Payroll Services for Restaurants
The complete payroll guide for Ontario restaurants. Covers tip reporting (controlled vs. direct), minimum wage for liquor servers, split shifts, overtime, vacation pay, public holiday pay, ROE filing for seasonal staff, POS-to-payroll integration and the payroll errors that trigger CRA audits. From $125/month. 900+ five-star reviews.
Why Restaurant Payroll Is More Complex Than Other Industries
Restaurant payroll has more compliance traps than almost any other industry. The combination of tip income reporting, liquor server minimum wage rates, split shifts, high staff turnover, seasonal layoffs, varying hours every week, statutory holiday pay calculations on irregular schedules and the ESA overtime rules makes restaurant payroll one of the most error-prone areas in Canadian small business. A single miscalculation on tip reporting or holiday pay across 15 employees over 2 years can produce a $20,000 to $40,000 CRA reassessment plus Ministry of Labour penalties.
We handle payroll for restaurants across Ontario. Every pay run is calculated correctly for CPP, EI, income tax, vacation pay and statutory holiday pay. T4s are filed with accurate tip income reporting. ROEs are issued within 5 days of every separation. For our full restaurant accounting services, see our restaurant services page. For a general overview of our payroll services across all industries, see our payroll services page.
Tip Reporting: The #1 Restaurant Payroll Compliance Issue
CRA requires that all tip income is reported on the employee's T4. The tax treatment depends on whether the tips are controlled or direct.
| Tip Type | Definition | CPP | EI | Income Tax | T4 Reporting |
|---|---|---|---|---|---|
| Controlled tips | Tips collected by the employer and redistributed to employees. Includes mandatory service charges, auto-gratuities and tip pooling where the employer controls the distribution. | Yes. CPP deducted. | Yes. EI deducted. | Yes. Withheld at source. | Reported in Box 14 (employment income) and Box 24 (EI insurable earnings). |
| Direct tips | Tips left directly by the customer to the employee. The employer does not control or redistribute them. Cash tips left on the table. Tips paid by credit card and passed directly to the server without employer redistribution. | Yes. CPP deducted. | No. Not EI insurable. | Yes. Withheld at source if reported to employer. If not reported, employee reports on T1. | Reported in Box 14 (employment income). Not included in Box 24 (not EI insurable). |
CRA Audits Tip Reporting Aggressively: CRA cross-references tip income reported on T4s against POS data and credit card records. If your POS shows $180,000 in credit card tips distributed to servers but T4s report $60,000 in tip income, the discrepancy triggers an audit. CRA can reassess the employer for unremitted CPP and income tax on the unreported tips. The reassessment covers all employees for all years under review. A 15-employee restaurant with $120,000 in unreported tips over 2 years faces a reassessment of $25,000 to $45,000 in CPP, income tax and penalties.
How We Handle Tip Reporting
We configure payroll to track controlled and direct tips separately. Controlled tips are included in gross pay with CPP, EI and income tax deducted. Direct tips are tracked as pensionable but not insurable income with CPP and income tax deducted but no EI. T4s are prepared with the correct amounts in Box 14 and Box 24. POS tip data is reconciled to payroll records monthly to prevent discrepancies that trigger CRA audits.
Minimum Wage Rates for Restaurant Employees (Ontario 2026)
| Employee Type | Minimum Wage (Ontario 2026) | Notes |
|---|---|---|
| General minimum wage | $17.20/hour | Applies to all restaurant employees: cooks, dishwashers, hosts, bussers, managers, prep staff. |
| Liquor server minimum wage | $17.20/hour | As of January 1, 2022, Ontario eliminated the lower liquor server minimum wage. Servers are now paid the same general minimum wage. Some restaurant owners are still using the old rate. This is an ESA violation. |
| Student minimum wage (under 18, working 28 hours/week or less) | $16.20/hour | Applies only to students under 18 during school sessions. Does not apply during school breaks if working more than 28 hours/week. |
| Homeworker minimum wage | $18.90/hour | Applies to employees who do paid work in their own home (rare in restaurants). |
The Liquor Server Minimum Wage Was Eliminated in 2022: Before January 1, 2022, Ontario had a lower minimum wage for liquor servers ($12.55 at the time). This no longer exists. Every server must be paid at least $17.20/hour (2026 rate). If your POS or payroll system still uses a separate "server" rate, update it immediately. Ministry of Labour complaints from employees result in back pay for the difference plus administrative monetary penalties.
