PLEASE NOTE: This article was updated on 12 December 2019 to take into account subsequent changes in the law. Click here to view the updated article.
Your business may no longer be able to count service charges as a source of income – and this change could happen soon!
Managers and owners of hotels and restaurants in the Philippines, you read it right! Senate Bill 1299 seeks to give 100% of service charges received to workers in hotels and restaurants.
Once implemented, what will the effect be on your business? On your employees? When might the bill be passed? Here’s what we know so far about the new bill.
Make sure to also check out our recent article on the importance of financial controls within the F&B industry.
What does Senate Bill 1299 say?
Senate Bill 1299 or “An Act Providing that 100 Percent of the Service Charge Collected in Hotels and Other Establishments Be Distributed to All Covered Employees and For Other Purposes” aims to give 100% of service charges received to workers in hotel and restaurants instead of the current 85% requirement.
The bill was proposed by Senator Joel Villanueva, Chair of the Senate Committee on Labor, Employment and Human Resources Development. The bill was co-authored by Senator Cynthia Villar and Senator Migz Zubiri. A House version was filed as House Bill No. 8784.
If approved and passed into law, this bill will amend Article 96 of the Labor Code of the Philippines, meaning it will affect all hotel and restaurant businesses in the Philippines.
Under Section 14 of Presidential Decree 850, workers are currently entitled to receive 85% of the service charge while management get the remaining 15%.
This sharing mechanism, which was originally intended so that management of such establishments could compensate for any breakage or wastage by their staff, has not changed since it became law in 1975.
What is the purpose or intention of the bill?
The bill has been proposed with the actual intentions of hotel and restaurant customers in mind. When customers pay the service charge, according to Senator Villanueva, their intention is to give credit to the people who are actually providing the service to customers – kitchen staff, cashiers, waiters and supervisors. Customers generally do not intend to give ‘tips’ to the management of the establishment.
How will it affect your employees?
When signed into law, it is likely to affect over 500,000 workers in hotels and restaurants across the Philippines. The bill will cover both rank-and-file and supervisory employees.
It could give your employees a morale boost because they know they will be getting additional income if they provide a better service, which in turn could result in a higher quality of service. According to Senator Villanueva, this bill could double an employee’s:
- customer care; and
- the level of personal rapport with their customers.
It is proposed that service charges will be fully and equally distributed to all regular rank and file and supervisory employees.
How will it affect your business?
From a company’s point of view, an increase of 15% (from 85% to 100%) for employees will mean a reduction in income for businesses.
To illustrate, suppose the total service charge for a customer is P1,000.
Under the current law, the scenario is as follows:
To the workers:
P850 – income for employees
To the management:
P150 – income for management
Under the proposed new bill, the following will be the implications for a company’s books of accounts:
To the workers:
P150 – additional income earned (100% service charge goes to the employees – the entire P1000)
P150 – reduction in income for management
So, in this case, the business will lose P150 income that it would usually have received, once the new bill is passed. The employees will stand to gain an additional income of P150.
Business owners and managers should be aware that the service charge received by employees forms part of an employee’s taxable income. As such, payroll and employee payment computations will have to be adjusted to align with the implications of the new bill (once it is passed into law).
For certain food and beverage establishments, the implications of the bill could be quite significant. The service charge is usually (but not always) 10% of sales. As it currently stands, 15% of that 10% will go back to management. So technically, this would result in a total reduction of 1.5% in income for establishments.
Creating financial controls could help to minimize your financial losses once the bill passes into law. By having robust financial processes and protocols in place, a company can plan for changes in cash flow and take actions proactively.
What if a company refuses to follow the law provided by the new bill?
Well, they will be liable to the Department of Labor and Employment who are tasked to oversee implementation once the bill is enacted into law.
What if there’s an increase in the minimum wage, will the service charge affect the computation?
No, the service charges will not be considered when determining the increased minimum wage for workers.
In other words, the service charge will always be calculated separately and be in addition to the minimum wage within a particular business.
What’s the current status of the bill?
The bill was approved by the Bicameral Committee on May 28, 2019. According to the latest press release for Senate Bill 1299 and House Bill 8784, the Bicameral Committee already communicated the ‘move for adoption’ of the Senate version to President Rodrigo Duterte.
This means that hotel and restaurant workers could very soon be in a position to earn 100% of service charges received!
Want to remain updated?
Legal developments like these can be hard to track. Especially when business owners are busy with growing their businesses. It is, however, important for a business to ensure it is in compliance with new legislation and regulations.
By engaging a trusted partner and adviser, a business can really benefit from regular updates and timely advice around new processes and requirements.
CloudCfo is always on top of changes that come down the line with regards to new business or tax legislation. As your growth partner, we will always update you with important developments that might affect your business, providing value-added advice on what steps you can take to minimise the impact.
CloudCfo offers the highest quality in outsourced accounting, bookkeeping and finance services for companies in the Philippines.