Service Charge: Meaning Under the Labor Code
Quick answer
A service charge is the amount that hotels, restaurants and similar establishments collect for service, usually added to the bill. Under Article 96 of the Labor Code, as rewritten by Republic Act No. 11360, all of it must be shared completely and equally among the covered workers. Managerial employees get no share, and the employer keeps nothing.
Also called: Service charges
What does the Labor Code say about service charges?
The rule is in Article 96. Its number did not change in the 2015 renumbering. Republic Act No. 11360, approved on August 7, 2019, rewrote it. The first paragraph reads:
All service charges collected by hotels, restaurants and similar establishments shall be distributed completely and equally among the covered workers except managerial employees.
Before Republic Act No. 11360, Article 96 divided service charges between the employees and management in fixed shares. The current text gives the whole amount to the covered workers.
Who is a managerial employee for service charges?
Article 96 has its own definition, used only for this article:
For purposes of this Article, managerial employees refer 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 actions.
It is broader than the definition used for overtime in Article 82. See managerial employee.
Can the employer use service charges to meet a new minimum wage?
No. The second paragraph says:
In the event that the minimum wage is increased by law or wage order, service charges paid to the covered employees shall not be considered in determining the employer’s compliance with the increased minimum wage.
The service charge share comes on top of the wage. This page gives no minimum wage amounts.
What if workers question how it is shared?
Article 96 requires a grievance mechanism for disputes on the distribution of service charges. If there is none, or it is inadequate, the grievance goes to the DOLE regional office with jurisdiction over the workplace for conciliation. See service charges: how they must be shared.
Does the new rule reduce existing benefits?
No. Section 2 of Republic Act No. 11360 says nothing in it shall be construed to diminish existing benefits under present laws, company policies and collective bargaining agreements. Article 100 of the Labor Code also protects benefits already enjoyed. See can your employer remove a benefit?
Example
Made-up illustration: Rica works in a restaurant with 20 covered workers and one manager who hires and disciplines the staff. Each month, the restaurant collects service charges on its bills. Under Article 96, the whole amount collected is divided into 20 equal shares, and the manager gets none. If Rica and her co-workers think the shares do not match the receipts, they raise it through the grievance mechanism, or with the DOLE regional office if there is none.
To estimate net pay from wages, see the take-home pay calculator.
Which provisions use this term?
Frequently asked questions
What is a service charge under the Labor Code?
It is the charge collected by hotels, restaurants and similar establishments for service. Article 96 of the Labor Code, as amended by Republic Act No. 11360, says all of it is distributed completely and equally among the covered workers except managerial employees.
Does the employer keep part of the service charge?
Not under the current text. The older Article 96 divided service charges between the employees and management. Republic Act No. 11360, approved on August 7, 2019, replaced it so that the covered workers receive all of it.
Can service charges be counted toward the minimum wage?
Not when the minimum wage is increased. Article 96 says service charges paid to covered employees are not considered in deciding whether the employer complies with an increased minimum wage.
Who is excluded from the service charge?
Managerial employees. For Article 96, they are persons with powers to lay down and execute management policies, or to hire, transfer, suspend, lay off, recall, discharge, assign or discipline employees, or to effectively recommend those actions.
Which businesses does the service charge rule cover?
Article 96 covers service charges collected by hotels, restaurants and similar establishments.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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