What Philippine Hotels Need to Know About the 2024 Amendment to the Service Charge Law

Earlier in 2024, the Department of Labor and Employment (DOLE) issued new rules regarding Republic Act (RA) 11360 or the Service Charge Law. 

Under the law’s new Implementing Rules and Regulations (IRR), DOLE has removed the phrase “under the direct employ of covered establishments.” The previous version of Section 2(a) stated, “Covered employees refer to all employees, except managerial employees as defined herein, under the direct employ of the covered establishment, regardless of their positions, designations or employment status, and irrespective of the method by which their wages are paid.” 

However, the revised version now reads: “Covered employees refer to all employees, except managerial employees as defined herein, regardless of their position, designations, or employment status, and irrespective of the method by which their wages are paid.”

This revision significantly impacts the hospitality industry by broadening who qualifies as a “covered employee”. By removing the phrase, the law now includes not only direct hires but also contractual, non-regular, or agency workers. Consequently, all employees at service-charging establishments, regardless of their employment status, are entitled to a share of the collected service charges.

With this amendment, hotels may face challenges in the distribution of service charge. Especially if they’re still doing so manually, or have hired most of their workers through an employment agency. 

Continue reading to learn more about the updated Service Charge Law and discover how payroll outsourcing can help you stay compliant.

Payroll outsourcing is the business practice where a third party is hired by a company to handle salary management. It is usually done to streamline this often tedious process, while ensuring complete compliance with labor laws. Doing so also lightens up an organization’s administrative workload, allowing them to focus on more important core functions. 

Outsourcing earnings processing plays a critical role in service charge compliance, particularly for industries where service charges are common, such as hospitality and retail. The specific roles include:

The main benefits of outsourcing payroll include accurate and timely pay distribution, reduced compliance risks, reduction of administrative burden, and improved employee satisfaction.

Let’s examine each one further:

When hotels outsource payroll, they benefit from advanced security measures. Services are often backed by an ISO 27001:2013 certified information security management system, ensuring compliance with international data protection standards. This level of security protects sensitive employee data and financial information, reducing the risk of data breaches. 

Additionally, cloud-based systems provide secure, real-time access to payroll information, enhancing confidentiality and supporting regulatory compliance.

Payroll outsourcing firms are experts in local tax laws and regulations, including any recent changes to them. This means that their computations will account not just for the updated Service Charge Law, but other possible changes to the IRR of staff-related government agencies like the BIR, Philhealth, SSS, and Pag-Ibig. 

It’s important to note that non-compliance with the updated Service Charge law can lead to employees filing a complaint with DOLE. Businesses found guilty of not distributing service charges correctly may face legal action.

Unlike larger corporations with comprehensive HR departments, hotels and other small businesses often struggle with the administrative burden of handling salary management internally. 

In the Philippines, the complexity of salary processing is compounded by various regulatory requirements like the updated Philhealth contribution rate and the intricacies of calculating overtime and final pay. 

Outsourcing these tasks to a specialized service provider alleviates these burdens and also frees up the administrative team to focus on essential aspects of hospitality such as housekeeping, inventory management, marketing, and guest relations.

Working in the hospitality industry often entails working long hours and managing high physical and mental demands. Given this, the hotel management should ensure that their employee’s hard work is fairly compensated and given on time. 

Payroll outsourcing helps achieve this since it’s fully automated and with less human intervention comes a significant reduction in the chances of errors. This is crucial when it comes to service charge distribution, as it makes up a significant portion of a hotel employee’s compensation.

One of the hotel management’s key responsibilities include settling payroll disputes properly. After all, failure to receive their due compensation will affect an employee’s morale, and consequently, their ability to provide a high level of service to guests. 

In the worst cases, mishandling of grievances can even lead to legal disputes, which may cause an operational shutdown. 

Effective payroll management solutions play a critical role in enhancing transparency throughout the process, which is crucial for resolving any grievances related to service charge distribution. 

For hotels just starting out or those expanding their operations, it’s crucial to have a system that can grow with them. Services like Sprout’s Payroll Outsourcing include payroll professionals who can help you manage your firm’s compensation efficiently as your business grows. 

By offloading your hotel’s payroll tasks to certified experts who prioritize transparency and adaptability, you can better manage employee relations and maintain high levels of service.

At its core, the hospitality business revolves around people. The well-being of hotel staff is directly linked to the satisfaction of your guests—happy employees often lead to happy customers.

Your staff are the face of your business, and their ability to deliver top-notch service is crucial for making a lasting impression on guests. Ensuring they receive their compensation accurately and on time is not just beneficial—it’s essential.

With Sprout’s Payroll Professional Services, you can focus more on growing your business and less on the complexities of payroll management. Our certified payroll professionals are dedicated to simplifying your payroll processes, ensuring that every task is handled with precision. Thanks to our robust information security management system (ISMS), certified under ISO 27001:2013, your data is managed with the highest standards of security.

Experience best-in-class service that fits your budget, allowing you to focus more on growing your business. Ready to upgrade your payroll management? Schedule a consultation now! 

For more insights on issues related to payroll, or other common HR concerns, check out our blog.