Electronic tips trigger CPP and EI contributions: Federal Court of Appeal



Canada Publication September 26, 2022

Service industry employers should be aware of a recent Federal Court of Appeal (FCA) decision regarding tips processed through electronic point-of-sale systems. In Ristorante a Mano Limited v. Canada (National Revenue), the Court of Appeal upheld a minister of national revenue decision assessing Canada Pension Plan and Employment Insurance contributions for server tips paid electronically rather than in cash.


The appellant operates a restaurant. Unsurprisingly, customers often leave the restaurant’s servers cash tips or, more commonly, electronic tips through credit, debit or gift card payments. At the end of their shifts, the servers were obligated to “tip-out” to other staff, which required an accounting of tips received electronically and in cash. 

While servers were free to keep cash tips without notifying the restaurant, the restaurant would distribute electronic tips among its staff. Typically, the restaurant would deposit the total electronic tips received by any individual server, less certain charges, into the server’s bank account the following day. This deposited amount was referred to as the “due-back.”

The restaurant did not account for any portion of these due-backs when assessing Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums. Disagreeing with this approach, the minister of national revenue (the minister) incorporated a portion of the due-backs into the restaurant’s CPP and EI assessments for 2015, 2016 and 2017. The minister and the Tax Court of Canada denied the restaurant’s appeal of the minister’s assessments. The restaurant then appealed to the FCA.


The FCA reviewed the applicable legislation, confirming that the test for determining whether an amount triggers employer obligations for the purposes of CPP contributions and EI premiums is whether, “the amount in question is paid by the employer to the employee in respect of their employment.”

The restaurant argued due-backs were not: 

  • “paid by the employer,” as the restaurant simply converted electronic tips to cash and later transferred that cash to the servers;
  • paid to servers “in respect of their employment” because server due-backs were not dependant on the number of hours they worked or their sales. Instead, the amount was based entirely on whether customers paid their restaurant bills electronically or through cash. 

In dismissing the restaurant’s appeal, the FCA clarified the following points:

  • The term “paid by the employer” must be liberally construed. Specifically, tips will be considered to have been “paid by the employer” when, after coming into the employer’s possession, the employer subsequently transfers the tips to its employees. 
  • The term “in respect of employment” is similarly broad and encompasses amounts received “in relation to,” “with reference to” and “in connection with” employment. 

In this case, the electronic tips came into the restaurant’s possession and were partially distributed by the restaurant as due-backs to the servers’ bank accounts. Consequently, the due-backs were paid by the restaurant. Additionally, had it not been for their employment with the restaurant, the servers would not have received the due-backs and, as a result, the servers received the due-backs in respect of their employment. 


While the proper treatment of cash tips was not in issue in this case, the result in Ristorante a Mano Limited raises an important distinction between cash tips and electronic tips. Specifically, while cash tips may be exempt from consideration, electronic tips may be deemed insurable and pensionable income where the amounts flow through the employer to its employees. Employers may be surprised by this apparent distinction given that, in either case, the tips are coming from customers with no contribution from the employer. 

Notably, this decision may depart from previous CRA guidance, which indicated that electronic tips paid out to employees in cash soon after their shifts may be considered direct tips, not subject to CPP contributions or EI premiums. Given the FCA’s broad interpretation of the relevant legislation, however, it is difficult to imagine a scenario in which electronic tips would not pass through the employer and, therefore, qualify as pensionable and insurable earnings. In light of this precedent, service industry employers would be well advised to revisit their payroll practices if they are not currently accounting for electronic tips in their CPP and EI assessments.

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