Service Charge Law

Twice a month, workers in hotels and other similar establishments will receive additional pay coming from the collection of service charges.
Republic Act11360 or “An Act Providing that Service Charges Collected by Hotels, Restaurants and other Similar Establishments be Distributed in Full to All Covered Employees” has amended Article 96 of the Labor Code, which previously provides 85 percent of the total service charge collected by the establishment be distributed to covered employees, while 15 percent would account for losses and breakages and be given to managerial employees, at the discretion of management.
Significantly, under RA11360, “managerial employees” refers to those employees who lay down and execute management policies or to effectively recommend such managerial actions. With the new law, they are now excluded from getting a share in the service charges collected. This definition is consistent with the definition of managerial employees under Section 2, Rule VI, Book III of the Implementing Rules and Regulations (IRR) of the Labor Code.
Department of Labor and Employment Department Order 206-19 IRR of Republic Act 11360 entitled “An Act Providing that Service Charges Collected by Hotels, Restaurants, and other similar establishments be Distributed in Full to All Covered Employees Amending for the Purpose Presidential Decree No. 442, as amended, otherwise known as the “Labor Code of the Philippines.”
The definitions under RA 11360 and the IRR are similar to the definition of supervisory employees under Article 219 (m) of the Labor Code or “those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment.” Therefore, employees who fall under the definition of supervisory employees in the Labor Code are included under the definition of managerial employees under RA 11360 and the IRR and they may, thus, likewise be excluded from the distribution of service charges.
So, the covered employees in the service charge law are all employees, except managerial employees defined herein, 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. It appears then that only rank-and-file employees are entitled to the distribution of service charges under RA 11360.
The IRR will apply to all hotels, restaurants and other similar establishments, which collect service charges – the amount added to the bill for work or service rendered by their crew. The IRR issued by the DOLE mandates that the collected service charge should be distributed “completely and equally” to the qualified workers based on their actual hours or days of work or service rendered. The share referred to herein shall be distributed and paid to the covered employees not less than once every two or twice a month, not exceeding 16 days.
Any dispute or difference on the distribution of service charges shall be settled through the grievance machinery as provided in the collective bargaining agreement. In unorganized establishments, where no grievance mechanism is established or the grievance mechanism is inadequate, the grievance will be referred to the DOLE Regional Office which has jurisdiction over the workplace for conciliation.
Unsolved grievances shall be resolved in accordance with existing rules and regulations on the visitorial and enforcement power of the Secretary of Labor.
The share from service charges shall not be considered as compliance with the increase in pay in the event a wage hike is granted for minimum wage earners.
For more information on RA 11360 and its IRR, visit www.dole.gov.ph.