash for a server, who keeps it;

• employees decide among themselves how to share their tips;

• a customer adds a voluntary tip to a card payment and the employer returns the full amount to the employee in cash at the end of the shift, acting only as a conduit.

Outside a Quebec tip-reporting obligation, the employer generally does not withhold income tax, EI premiums or pension contributions from direct tips, and does not include them on the employee’s T4 slip. The tips are still taxable income: employees must keep records and report amounts that are not shown on an information slip in their tax return.

3. Tips declared to an employer in Quebec

Quebec has a specific rule for employees who receive tips while working in a regulated establishment, including certain restaurants, bars and hotels. These employees must report their tips to their employer in writing at the end of each pay period.

They can use Form TP-1019.4-V, Register and Statement of Tips, or an equivalent document. The statement records tips received directly, including applicable card tips, and amounts received from or paid to colleagues under a tip-sharing arrangement. Employees should keep their copy.

Employees must also record their tippable sales before taxes. These are sales that would ordinarily give rise to a tip, whether or not the customer actually left one. Sales of food or beverages for consumption elsewhere than on the premises are generally excluded from this calculation.

How are declared tips treated on payroll?

The employer takes the employee’s reported tips into account when calculating applicable deductions. In general, declared tips are subject to income tax and EI deductions. In Quebec, the relevant QPP and QPIP contributions and employer contributions must also be considered.

At year-end, these amounts are reflected on the applicable T4 and RL-1 slips. The precise treatment differs for tips allocated under Quebec’s 8% rule.

What is Quebec’s 8% tip allocation rule?

For an employee subject to the allocation rules, the employer may have to allocate an additional amount for tax and payroll purposes when tips reported on tippable sales are below 8% of those sales. An approved lower allocation rate or an exception may apply.

The calculation is more specific than simply comparing an employee’s total take-home tips with 8% of sales. It takes into account tips reported on tippable sales and any mandatory service charges distributed to the employee. The allocated amount is not an extra tip paid to the employee.

For example, if an eligible employee has $2,000 in tippable sales, reports $90 in tips on those sales and receives no distributed mandatory service charges, the calculation at an 8% rate is:

($2,000 × 8%) − $90 = $70 in allocated tips

The employer includes that $70 in the applicable payroll calculations. Under Revenu Québec’s rules, allocated tips are subject to income tax and QPP treatment, but not QPIP contributions. Their treatment should therefore not be presented as identical to that of reported or controlled tips.

Keep tip records and payroll practices consistent

For employees, the central obligation is to report all taxable tips, whether they are handled through payroll or reported directly on a tax return. Those working in a regulated Quebec establishment must also provide the required statement to their employer.

For employers, the priority is to determine how tips are received and distributed, collect employee statements where required, apply the appropriate payroll treatment and prepare accurate information slips. Revenu Québec’s guidance for employees who receive tips and the CRA’s guidance on tips received by employees provide further detail.

Mallette’s team can help you review how tips flow through your business and how they should be reflected in payroll and reporting.