Service Charge Law Hotel Philippines

Service Charge Law in Hotels in the Philippines

In the Philippines, the service charge law governs the mandatory imposition and distribution of service charges in hotels, restaurants, and other similar establishments. The primary purpose of this law is to ensure that workers who provide services to customers are fairly compensated for their work. The law outlines the handling of service charges, its distribution to employees, and the rights of employees to benefit from this additional income.

Legal Framework

The Service Charge Law in the Philippines is primarily based on Republic Act No. 7655, which was enacted in 1993. This law amends Article 96 of the Labor Code of the Philippines, particularly relating to the collection and distribution of service charges in business establishments. The law also ensures the protection and rights of workers who provide services to customers in the hospitality and food service industries.

Republic Act No. 7655 – Key Provisions

1. Collection of Service Charge: Service charges are mandatory for establishments like hotels, restaurants, and other similar businesses. The law allows these businesses to impose a service charge, which is generally collected from customers as a percentage of the total bill. Typically, this is a 10% surcharge, but the rate may vary depending on the policy of the specific business. This charge is meant to compensate employees who provide customer service, including waiters, hotel staff, bellboys, and others.

2. Distribution of Service Charge: Under the law, the service charge collected must be distributed entirely to the rank-and-file employees of the establishment. This includes those who work directly with customers and provide tangible services. The distribution of this service charge is mandatory and should be done in a manner that is fair and equitable.

   Distribution formula:

   • 85% of the service charge collected must be distributed to the employees in proportion to the number of hours worked.
   • The remaining 15% is retained by the employer for administrative costs.

3. Qualified Employees: The law specifies that all employees who are receiving a portion of the service charge must be rank-and-file employees. This includes front-line workers such as waiters, hotel staff, cooks, housekeeping, and bellboys. Supervisory and managerial employees are typically excluded from receiving a share of the service charge.

4. Exclusion of Certain Charges: The law does not require the service charge to be given to employees if the charge is imposed in connection with an event where the customer expressly asks that the service charge be waived or if the service charge is imposed on a different, specific purpose (like covering costs other than gratuity for service).

5. Payment Method: The service charge distribution should be paid along with the employee’s regular wages. It should be included as part of the employee’s overall compensation package.

6. Right of Employees: Employees have the right to receive a portion of the service charge even if they did not directly interact with the customer but worked behind the scenes. Employees who work during peak hours or are integral to the operation of the establishment may receive a larger share, depending on how the employer chooses to allocate the funds, as long as it is in accordance with the law’s guidelines.

7. Obligations of Employers: Employers are required to ensure that the collection, distribution, and usage of service charges comply with the law. They must distribute the charge to employees promptly and fairly and cannot withhold or misappropriate funds meant for the employees. Employers must also maintain clear and accurate records of service charge collections and distributions.

Impact on Employees

For employees working in the service industry, the Service Charge Law provides an additional income stream, which can significantly supplement their wages. Workers in industries like hospitality and food service often depend on tips and service charges, as their base salaries may not always reflect the total compensation for their efforts. This law ensures that these workers are fairly compensated for the level of service they provide.

By mandating the distribution of service charges, the law helps reduce the disparity in income among employees, as some workers may otherwise receive less compensation due to factors like the volume of customers they serve or their specific roles in the establishment.

Exemptions and Exceptions

Although most workers in the service industry are entitled to service charges, there are certain exemptions. For example:

• Employees in managerial or supervisory positions are excluded from receiving a share of the service charge.
• Some establishments may have internal policies regarding the service charge, and there may be conditions under which certain employees, such as those in higher management or executives, are not entitled to the distribution.

Compliance and Enforcement

The Department of Labor and Employment (DOLE) plays a significant role in ensuring that employers comply with the Service Charge Law. The department has the authority to conduct audits, inspect establishments, and take legal action if businesses are found to be violating the law.

If an establishment fails to properly distribute service charges or misuses the funds, employees can file complaints with the DOLE or take legal action for violation of their rights under the law.

Conclusion

The Service Charge Law is an important protection for workers in the Philippines, especially in industries like hospitality, where employees rely on tips and service charges to supplement their income. It ensures that service charges are distributed fairly among rank-and-file workers, guaranteeing they receive compensation for their hard work in providing excellent service to customers.

This law emphasizes the need for businesses to maintain transparency and fairness in their payment practices, ensuring that the workers who are essential to customer satisfaction receive due compensation. The legal framework surrounding service charges in the Philippines plays a critical role in promoting fair labor practices and protecting employees from exploitation in the service industry.