MANAGERIAL EMPLOYEES NOT ENTITLED TO SERVICE CHARGE SHARE

Dear PAO,
I am a manager in a franchised Italian restaurant. In the several years that Ive been working as a
manager, Ive noticed that I have not been getting any share in the service charge that we collect from
our customers unlike the other restaurant employees. I addressed this issue to the owners of the
restaurant but I was informed that I am not legally entitled to get a share of the service charge
distributed among employees. They told me that my position as a manager who receives a higher
compensation from the waiters and cooks excludes me from the service charge collected. I want to
know if there is truth to this or if there is any basis in my exclusion from the distribution service charge
collected. Thank you!
Nelson

Dear Nelson,
There is a specific law regarding the distribution of service charge in establishments like the restaurant
you are working for. According to the Labor Code of the Philippines:

Art. 96. Service Charges. All service charges collected by hotels, restaurants and similar establishments
shall be distributed at the rate of eighty five percent (85%) for all covered employees and fifteen percent
(15%) for management. The share of the employees shall be equally distributed among them. In case
the service charge is abolished, the share of the covered employees shall be considered integrated in
their wage.

This cited law clearly explains the manner of distribution of the service charge collected between the
employees and the management. It specifies that employees share shall be equally distributed among
them. Despite this, it should be noted that not all employees are entitled to an equal share in the service
charge. The Implementing Rules of the Labor Code identifies what kinds of employees are covered
under this rule on distribution of service charge. According to this provision:

SEC.2. Employees covered This rule shall apply to all employees of covered employers, regardless of
their position, designation or employment status, and irrespective of the method by which their wages
are paid, except to managerial employees.

As used herein, a managerial employee shall mean one who is vested with powers or prerogatives to lay
down and execute management policies and/or to hire/transfer, suspend, layoff, recall, discharge,
assign, or discipline employees or to effectively recommend such managerial action. All employees not
falling within this definition shall be considered rank-and-file employees. (Book 2 Rule 4 Section 2,
Implementing Rules of the Labor Code of the Philippines) Emphasis supplied.

From this provision, it can be seen that while the law requires equal distribution of collected service
charge among employees, managerial employees as specifically mentioned in the above cited law, are
not included in the distribution of the service charge for employees. Managerial employees are
understood to partake on the share of the management in the service charge collected. If the nature of
your tasks as a managerial employee includes those mentioned in the cited provision, then you are a
bona fide managerial employee who is legally excluded from the distribution of service charge among
employees. Considering your position as a managerial employee, your share in the collected distribution
charge may come from the share received by the management and not from those distributed to the
other employees.

Again, we find it necessary to mention that this opinion is solely based on the facts you have narrated
and our appreciation of the same. The opinion may vary when the facts are changed or elaborated.

We hope that we were able to enlighten you on the matter.