Is the 10% Service Charge Mandatory for Hotels and Resorts in the Philippines?

Short answer

No. Philippine law does not require hotels, resorts, or restaurants to impose a 10% service charge (or any fixed percentage). The 10% you often see is a common industry practice, not a legal mandate. However, when an establishment chooses to collect a service charge, the Labor Code (as amended by Republic Act No. 11360) and its implementing rules strictly govern how it must be distributed, recorded, and paid to workers.

Legal foundations and what they mean

1) Service charge is optional—but regulated once collected

No statute requires a hotel or resort to add 10% (or any amount) to guest bills as a service charge.
If an establishment imposes a service charge, R.A. 11360 (2019) amended the Labor Code to require that 100% of the service charge collected be distributed to covered employees, excluding managerial employees.
The Department of Labor and Employment (DOLE) IRR (widely known as DOLE Department Order No. 206-19) fleshes out the rules on who is covered and how and when the service charge must be paid.

2) Who gets the service charge?

Covered employees: typically rank-and-file and supervisory hotel/resort staff who actually render service during the period the service charge is earned (e.g., front office, F&B, housekeeping, spa, etc.).
Excluded: managerial employees (i.e., those primarily managing the enterprise or a department and exercising independent judgment on hiring/firing or equivalent authority).

3) How it must be distributed and paid

Distribution: 100% of collected service charges goes to covered employees. The law’s baseline is equal sharing, but in practice the IRR allows reasonable pro-ration (e.g., by days/hours actually worked in the pay period) as long as no portion reverts to management and any formula is applied fairly and transparently (and aligned with any CBA, if one exists).
Payout frequency: at least twice a month (intervals not exceeding 16 days), usually together with payroll.
Records: establishments should maintain a service-charge ledger/registry and show the amount collected and distributed per pay period.

4) If the hotel/resort stops collecting a service charge

If an establishment abolishes the service charge, the law prohibits diminution of pay by requiring that the average share employees received (commonly the average of the prior 12 months) be integrated into their wages. This preserves workers’ compensation levels even after the policy change.

Frequently asked questions (with practical examples)

Is the 10% rate required or capped by law?

Neither. There’s no required rate and no statutory cap. Ten percent is simply customary. Establishments may set a different rate (or none at all), provided it’s clearly disclosed to guests and—if collected—fully distributed to covered employees under the Labor Code/IRR.

Can a hotel impose both a service charge and allow tipping?

Yes. Tips are voluntary payments from guests and are distinct from the service charge (a compulsory fee added to the bill). If tips are routed through the hotel (e.g., charged to room/POS), best practice is to remit them fully to the intended workers and keep them separate from the service-charge pool.

Are agency or outsourced personnel entitled to a share?

As a rule, the employees of the collecting establishment are the ones entitled under the law. If the hotel uses contracted workers, entitlement depends on the employment arrangements and any CBA/company policy. Many hotels voluntarily include long-term deployed workers to promote fairness, but this is a policy/CBA question unless the workers are its own employees.

How is the service charge shown on guest bills?

Transparency is a consumer-protection norm and a DOT accreditation expectation: quotes should clearly state whether prices are “nett” (inclusive) or “++” (plus service charge and VAT). Hidden or undisclosed compulsory charges risk consumer complaints (to DOT/DTI or the local tourism office).

How does VAT interact with service charge?

In practice, Philippine hotels/restaurants treat the service charge as part of gross receipts and compute 12% VAT on the taxable amount that includes the service charge. A typical computation for a ₱10,000 room on “++” terms is:
- Base rate: ₱10,000
- 10% service charge: ₱1,000 → Subtotal: ₱11,000
- 12% VAT on ₱11,000: ₱1,320
- Total bill: ₱12,320 (Always follow the hotel’s official VAT invoice; tax treatment is ultimately governed by BIR rules.)

How do Senior Citizen (R.A. 9994) / PWD (R.A. 10754) benefits apply?

For eligible transactions (e.g., lodging and dining), the 20% discount and VAT exemption apply to the base price. The service charge is generally computed after the discount (since the discount base excludes VAT and service charge).
- Example (restaurant bill, “++”): Base ₱1,000 → 20% SC/PWD discount = ₱200 → ₱800
- 10% service charge on ₱800 = ₱80
- VAT: exempt for eligible SC/PWD sales
- Total: ₱880 Establishments should reflect the discount and exemptions clearly on the receipt.

Do service-charge shares count as “wages” for benefits?

The law treats the service-charge share as in addition to basic wage and regulates distribution, not the minimum wage. Whether it’s included in specific benefit bases (e.g., 13th-month pay, retirement, separation pay) depends on the statutory definition of “basic wage” versus “wage/earnings” and current DOLE/BIR guidance. In many computations, basic wage is the benchmark (thus excluding service charges), but check your payroll rules/CBA and updated government issuances.

Compliance checklist for hotels and resorts

Decide whether to impose a service charge and at what rate (no legal mandate for 10%).
Disclose clearly in all guest-facing channels: reservation confirmations, menus, rate sheets, websites, and in-room info. Use “nett” or “++” consistently.
Adopt a written policy (or CBA clause) on distribution—state coverage, any pro-ration by hours/days worked, inclusion/exclusion rules for probationary/part-time/casual staff, and the payout schedule (at least twice monthly).
Set up records: track collections and distributions per pay period; show service-charge lines on payroll.
Exclude managers from the distribution; include eligible supervisory and rank-and-file staff who rendered work in the covered period.
If you abolish the service charge, compute the average historical share (commonly 12-month average) and integrate it into wages to avoid diminution of pay.
Train front-line and accounting staff on VAT/discount computations (SC/PWD), and ensure official receipts reflect the correct bases and exemptions.
Handle complaints promptly; unresolved labor concerns go to DOLE; guest complaints about hidden charges go to DOT/DTI or local tourism offices.

Key takeaways

Not mandatory: There is no law requiring a 10% service charge in Philippine hotels and resorts.
If collected, it’s workers’ money: By law, 100% of collected service charges go to non-managerial employees, distributed fairly and on time.
Be transparent: Disclose the policy and do the math correctly (VAT and SC/PWD rules).
Don’t diminish pay: If you stop collecting service charges, integrate the historical shares into wages.

This guide provides general legal information for the Philippines. For specific situations (e.g., unusual staffing structures, CBAs, or tax treatments), consult counsel or your payroll/tax adviser.