Service Charges

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  • P.D. 442 is the legal basis for separation pay.
  • Establishments collecting service charges are required to share them with their rank-and-file employees.
  • 85% goes to rank-and-file employees, while 15% goes to the management for losses or breakages.
  • The employer has the discretion of distributing the 15% to managerial employees.
  • Removal of service charges results in the employer taking on the responsibility of paying the average share being received by a rank-and-file employee.
  • Tips collected are treated as service charges.

Legal basis

The legal basis is Presidential Decree No. 442 (“P.D. 442”), otherwise known as the “Labor Code of the Philippines”.


Eighty-five percent (85%) of collected service charges are given to rank-and-file employees. The remaining fifteen percent (15%) is for the management to cover for losses and breakages or, at the discretion of the manager, for distribution to managerial employees.

Per DOLE Labor Advisory No. 13, Series of 2015, the contractor’s rank-and-file employees also get a share from the eighty-five percent (85%) provided they are deployed in the establishment collecting service charges.

Covered and excluded employees

The benefit applies to rank-and-file employees in establishments that collect service charges.

These establishments include hotels and restaurants, nightclubs, cocktail lounges, among others.


The cover employee’s share in the service charge should be paid every two (2) weeks or twice a month.

Removal of service charges

If the collection of service charges is removed, the management is obligated to pay the covered employee the average of what he/she was previously receiving from the share of the service charges. By default, it is the average of the past 12 months immediately preceding the removal of the service charges.

Collection of tips

The collection of tips shall be distributed in the same manner as service charges and thus shall follow the above requirements.

Employment contract, company policies, CBA

The above discussion may be superseded by any stipulation favorable to the employee via an employment contract, company policies, collective bargaining agreement, or analogous thereto.


  • Presidential Decree No. 442, a.k.a. Labor Code
  • Omnibus Rules Implementing the Labor Code
  • DOLE Labor Advisory No. 13 s. 2015 – Applicable Minimum Wage Rates Based on Sector or Industry Classifications with Required Number of Workers in Relation to the Workers of Contractors and Subcontractors
  • DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits