In certain professions, tipping can make up the bulk of an employee’s income, especially in the service industry. There are two types of tipping: controlled tipping and direct tipping. Controlled tipping is when the employer collects and distributes tips to its employees. An example is a banquet hall or caterer that charges a service charge per guest as a tip. The tip is then evenly divided among its employees. Controlled tipping is basically treated the same as normal wages under tax law, since tips are collected by the employer and then distributed according to a preset formula. Therefore, these tips are subject to Canadian Pension Plan (CPP) contributions and Employment Insurance (EI) premiums that are deducted at the source. Direct tipping is when employees earn a gratuity based on their performance, which is common in most restaurants. Since the employer is not an intermediary, there is no CPP contribution or EI premium. Instead, it is up to the employee to declare his or her tip earnings and make contributions toward the CPP. Canadian tax law distinguishes between these two types of tips because controlled tipping goes through the employer, which has no involvement with direct tipping. Controlled tipping is treated essentially the same as wages as it is subject to CPP contributions and EI premiums. In contrast, direct tipping is only subject to CPP if tips are declared.