Overtime, Split Shifts and Hours of Work Rules for Restaurants
| ESA Rule | What It Means for Restaurants | Common Violation |
|---|---|---|
| Overtime threshold: 44 hours/week | Overtime pay at 1.5x the regular rate begins after 44 hours in a work week. Not 40. Ontario uses 44 hours as the overtime threshold for most industries including restaurants. | Paying overtime after 40 hours (overpaying) or not paying overtime at all after 44 hours (ESA violation). Both are common. |
| Daily maximum: 8 hours (unless agreed) | An employee cannot be required to work more than 8 hours in a day unless the employee has agreed in writing (electronic agreement is acceptable). If agreed, the daily maximum is the number of hours agreed to, and the weekly maximum is 48 hours. | Scheduling 10-hour shifts without a written agreement. The employee can file an ESA complaint. |
| Rest periods: 11 hours between shifts | Employees must have at least 11 consecutive hours free from work between shifts. A server who closes at 1 AM cannot be scheduled to open at 9 AM (only 8 hours between). | Scheduling a closing shift followed by an opening shift with less than 11 hours between. Very common in restaurants. |
| Eating period: 30 minutes every 5 hours | Employees must receive a 30-minute eating period for every 5 consecutive hours of work. The eating period can be unpaid. It can be split into two 15-minute periods if the employer and employee agree. | Not providing a break during a busy 6-hour shift. The employee is entitled to the break regardless of how busy the restaurant is. |
| Split shifts | Ontario ESA does not prohibit split shifts (e.g. 11 AM to 2 PM then 5 PM to 10 PM). However, the 11-hour rest period rule still applies, and each segment must comply with eating period rules. | Not tracking total hours across split shift segments for overtime calculation. Both segments count toward the 44-hour weekly threshold. |
| Public holiday work | If an employee works on a public holiday, they receive public holiday pay PLUS premium pay (1.5x their regular rate) for hours worked. Or, the employer can give a substitute day off with public holiday pay. | Paying regular rate for working Christmas Day or Canada Day. The employee is owed premium pay on top of public holiday pay. |
Vacation Pay and Public Holiday Pay for Restaurant Employees
| Entitlement | Amount | Calculation |
|---|---|---|
| Vacation pay (under 5 years) | 4% of gross wages earned | 4% of total wages earned in the vacation entitlement year. Includes regular pay, overtime pay and commissions. Does not include tips (direct tips are not wages paid by the employer). |
| Vacation pay (5+ years) | 6% of gross wages earned | After 5 years of employment with the same employer, vacation pay increases to 6%. Few restaurant employees reach this threshold due to high industry turnover. |
| Public holiday pay | Total regular wages + vacation pay in the 4 weeks before the holiday, divided by 20 | The formula: (total regular wages earned in the 4 work weeks before the holiday + vacation pay payable in that period) / 20. For employees with variable hours (most restaurant staff), this produces a different amount for each holiday. |
| Ontario public holidays (9) | New Year's Day, Family Day, Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, Christmas Day, Boxing Day | All 9 are mandatory. Some restaurants close on these days, others operate. Different rules apply depending on whether the employee works the holiday or not. |
Public Holiday Pay Calculation for Variable-Hours Staff: Most restaurant employees work different hours every week. The public holiday pay formula (total regular wages in the 4 weeks before the holiday / 20) must be calculated individually for each employee for each holiday. A server who worked 120 hours in the 4 weeks before Christmas at $17.20/hour earned $2,064. Public holiday pay: $2,064 / 20 = $103.20. If the server also works on Christmas Day, they receive the $103.20 PLUS 1.5x their regular rate for hours worked. We calculate this for every employee on every holiday.
Restaurant Payroll from $125/Month. T4s and ROEs Included.
Tip reporting, vacation pay, public holiday pay, CPP/EI/tax remittances, T4s. We handle it all.
