Recent years have seen developments in improving working conditions of employees, from expanded leaves for new mothers and security of tenure to telecommuting. The most recent is oriented towards rank-and-file employees in the service industry, specifically in the hotel and restaurant industry. The Service Charge Law, which was signed by President Rodrigo Duterte into law in August 2019, aims to update the percentage of the service charge collected from customers that go to workers. 

Here’s everything you need to know about the Service Charge Law or Republic Act No. 11360.

When was it signed?

The bill was ratified by the Senate on May 28, 2019. The House of Representatives passed the bill the day after, May 29, 2019. Duterte then signed it into law on Aug. 7, 2019. The Department of Labor and Employment (DOLE) released the Implementing Rules and Regulations on the law on Nov. 19, 2019.

Why was it amended?

The previous iteration of the law in 1975 (Presidential Decree No. 850, an amendment to the Labor Code of the Philippines) stated that service charges “collected by hotels, restaurants, and other similar establishments shall be distributed at the rate of 85 percent for all covered employees and 15 percent for management.” 

More than 40 years since, the law has been amended to give 100 percent of service charges to covered employees instead. According to Senator Joel Villanueva, who also serves as the Chair of the Senate Committee on Labor, Employment, and Human Resources Development, this law will now allow “our frontline service workers to enjoy the fruits of their labor, the reward for providing good, quality service.” 

What will the law do?

The law essentially mandates all establishments that collect service charge to distribute it “completely and equally” among covered employees—meaning all workers directly employed by the covered establishment “regardless of position, designation or employment status.” 

The only exceptions to this are managerial employees, or “those 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 actions.” 

Who will it impact?

Regular employees will benefit from this as they will be the ones to receive the distributed service charge. However, managerial level employees are excluded. 

While previously, businesses used the 15 percent of the collected service charge to incentivize managers (and cover other expenses such as breakages and losses), the current law does not have any allocation for this. This, in turn, will also impact business owners as they will have to find other sources to cover the previous 15 percent.

Can managerial employees demand for an increase or incentive, considering they are not covered by the new service charge law?

“I believe that this is solely a business decision by the business owner to decide how it would like to incentivize its own managerial employees. Managerial employees cannot demand, but of course, they can negotiate for their own incentives. A good business owner would know that it is important to keep all employees, whether managerial or rank-and-file, happy in order to have a successful business,” says Atty. Dominique Gana of the Gana Manlangit Law Office.

Are establishments required to ask for service charge?

“No, establishments are not required to impose service charge on their customers. They can choose to have no service charge at all,” says Gana. The signing of the law also does not mandate that all service establishments collect service charge.

Is there a specific rate for service charge in the Philippines? How should a business compute how much service charge they will charge? 

“No, establishments are free to choose the amount of service charge that they would like to impose,” says Gana.

Previously, we’ve written: “If instead of service charge, tips given are pooled, then the Code requires the tips to be accounted for and distributed in the same manner as service charges following the 85 percent-15 percent rule.” Does this rule still apply? Does the law require all establishments to demand service charge? 

“In this case, in a restaurant where service charge is not imposed but tips given are pooled, presumably it would follow the 100 percent rule (100 percent would be equally distributed to the covered non-management employees). Applying the 85 percent-15 percent rule to given tips, which are pooled, was in accordance with former DOLE rules. Establishments are not required to impose service charge on its customers,” says Gana.