The New DOLE Rules on Service Charge Distribution: What You Need to Know

Much of the local hospitality industry is up in arms these days after the Department of Labor and Employment (DOLE) ordered that service charges be distributed to casual, contractual, and agency-hired employees, aside from regular employees. The order handed down last February mandates that those in managerial positions are now excluded from receiving a share from the service charge, unless they had been receiving a share prior to the enactment of Republic Act 11360, the Service Charge Law, in August 2019. 

According to the DOLE’s Department Order 242-2024, “All service charges collected by covered establishments shall be distributed completely and equally, based on actual hours or days of work or service rendered, among the covered employees.”

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The share of the SC “shall be distributed and paid to the covered employees not less than once every two (2) weeks or twice a month at intervals not exceeding sixteen (16) days.” The new rules, however, respects the collective bargaining agreement between an establishment and its employee union.

After a meeting with Labor Secretary Bienvenido Laguesma on February 9 to discuss the law’s revised implementing rules, the Philippine Hotel Owners Association released a statement saying that the sharing of the service charges among contractual and casual employees is estimated to result in a 30 to 40-percent reduction in regular employees’ take-home pay.

For context, a regular employee in a hotel takes home P40,000 to P80,000 a month from his share of the service charges, on top of his or her basic salary, according to industry sources.

The same sources say the new DOLE rules will be hard for hoteliers and operators since they already have difficulty retaining “good employees,” many of whom have opted to continue working remotely or have gone abroad to take on jobs in cruise ships or foreign hotels and restaurants.

On top of all this, hoteliers say it is also administratively more difficult to process the new service charge distribution.

“I have banquet operations for 300 persons,” says an official of a major hotel chain who spoke on condition of anonymity. “To support that, I have to hire 150 people. Not all of them work the same number of hours, and the new rules say we can only give them their share from the SC charged. But not all of them work in the same departments supporting these banquet operations. It’s an administrative nightmare for our Finance people!” 

But Laguesma says these officials are missing the point.

“The service charge (SC) is not intended for the purpose of retaining or rewarding good and efficient employees,” he said in a statement. “It is designed as a social protection measure intended to augment and complement income of rank and file workers. Hotels and the hospitality industry should devise an incentive scheme to reward employees for purposes of retention and good work and not rely on the SC as a reward and retention scheme.”

Laguesma added that the revised rules were a product of tripartite consultations, where the representatives of both labor and employers’ groups of the industry were part of those consulted. This included members of the PHOA themselves. 

“The revisions adopted were in conformity and align with the intent and spirit of the law enacted in 2019,” he said. 

The PHOA was then able to successfully get workers’ groups to agree that only workers directly employed by the hotels as well as managers be included in the distribution of the service charges.

Data from the Philippine Statistics Authority says there were 33,215 hotels and restaurants in the formal economy in 2021. Restaurants and food kiosks accounted for 25,642 or 77.2 percent of this number, followed by beverage-serving activities with 3,790 establishments (11.4 percent), and short-term accommodations with 3,122 establishments (9.4 percent). Together the sector generated an estimated revenue of P556.62 billion, while expenses reached almost P500 billion in 2021.

Despite the grumblings, some hotel chains have already said they will comply with the DOLE order and implement the new rules of the Service Charge Law.

“Of course we will implement it in the right spirit and make sure that all the listed beneficiaries get the service charge,” Barun Jolly, Business Unit General Manager and Senior Vice President of Robinsons Hotels & Resorts said. Jolly added that the company hospitality group will have automatic timekeeping so it hotel can keep track of the actual number of hours worked by the employee. Only about 30 to 40 percent of the hotel group’s employees are casual, contractual, agency-hired, he says.   

However, for other hotel chains, up to 80 percent of their employees are in the casual/contractual category, including concierges, bellhops, waiters, kitchen staff, housekeeping, banquet. Workers in restaurants and similar establishments that include a service charge in customers’ bills are also covered by the law. While most restaurants have regular employees, large operators such as hotel-owned dining outlets still have casual or contractual staff.