How This New Accounting Trend Could Affect Your Retail Business
Bright lights, relaxing music, and special offers in retail outlets can put us in the mood to shop till we drop. Customer service assistants and cashiers also play their part in ensuring our trip to the store is a pleasant one. It’s no wonder that shoppers are showing their appreciation by generously tipping staff through choices at the Interac terminal while checking out.
From an employee’s point of view, it’s a positive, as greater earnings will allow them to obtain higher credit levels more quickly and support various other borrowing applications (e.g., car leasing or rental). Additionally, their pensionable earnings will increase, providing a larger pension once they retire. However, there is a potential increase in tax payments for employees, especially if they previously kept the tipping jar as undeclared income.
A Mixed Bag for Retailers
It’s a positive from an employer’s point of view as the additional income is now to be T4 reported, which will boost an employee’s overall reported income. As a result, it should prove beneficial in retaining quality staff and reducing turnover.
However, Business Owners must become aware of the full implications of “Controlled” Tipping. For example, business owners will now be responsible for paying, collecting, and remitting the appropriate deductions for Canada Pension Plan (CPP) and Employment Insurance (EI) on this “controlled” tip income. (Accountants should have brought this to their client’s attention already).
It actually goes deeper in that if the employer is responsible for redistributing a pooled tip or distributing tips using a tip-sharing formula, the employer is now also responsible for greater CPP and EI contributions.
The Bottom Line
Employees and employers need to be aware of the requirements and comply. Otherwise, particularly for businesses, the shock of retroactive compliance (i.e., two to four years of not complying) would result in a nasty CPP and EI bill, which doesn’t include back-dated interest and potential fines. So we recommend that our clients set up their bookkeeping and point-of-sale instruments to ensure easy and accurate compliance.
Get in touch with us today!
If you require assistance with tax compliance, don’t hesitate to contact us. With many years of experience, Ocean Breeze CPA will help you with all your accounting needs. Our services include personal tax returns, business start-up assistance, business accounting/ bookkeeping, sole proprietor bookkeeping, and income tax preparation.
We serve clients across Sechelt, Gibsons, Roberts Creek, Madeira Park, Pender Harbour, Powell River, and the rest of the entire Sunshine Coast.
To learn more about the accounting services we have to offer, please click here. If you have any questions about this tipping trend, please contact us by calling (604) 885-0366 or emailing email@example.com.