Article 96 of the Labor Code: Service charges
Status: Amended
Amended
This provision has been amended. The text below is the current version.
- Amended by: Republic Act No. 11360 (Wording as amended by this law (printed in the renumbered edition; compared with the law).)
What does Article 96 say?
All service charges collected by hotels, restaurants and similar establishments shall be distributed completely and equally among the covered workers except managerial employees.
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.
To facilitate resolution of any dispute between the management and the employees on the distribution of service charges, a grievance mechanism shall be established. If no grievance mechanism is established or if inadequate, the grievance shall be referred to the regional office of the Department of Labor and Employment which has jurisdiction over the workplace for conciliation.
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.
Read the Labor Code on the DOLE website (it uses the article numbers before 2015)
What does it mean in plain language?
Article 96 of the Labor Code says that service charges collected by hotels, restaurants and similar establishments must be distributed completely and equally among the covered workers. Managerial employees get no share. Service charges cannot be counted toward a new minimum wage, and disputes go first to a grievance mechanism and then to the DOLE regional office for conciliation.
The current wording comes from Republic Act No. 11360, approved on August 7, 2019, which rewrote the article. An older version divided service charges between the employees and management in fixed shares. The article keeps the same number after the 2015 renumbering of the Labor Code.
How does it work in real life?
Rica: a waiter in a restaurant
Rica's restaurant adds a service charge to every bill. Under Article 96, the total collected must be shared completely and equally among the covered workers, Rica included. The restaurant manager, who hires and disciplines staff, gets no share.
Toni: a new minimum wage
A new wage order raises the minimum wage in Toni's region. His hotel says the service charge he receives already brings him above the new minimum. Under the second paragraph of Article 96, service charges are not considered in determining whether the hotel complies with the increased minimum wage.
Lea: a dispute over the shares
Lea and her co-workers believe part of the service charges was not distributed. Article 96 says the dispute goes to the establishment's grievance mechanism. If there is none, or it is inadequate, the grievance is referred to the DOLE regional office with jurisdiction over the workplace for conciliation.
What does this mean in practice?
- Article 96 is in Book Three, Title I of the Labor Code. Under Article 82, that title does not apply to some groups, such as government employees and domestic helpers.
- Section 3 of Republic Act No. 11360 called for implementing rules. Those rules are not covered here.
- Deductions from wages have their own limits in Article 113.
- An unpaid share is a money claim, filed within three years. See how to file a labor complaint, how long you have to file a labor money claim and Free legal help in the Philippines.
What does Article 96 say?
The first paragraph is the sharing rule:
All service charges collected by hotels, restaurants and similar establishments shall be distributed completely and equally among the covered workers except managerial employees.
The second paragraph is about the minimum wage:
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 third paragraph is about disputes:
To facilitate resolution of any dispute between the management and the employees on the distribution of service charges, a grievance mechanism shall be established. If no grievance mechanism is established or if inadequate, the grievance shall be referred to the regional office of the Department of Labor and Employment which has jurisdiction over the workplace for conciliation.
The last paragraph defines who is excluded:
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.
What does "completely and equally" mean?
"Completely" means the whole amount collected as service charges goes to the covered workers. "Equally" means each covered worker gets the same share. The only workers left out are managerial employees, as the last paragraph defines them.
The definition of managerial employee in Article 96 is its own, "for purposes of this Article". It is not the same as the definition in Article 82 for the hours-of-work rules.
Can service charges replace a wage increase?
No. When the minimum wage goes up by law or by a wage order, the employer must meet the new minimum without counting the service charge shares. Minimum wages are set by the regional wage boards under Article 99.
What happens to better benefits that already exist?
Section 2 of Republic Act No. 11360 says nothing in the law 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.
Frequently asked questions
How are service charges divided under the Labor Code?
Article 96, as amended by Republic Act No. 11360, says all service charges collected by hotels, restaurants and similar establishments shall be distributed completely and equally among the covered workers, except managerial employees.
Do managers get a share of the service charge?
No. Article 96 excludes managerial employees, defined in the article as 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 such actions.
Can the employer count service charges toward the minimum wage?
No. Article 96 says that when the minimum wage is increased by law or wage order, service charges paid to the covered employees are not considered in determining whether the employer complies with the increased minimum wage.
Where do disputes about service charges go?
Article 96 requires a grievance mechanism. If none is set up or it is inadequate, the grievance is referred to the DOLE regional office with jurisdiction over the workplace for conciliation.
When did the current rule take effect?
Republic Act No. 11360, approved on August 7, 2019, rewrote Article 96. Its Section 2 says nothing in the law shall be construed to diminish existing benefits under laws, company policies and collective bargaining agreements.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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