Service Charges

Service charge is an additional pay given to covered employees, except managerial employees, by establishments that collect service charges for work or services rendered.

1. Concept

Service charges – refer to the additional payment collected ‘by hotels, restaurants and similar establishments’ and which ‘shall be distributed completely and equally among the covered workers except managerial employees’ (P.D. 442, Labor Code, as amended by R.A. 11360, Article 96) and ‘added to the bills for work or services rendered’ (2024 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits “DOLE-BWC Handbook”, p. 26)

These establishments include those entities operating primarily as private subsidiaries of the Government. (Section A, Chapter 7, 2022 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits, p. 24)

a. Legal basis

The following is the legal bases:

Legal BasisProvisions
1) P.D. 442, Labor Code, as amended by R.A. 11360Article 96
2) Omnibus Rules Implementing the Labor Code (“Omnibus Rules”)Rule VI, Book III

2. Covered and excluded employees

The benefit applies ‘to all employees, except managerial employees as defined by law, under the direct employ of the establishment, regardless of their positions, designations or employment status, and irrespective of the method by which their wages are paid.’ (DOLE-BWC Handbook, p. 26)

Managerial employees – for the specific purpose of service charges, refers to  ‘any person vested with powers or prerogatives to lay down and execute management policies or hire, transfer, suspend, pay-off, recall, discharge, assign or discipline employees or to effectively recommend such managerial actions.’ (P.D. 442, Labor Code, as amended by R.A. 11360, Last Paragraph, Article 96)

3. Benefit

The benefit covers all service charges that have been collected by covered establishments.

a. Distribution

Service charges are required to be ‘distributed completely and equally among the covered workers except managerial employees.’ (P.D. 442, Labor Code, as amended by R.A. 11360, Last Paragraph, Article 96)

The distribution should be ‘based on actual hours or days of work or service rendered, among the covered employees, including those already receiving the benefit of sharing in the service charges.’ (DOLE-BWC Handbook, p. 26)

b. Payment

Employers are required to pay the service charges ‘once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days.’ (DOLE-BWC Handbook, p. 26)

4. Minimum wage increase

‘In the event that the minimum wage is increased by law of wage order, service charges paid to the covered employees shall not be considered in determining the employer’s compliance with the increased minimum age.’ (P.D. 442, Labor Code, as amended by R.A. 11360, Paragraph 2, Article 96)

5. Grievance mechanism

‘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.’ (P.D. 442, Labor Code, as amended by R.A. 11360, Paragraph 3, Article 96)

5. Favorable employee stipulations

The above discussion may be superseded by any stipulation favorable to the employee via an employment contract, company policies, collective bargaining agreement, or analogous thereto.

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