Here’s a practitioner-style explainer you can rely on when advising clients or drafting internal policies on the Entitlement of Supervisors to Service Charge (Philippines)—covering who is covered, who is excluded, distribution rules, payroll treatment, edge cases, and enforcement. No web sources used.

Entitlement of Supervisors to Service Charge (Philippines)

1) Core rule (what the law now says, in plain English)

All service charges collected by hotels, restaurants, and similar establishments must be distributed 100% to “covered employees,” with the sole statutory exclusion for managerial employees.
Supervisors are generally covered (i.e., entitled) unless they are truly “managerial” under the Labor Code test (see §2). Titles don’t control; actual functions do.

Practical takeaway: If a “supervisor” mainly oversees a shift/section and relays/endorses recommendations but does not have genuine, independent authority to hire, fire, lay down policy, or discipline with finality, that person is non-managerial and shares in service charge.

2) Who is managerial vs supervisory (the legal tests)

Managerial employee: Primary duty is to manage the establishment or a department, customarily and regularly exercising discretion; has authority to hire, transfer, suspend, lay off, recall, discharge, assign, or discipline (or) effectively recommends such actions with independent judgment, and is not merely clerical or routine. Excluded from service charge sharing.
Supervisory employee: One who, in the interest of the employer, effectively recommends managerial actions but whose exercise of such authority is not independent and is subject to approval. Supervisors often handle scheduling, endorse evaluations, monitor quality, or lead small teams. Included in service charge sharing.

Substance over labels: “Duty Manager,” “Captain Waiter,” “Head Barista,” “Shift Lead,” or “Team Leader” may still be non-managerial if they lack true policy-making power or final disciplinary authority.

3) Who else is covered (scope of establishments & workers)

Establishments: Hotels, resorts, restaurants, cafés, bars, and similar service-oriented establishments that collect a service charge (whether shown as “service charge,” “SC,” or included in a mandatory service fee).
Workers: All non-managerial employees, regardless of employment status (regular, probationary, casual, full-time, part-time), who render work during the period covered by the distribution. This typically includes front-of-house (servers, hosts, baristas), back-of-house (kitchen, stewarding), housekeeping, bell/concierge, spa/amenities staff, and supervisors who are non-managerial.

4) Distribution rules (how to share it)

100% to covered workers. The old “85% to employees / 15% to management” allocation is no longer the rule. Management cannot take a cut.
Equal sharing among covered workers is the default statutory language. In practice, many policies (consistent with labor guidelines) prorate by actual hours or days worked in the pay period to keep it equitable for part-timers or those with differential shifts.
Frequency of payout: At least twice a month or together with regular payroll for transparency.
Eligibility within the period: Establish a clear cut-off—e.g., employees must have rendered work during the distribution period. Policies should state whether workers on paid leave share (many establishments include them pro-rata when leave is paid).
No unilateral deductions: Do not shave off credit-card merchant fees, breakage, “admin charges,” or uniform penalties from the pool. Ordinary business overhead is not a lawful deduction from service charge meant for workers.

Good policy language: “Service charges collected within [dates] shall be pooled and distributed in full to all non-managerial employees who rendered work during the period, prorated by hours actually worked, and paid on [15th/30th] with a transparent pay-stub line.”

5) Abolition or reduction of service charge (integration rule)

If an establishment abolishes the collection of service charge (e.g., moves to “no-SC, tips-only” pricing), the average share received by each covered worker over a representative period (commonly the prior 12 months) is integrated into the employee’s wage.
Once integrated, that amount becomes part of the regular wage and cannot be reduced unilaterally (except by lawful wage-setting processes).

6) Tips vs. service charge (don’t confuse them)

Service charge is mandatorily collected by the establishment and must be shared to covered workers per law.
Tips are voluntary payments by customers to specific workers or a tip pool. Unless a company adopts a tip-pool policy, tips belong to the recipient. A tip pool should be separate from the statutory service charge pool and have clear written rules.

7) Payroll & tax treatment (what HR/Payroll should know)

Tax: Employees’ shares in service charge are taxable compensation income and should be subject to withholding.
SSS/PhilHealth/Pag-IBIG: Because the share is part of compensation, it typically forms part of the basis for contributions (subject to each agency’s rules on what counts as “compensation”).
Basic wage vs. allowances: Service charge is not “basic wage.” Thus, overtime, night premium, and holiday pay multipliers use basic wage as the base unless (a) your CBA/contract says otherwise, or (b) the SC was integrated into wage under §5, in which case it becomes part of the wage base.
13th-month pay: Computed on basic salary; service charge shares are generally excluded unless they’ve been integrated into wage under §5 or included by contract/CBA.

