New guidelines for service charge

In 2019, Republic Act 11360, or the Service Charge Law, was enacted, amending Article 96 of the Labor Code. Service charge refers to the amount added to the bill for work or service rendered when one dines in a restaurant or checks out of a hotel.

We recall that under the old law, Article 96 of the Labor Code required all service charges collected by hotels, restaurants, and similar establishments to be distributed at 85 percent for all covered employees, equally among them, and 15 percent for management.

With the enactment of the Service Charge Law, all establishments collecting a service charge, such as hotels and restaurants, are mandated to distribute completely and equally, or 100 percent, the service charge to all employees, except those in a managerial position. Thus, all workers directly employed by the covered establishment, irrespective of position, designation, or employment status, shall receive a share of the pooled service charges.

Pursuant to the new law, in 2019, the Department of Labor and Employment (DoLE) issued Department Order 206, series of 2019, or the implementing rules and regulations (IRR), which defined pertinent subjects and set out the procedure for covered and similar establishments in distributing the service charge to covered employees.

Under DO 206, covered employees referred to all employees, except managerial employees, as defined in the law and the IRR 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.

However, on 1 February 2024, DoLE issued DO 242, a series of 2024, or the revised IRR of the Service Charge Law, which provides for the full and equal distribution of the service charge among workers of hotels, restaurants, and other establishments.

Under DO 242, covered employees refer to “all employees, except managerial employees, as defined herein, regardless of their position, designation, or employment status, and irrespective of the method by which their wages are paid.”

In the section defining covered employees, DoLE deleted the phrase “under the direct employ of covered establishments,” which was in DO 206. Thus, under DO 242, regular and non-regular workers can collect from the service charge.

As defined under the new IRR, a managerial employee refers 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 action.”

DO 242 provides that the rules shall apply to all establishments collecting a service charge, such as hotels, restaurants, and other similar establishments, including those entities operating primarily as private subsidiaries of the government

DO 242 further provides that “all service charges collected by covered establishments shall be distributed completely and equally based on actual hours or days of work or service rendered among the covered employees.”

Further, the revised IRR maintains that the frequency of distribution should not be less than once every two weeks or twice a month with no more than a 16-day interval.

The revised guidelines also specify the non-diminution of benefits, which means the new rules on service charge distribution should not reduce the existing benefits of the covered employees.

A provision for resolving disputes regarding the service charge distribution to covered employees has also been updated by expanding the dispute referral system to regional, provincial, field, or satellite offices with jurisdiction over the workplace. The new IRR also includes conciliation through the Single-Entry Approach.

The amendment aims to improve the distribution of service charges to cover all employees, including those not directly hired by the principal employers, such as “contractual, non-regular, or agency workers” serving the covered establishments.

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