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June 1, 2022

Service Charges are now for employees only: A Legal Development

After reading the informative article below regarding “Service Charges”, read also: Is Bonus a Demandable Right of an Employee?

            As consumers, it is a common dining etiquette in the Philippines to look for “service charge” on their bills in order to decide whether they will leave a tip or not. Nevertheless, despite charging customers with certain percent for service charges, some customers still offer “tips” or “gratuity” to workers in a restaurant, hotels and other similar establishments to reward them for their good services. For several years, these tips, gratuity, and service charges collected on the bills of the consumers do not fully go to the said workers, but are pooled and divided between the covered employees and the management.

 

            Before the amendment of Article 96 of the Labor Code of the Philippines, all service charges collected by hotels, restaurants and similar establishments shall be distributed at the rate of eighty-five percent (85%) for all covered employees and fifteen percent (15%) for management. The share of the employees shall be equally distributed among them. In case the service charge is abolished, the share of the covered employees shall be considered integrated in their wage.

 

In view of the old Article 96 of Labor Code, there must be equal distribution of the collected service charges amongst employees. Thus, the eighty-five percent (85%) of service charges shall be further divided to all covered employees. These covered employees are specified under the Implementing Rules of the Labor Code which provides that:

Section 2. Employees covered—This rule shall apply to all employees of covered employers, regardless of their position, designation or employment status, and irrespective of the method by which their wages are paid, except to managerial employees. XXX.” (Book 2, Rule 6, Section 2, Implementing Rules of the Labor Code of the Philippines)

Republic Act No. 11360, An Act Amending Article 96 of the Labor Code of the Philippines

            In light of the new law signed by the President on August 07, 2019, covered employees of Article 96 of the Labor Code specified under Book 2, Rule 6, Section 2, Implementing Rules of the Labor Code of the Philippines, shall now be granted with one hundred percent (100%) of the collected service charges. Portion of Section 1 of Republic Act 11360 (RA 11360) provides:

Article 96. Service Charges. – All service charges collected by hotels, restaurants and similar establishments shall be distributed completely and equally among the covered workers except managerial employees. XXX”

Aside from removing the share of the management from the collected service charges, the amending law also mentioned guidelines in the application of the 100% distribution to covered workers of service charges. Second paragraph of Section 1 reads:

“Art. 96. X X XIn the event that the minimum wage is increased by law or wage order, service charges paid to the covered employee shall not be considered in determining the employer’s compliance with the increased minimum wage.

XXX

For purposes of this Article, managerial employees refer to any person vested with powers or prerogatives to lay down and execute management policies or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees or to effectively recommend such managerial actions.”

 

Furthermore, RA 11360 also provides that, to facilitate resolution of any dispute between the management and the employees on the distribution of service charges, a grievance mechanism shall be established or if inadequate, the grievance shall be referred to the regional office of the Department Labor and Employment which has jurisdiction over the workplace for conciliation.

Despite the provisions mentioned above and its amendments, it still holds true that the employer and the employees are not prohibited from entering into agreements for the distribution of the pooled tips and gratuity. However, the agreement must always be favorable to the employees (Sec. 6, Book III, Rule VI of the Implementing Rules of the Labor Code of the Philippines). In the end, it is the job of the management to find the balance between satisfied customers, happy and hardworking employees, and a profitable business


OTHER SOURCES:

  1. Acosta, Persida, Management has share of service charges, August 02, 2014,  The Manila Times, https://www.manilatimes.net/management-share-service-charges/116086/, Last Accessed: August 14, 2019
  2. Gana, Dominique, The lowdown on service charge: Should you charge for service? Or is relying on tips enough to incentivize employees?, Published January 16, 2019, F&B Report Official Website, http://fnbreport.ph/features/the-lowdown-on-service-charge-dominiqueg-20190116/, Last Accessed: August 14, 2019

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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