8) Contractors, agency workers, and inter-company setups

Who pays: The establishment that collects the service charge bears the statutory obligation to pool and distribute it to its non-managerial workers.
Deployed/agency workers: If agency personnel (e.g., housekeeping, stewarding) work side-by-side contributing to the service that attracts the SC, best practice is to include them in the pool via a written arrangement with the contractor (or provide an equivalent benefit), to reflect actual service delivery and avoid inequities.
Solidary exposure: In contracting arrangements, the principal may incur solidary liability for labor-standard monetary claims (including SC shares) of the contractor’s employees if the contractor fails to pay, especially where work is usually necessary or desirable to the business.

9) Policy hygiene & documentation (what to write down)

Write a Service-Charge Policy that covers:
1. Who is covered (explicitly exclude only managerial employees under the Labor Code test).
2. Distribution method (equal vs. prorated by hours/days actually worked).
3. Cut-offs & pay dates (align with payroll).
4. Treatment of leaves, new hires, and separations within the period.
5. Treatment of agency workers (inclusion or equivalent benefit).
6. Audit/Transparency (monthly statement of SC collected and distributed; show the line on payslips).
Train managers & supervisors: Make sure “supervisors” who do not meet the managerial test are included—avoid litigation triggered by title-based exclusions.
CBA alignment: If you have a union, align the policy with the CBA; you can improve (but not undercut) the statutory minimum.

10) Enforcement & remedies (when disputes arise)

Internal demand: Employees (or the union) should send HR a written demand identifying the period in dispute, the SC collected vs. distributed, and the exclusion issue (e.g., supervisors wrongly excluded).
SEnA (conciliation-mediation): File a Request for Assistance at DOLE to secure a quick settlement/undertaking.
DOLE inspection: DOLE may audit sales slips, POS data, SC ledgers, payroll, and distribution logs; non-compliance can lead to Compliance Orders and administrative fines.
NLRC money claims: Workers may seek unpaid SC shares, legal interest, and attorney’s fees.
Integration claim: If SC was abolished without integrating the average into wages (§5), employees can demand the integration plus differentials.

11) Red flags & common pitfalls (for employers)

Excluding “supervisors” by title without applying the functional managerial test.
Skimming the pool for “admin/credit card fees” or breakage—this violates the 100% employee-share rule.
Opaque accounting (no POS-to-payroll reconciliation).
Missing agency-worker framework causing uneven distribution and complaints.
Stopping service charge overnight with no wage integration of historical averages.

12) Quick answers (FAQs)

Q1: Our “Dining Supervisors” run shifts and approve time-off but can’t hire/fire. Do they share? Yes, they are non-managerial under the usual test and share in service charge.

Q2: Can we give bigger shares to servers than to kitchen? The statute’s baseline is equal sharing among covered workers. If you adopt prorating by hours/days worked, apply it uniformly across covered positions and document it. Unequal weighting by job class is risky unless bargained in a CBA that improves (not diminishes) the law’s standard.

Q3: An employee on paid sick leave—does he/she share for that period? Set this in policy and apply it consistently. Many employers include paid-leave days in prorating; unpaid leave days typically do not earn a share.

Q4: We stopped collecting service charge and “just raised prices.” Must we integrate? Yes. You must integrate the historical average of each covered worker’s SC share into wages when SC is abolished or effectively discontinued.

Q5: Are trainee/apprentice or probationary supervisors covered? If non-managerial by function and rendered work in the period, yes.

13) Model clause you can adapt (policy snippet)

Coverage. All employees other than managerial employees as defined by the Labor Code shall share in service charges collected from customers. “Managerial” status is determined by actual duties and authority, not by title. Distribution. One hundred percent (100%) of service charges collected within the period [1st–15th / 16th–EOM] shall be distributed to covered employees, prorated by hours actually worked during the period, and paid on regular paydays. Transparency. The Company shall issue a statement each cut-off showing service charges collected and the distribution list; individual shares shall appear as a separate line item on payslips. Leaves and separations. Paid leaves count toward prorating; unpaid leaves do not. Employees separated mid-period receive their prorated share upon clearance. Abolition. If service charges are abolished, the 12-month average of each covered employee’s share shall be integrated into the basic wage effective the date of abolition.

14) Bottom line

Supervisors are entitled to a share in service charges unless they meet the strict legal definition of “managerial.”
100% of the service charge goes to covered workers (no management cut), paid regularly and transparently.
If you abolish service charge, integrate the average into wages.
Write a clear policy, apply the functional test (not job titles), and keep clean ledgers to avoid disputes.

If you’d like, I can turn this into a one-page service-charge policy and a POS-to-payroll reconciliation template you can roll out with HR.