Service Charges: How They Must Be Shared With Workers
Quick answer
In hotels, restaurants and similar establishments, all service charges collected must be shared completely and equally among the covered workers. Managerial employees get no share, and the management keeps nothing. This is the rule of Article 96 of the Labor Code as rewritten by Republic Act No. 11360. 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.
What does the law say about service charges?
The rule is Article 96 of the Labor Code. 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.
Three words carry the rule:
- All. The whole amount collected as service charges is distributed.
- Completely. Nothing is held back for the employer.
- Equally. Each covered worker gets the same share.
Did the old rule give part of the service charge to management?
Yes. The earlier version of Article 96 divided service charges between the employees and management in fixed shares. Republic Act No. 11360 replaced that rule. Under the current text, the covered workers receive all of it.
Section 2 of Republic Act No. 11360 adds that 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.
Who counts as 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.
So the test is the power the person holds, not the job title. A supervisor who can effectively recommend hiring or discipline falls under the definition. A cashier or waiter called "team leader" without such powers does not.
This definition is not the same as the one in Article 82, which decides who is covered by the rules on hours of work.
Can service charges be counted as part of the minimum wage?
Not when the minimum wage goes up. 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 employer must meet the new minimum wage from wages alone. The service charge shares come on top. This page does not give minimum wage amounts. To estimate your net pay, see the take-home pay calculator.
What happens if workers think the shares are wrong?
The third paragraph sets the path for 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.
An unpaid share of service charges is a money claim. Money claims arising from employment must be filed within three years from the time the cause of action accrued. See labor money claims: how long do you have? and how to file a labor complaint.
How often must service charges be paid out?
Article 96 as rewritten by Republic Act No. 11360 does not set the payout schedule. Section 3 of the law called for implementing rules, which are not covered on this page. Wages in general must be paid at least once every two weeks or twice a month under the rules on time of payment.
How does this work in real life?
These are made-up examples to show how the rule works. They are not advice for any real case.
Rica is a waiter in a restaurant that adds a service charge to every bill. The restaurant has 20 covered workers and one manager who hires and disciplines staff. Under Article 96, the service charges collected are divided into 20 equal shares. The manager gets none.
Toni works at a hotel front desk. A new wage order raises the minimum wage in his region. The hotel says his service charge share already brings him above the new minimum. Under the second paragraph of Article 96, service charges are not counted in deciding whether the hotel complies with the increased minimum wage.
Lea and her co-workers notice that the service charge total on the receipts is higher than what they received. Under Article 96, they raise the issue through the restaurant's grievance mechanism. If there is none, or it does not work, the grievance goes to the DOLE regional office for conciliation.
When do you need a lawyer?
Talk to a lawyer, your union or the Public Attorney's Office if a large amount of service charges is involved, if many workers are affected, or if you face pressure after raising the issue. Employers setting up a distribution system can also get legal advice on their records and grievance procedure. If you cannot afford a lawyer, see Free legal help in the Philippines.
Which provisions does this answer rest on?
Frequently asked questions
Who gets the service charge in a restaurant or hotel?
Under Article 96 of the Labor Code, as amended by Republic Act No. 11360, all service charges collected by hotels, restaurants and similar establishments are distributed completely and equally among the covered workers, except managerial employees.
Does the management keep a share of the service charge?
Not under the current text. An older version of Article 96 divided service charges between the employees and management. Republic Act No. 11360, approved on August 7, 2019, replaced it with the rule that all service charges go to the covered workers.
Are managers entitled to a share?
No. Article 96 excludes managerial employees. For this article, a managerial employee is a person 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.
Can the employer use the service charge to meet a new 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 I complain if service charges are not shared properly?
Article 96 requires a grievance mechanism for disputes on the distribution of service charges. If there is none, or it is inadequate, the grievance is referred to the DOLE regional office with jurisdiction over the workplace for conciliation.
Does Republic Act No. 11360 reduce benefits workers already have?
No. 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.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
Was this page helpful?