Tips as a self-employed person

All Service Providers know that tips make a big difference! They are a great way to plump up that bottom line. To a degree, entrepreneurs have the ability to maximize their potential for tips by controlling different aspects of service delivery.

Service Providers who are self-employed have control of every detail of the client’s experience. For example, décor, cleanliness, and punctuality are only ripples in the vast sea of customer excellence you can offer to attract a certain clientele.

Tips are a game changer, however, it can get a bit confusing when it comes to claiming them come tax time, especially if you pay yourself as an employee, or have employees.

Do I include tips when calculating CPP and EI deductions?

There are 2 types of tips.

• Controlled
• Direct

Controlled tips

Controlled tips are mandatory to the client. For example, spa parties may include a mandatory 18% gratuity that is included in the bill. If you include or “control” the tip amount in the final bill, then these tips must be included in the insurable earnings (wages + VAC pay + tips + commission). Anything considered “insurable earnings” must be accounted for when calculating the EI and CPP deductions.

Direct tips

Direct tips are out of your control. A client may or may not tip you or your service providers. Only the client is in control of the amount of tip they choose to leave. You as the employer are simply passing the tip from the hands of the client to the hands of your service provider. Direct tips are NOT considered insurable hours and are therefore not included when calculating EI and CPP deductions.

The declaration of tips is the responsibility of the tip reciever when filing their personal taxes.

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Learn more about tips and gratuities.

EXECUTIVE SPA GROUP

Beauty Industry Resource Centre

(780) 604 2772