Employees of a restaurant put all cash tips into the tip jar, which is distributed to all employees (waiters and non-waiters). The employer also deposits tips paid by pin into the tip jar. A colleague distributes the tip jar weekly in proportion to the number of hours worked. The employer pays wages in accordance with the collective agreement, tips are not taken into account. Is the employer now liable to withhold the tips?
Tax authorities' position
There is third-party pay for which the employer is not liable to withholding tax. Employees must self-report the actual amount of tips received in their income tax returns.
Why is there no question of wages from the employer?
What is relevant is whether the benefit was provided to the employee on behalf of and for the account of the employer or should be equated with it. Tips civilly accrue to the employees. The employees are entitled to the tip. The employer may not determine what the employees spend the tips on and may not appropriate (part of) the tips. Because the tips do not accrue to the employer, the employer cannot waive them in favour of an employee either. In principle, the employer is merely the holder of the tips and, moreover, has no power of disposal.
Why are third-party wages involved?
There is a benefit that the employees receive from a third party as a reward for what the (service and non-service) employees have done for that third party. It is consideration for the work, which the recipient performs in his capacity as an employee. There is no withholding obligation because the employer did not take tips into account when determining wages.
Note: Thus, if the employer sets a lower wage because it will be compensated by expected tips, there is a withholding obligation.
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