Philippines – Service Charge Law.

2 July 2021

 

Before the global pandemic, we had the option to dine-in at restaurants and check-in at hotels where we can be served and pampered. As a reward for those who have served us well, and as a sign of etiquette, we often leave a tip after settling the bill. For some, leaving a tip can be dependent on the inclusion of service charge, or the amount or percentage of service charge added to the bill.

 

To recall, service charge refers to the amount that is added to the bill for work or service rendered.

 

Although there is no law specifying a minimum or maximum amount or percentage of service charge, nor a law mandating the inclusion of service charge, a provision on how an employer shall distribute service charges can be found in labor law.
 

Under Article 96 of the Labor Code, all service charges collected by hotels, restaurants and similar establishments shall be distributed at the rate of 85 percent for all covered employees, which must be equally distributed among them, and 15 percent for management.
 

In 2019, Republic Act 11360 or the Service Charge Law was enacted, amending Article 96 of the Labor Code.
 

The Service Charge Law mandates all establishments collecting service charge such as hotels and restaurants to distribute complete and equally or 100 percent service charges to all employees, except those in a managerial position.
 

Thus, all workers directly employed by the covered establishment irrespective of position, designation or employment status shall receive a share from the pooled service charges.
 

Pursuant to the new law, the Department of Labor and Employment (DOLE) also issued the law’s Implementing Rules and Regulations (IRR), which defines pertinent subjects, and sets out the procedure for covered establishments and similar establishments in distributing the service charges to covered employees.
 

Covered establishments refer to those that collect service charge for work or service they offer, such as hotels, and restaurants. Other similar establishments include, but are not limited to, lodging houses, night clubs, cocktail lounges, massage clinic bars, casinos and gambling houses, and sports clubs.
 

Covered employees refer to all employees, except managerial employees as defined in the law and the IRR, under the direct employ of the covered establishment, regardless of their positions, designations or employment status, and irrespective of the method by which their wages are paid.
 

The IRR clarifies that the distribution of service charges shall be based on actual hours or days of work or service rendered, including those already receiving the benefit of sharing in the service charges. The shares of service charges shall be distributed and paid to the covered employees not less than once every two weeks or twice a month at intervals not exceeding 16 days.
 

In the event that the minimum wage is increased by law of wage order, service charges paid to the covered employees shall not be considered in determining the employer’s compliance with the increased minimum wage.

 

To facilitate resolution of any dispute between the management and the employee on the distribution of service charges, a grievance machinery as provided in the collective bargaining agreement shall be established. If no grievance mechanism is established, such as in the case of unorganized establishments, or if the grievance mechanism is inadequate, the grievance shall be referred to the DOLE Regional Officer which has jurisdiction over the workplace for conciliation.
 

Unresolved grievances shall be resolved in accordance with existing rules and regulations on the visitorial and enforcement power of the Secretary of Labor and Employment and his/her duly authorized representative.
 

Note that the law does not diminish existing benefits under present laws, company policies, and collective bargaining agreements. Moreover, it does not mandate that all covered establishments, and other similar establishments to collect service charges.