What Our Restaurant Payroll Service Includes
| Service | What We Do |
|---|---|
| Pay run processing (biweekly or semi-monthly) | Every pay run calculated with correct CPP, EI and income tax deductions. Variable hours entered from your POS time clock or timesheet. Controlled and direct tips tracked separately with correct deduction treatment. |
| Tip income tracking and T4 reporting | Controlled tips included in gross pay (CPP + EI + tax deducted). Direct tips tracked as pensionable but not insurable (CPP + tax deducted, no EI). POS tip data reconciled to payroll records monthly. T4s prepared with correct Box 14 and Box 24 amounts. |
| Vacation pay accrual and payment | 4% (or 6% at 5+ years) vacation pay calculated on every pay run. Accrued on each paycheque or tracked and paid on vacation. Year-end vacation pay balance verified and paid out. |
| Public holiday pay calculation | Variable-hours formula applied individually for each employee on each of the 9 Ontario public holidays. Premium pay (1.5x) calculated for employees who work the holiday. Substitute day tracking if applicable. |
| CRA remittances | CPP, EI and income tax remittances calculated and submitted to CRA by the deadline. Monthly or quarterly remitter frequency determined. Penalties for late remittance: 3% (1-3 days late) to 10% (7+ days or repeated late filer). We never miss a deadline. |
| ROE (Record of Employment) filing | ROE filed electronically within 5 calendar days of every employee separation: resignation, termination, layoff, leave of absence. Insurable hours and earnings calculated correctly. Block 15C reason code assigned. Seasonal restaurant closures handled with Block 16 comments. |
| T4 and T4 Summary preparation | All T4s prepared and filed by the February 28 deadline. Tip income correctly reported. Taxable benefits (staff meals, uniforms, parking) included. T4 Summary reconciled to total remittances. |
| WSIB reporting | WSIB premiums calculated based on insurable earnings and the restaurant industry rate. Annual WSIB reconciliation filed. Premium adjustments processed. |
| ESA compliance monitoring | Overtime threshold (44 hours), rest period (11 hours between shifts), eating period (30 minutes per 5 hours), public holiday entitlements and termination/severance pay rules monitored on every pay run. We flag violations before they become Ministry of Labour complaints. |
| Payroll software setup | Wagepoint or PaymentEvolution configured with restaurant-specific settings: tip categories (controlled/direct), multiple pay rates (regular, overtime, holiday premium), vacation pay accrual method, department tracking (kitchen, FOH, bar, management). |
Worked Example: Biweekly Payroll for a 12-Employee Restaurant
| Line Item | Amount | Notes |
|---|---|---|
| Gross wages (12 employees, biweekly) | $18,400 | Mix of full-time cooks ($17.50 to $22/hour) and part-time servers/hosts ($17.20/hour). Variable hours. |
| Controlled tips (redistributed by employer) | $4,200 | Auto-gratuities on large parties and tip pool redistribution. CPP + EI + tax deducted. |
| Direct tips (reported by employees) | $6,800 | Cash and credit card tips passed directly to servers. CPP + tax deducted. No EI. |
| Total pensionable earnings | $29,400 | $18,400 + $4,200 + $6,800. All tip income is pensionable. |
| Total insurable earnings (EI) | $22,600 | $18,400 + $4,200. Direct tips ($6,800) are NOT EI insurable. |
| Employee CPP deductions (total) | $1,543 | 5.95% on pensionable earnings above the $3,500 basic exemption (prorated biweekly). |
| Employee EI deductions (total) | $367 | 1.64% on insurable earnings only. Direct tips excluded. |
| Employee income tax withheld (total) | $2,180 | Federal + Ontario provincial tax based on each employee's TD1 and total earnings including tips. |
| Employer CPP (employer match) | $1,543 | Employer pays 1:1 match of employee CPP deduction. |
| Employer EI (1.4x employee amount) | $514 | Employer pays 1.4x the employee EI deduction. |
| Vacation pay accrued (4%) | $736 | 4% of $18,400 gross wages. Tips are not included in the vacation pay base (tips are not wages paid by the employer). |
| Total CRA remittance (this pay period) | $6,147 | Employee CPP + EI + tax ($4,090) + Employer CPP + EI ($2,057). Due by the 15th of the following month. |
CRA Remittance Deadlines Are Non-Negotiable: Regular remitters: due by the 15th of the month following the pay period. Quarterly remitters (annual deductions under $25,000): due by the 15th of the month following the quarter. Accelerated remitters (annual deductions over $50,000): due within 3 business days of the pay date. Late remittance penalties: 3% (1-3 days), 5% (4-5 days), 7% (6-7 days), 10% (7+ days or repeated late). We file every remittance on time.
10 Common Payroll Errors Ontario Restaurants Make
| # | Error | Consequence |
|---|---|---|
| 1 | Not reporting tip income on T4s | CRA reassesses the employer for unremitted CPP and income tax on unreported tips. 15 employees, $120,000 unreported tips over 2 years: $25,000 to $45,000 reassessment. |
| 2 | Treating controlled tips as direct tips | EI not deducted on controlled tips. CRA reassesses for unremitted employer and employee EI on the entire amount. Plus interest and penalties. |
| 3 | Still using the old liquor server minimum wage | Eliminated January 1, 2022. Paying below $17.20/hour is an ESA violation. Ministry of Labour orders back pay plus administrative monetary penalty ($250 to $100,000). |
| 4 | Not paying overtime after 44 hours | ESA violation. Employee files a complaint. Employer ordered to pay 1.5x the regular rate for all hours over 44 in every affected week. Plus penalties. |
| 5 | Miscalculating public holiday pay for variable-hours staff | The formula (4 weeks wages / 20) must be calculated individually for each employee on each holiday. Using a flat amount or daily rate is incorrect. Underpayment triggers ESA complaints. |
| 6 | Scheduling less than 11 hours between shifts | ESA violation. A server closing at 1 AM cannot open at 9 AM. Employee can refuse the shift. Ministry of Labour can order the employer to reschedule. |
| 7 | Not filing ROEs within 5 days of separation | Service Canada penalties. Employee's EI claim is delayed. Multiple late ROEs flag the employer for review. |
| 8 | Paying employees as independent contractors | CRA reclassifies as employees. Employer owes all unremitted CPP, EI and income tax plus employer contributions and penalties. Common with delivery drivers and catering staff. Restaurant Services → |
| 9 | Not calculating vacation pay on each paycheque | Vacation pay must accrue at 4% (or 6%) on every dollar of wages earned. Some restaurants pay vacation only when the employee takes time off, without tracking the accrual. Year-end liability is understated. ESA violation if vacation pay is not paid within the entitlement year. |
| 10 | Missing CRA remittance deadlines | Penalties: 3% (1-3 days late), 5% (4-5 days), 7% (6-7 days), 10% (7+ days or repeated). On a $6,000 remittance, a 7-day delay costs $420. Repeated late filing triggers accelerated remitter status. |
Restaurant Payroll Setup Checklist
- Register for a CRA payroll account (RP program account) if not already registered
- Collect TD1 (federal) and TD1-ON (Ontario) from every employee before the first pay period
- Configure payroll software with controlled tip and direct tip categories
- Set up pay rates for each position: kitchen, FOH, bar, management, overtime (1.5x after 44 hours)
- Configure vacation pay accrual at 4% (or 6% for employees with 5+ years)
- Set up public holiday pay formula for variable-hours employees
- Configure POS time clock or timesheet integration for accurate hours
- Establish CRA remittance schedule (monthly, quarterly or accelerated based on annual deductions)
- Set up ROE electronic filing through Service Canada's ROE Web portal
- Configure WSIB premium tracking based on insurable earnings and the restaurant industry rate
- Document the 11-hour rest period and 30-minute eating period rules in the employee handbook
- Set up department tracking: kitchen, front of house, bar, management for labour cost analysis
Need Restaurant Payroll Set Up Correctly? From $125/Month.
We configure your payroll, handle every pay run and file T4s and ROEs. You focus on the restaurant.
CRA Payroll Audits for Restaurants
CRA's payroll audit program specifically targets restaurants because of tip income underreporting, worker misclassification and high employee turnover. Here is what CRA looks for and how we prevent it.
| CRA Focus Area | What CRA Reviews | How We Prevent Issues |
|---|---|---|
| Tip income underreporting | CRA compares POS credit card tip data against T4 tip amounts. If POS shows $200,000 in distributed tips but T4s show $80,000, CRA reassesses for the $120,000 difference. | POS tip data reconciled to payroll records monthly. Controlled and direct tips tracked separately. T4s match POS data exactly. |
| Worker misclassification | CRA reviews whether workers classified as independent contractors (delivery drivers, catering staff, dishwashers) should be employees. Control test and economic dependence test applied. | Every worker classification reviewed at onboarding. If the worker's schedule, tools and methods are controlled by the restaurant, they are an employee. We structure the relationship correctly from the start. |
| CPP/EI remittance accuracy | CRA verifies that CPP and EI deductions match the T4 amounts and that employer contributions (1:1 CPP match, 1.4x EI) are correct. Tip income must be included in pensionable earnings. | Every pay run calculated with correct CPP and EI. Tip income included in pensionable earnings. Annual T4 Summary reconciled to total remittances. |
| Unreported cash wages | CRA analyzes bank withdrawals, cash on hand and payroll records. If 3 employees are on payroll but 8 are working during peak hours (evidenced by POS transactions, kitchen orders or delivery records), CRA investigates unreported cash wages. | Every employee on payroll from day one. No cash wages. Every pay run documented. POS employee logins match payroll records. |
Frequently Asked Questions: Payroll for Restaurants
Stop Guessing Your Restaurant Payroll. Let a CPA Handle It.
Tip reporting, vacation pay, public holiday pay, CPP/EI remittances, T4s, ROEs. We handle every pay run correctly. From $125/month. 900+ five-star reviews.