Retail & point of sale
Service charge distribution under RA 11360: a guide for hotels and restaurants
How hotels, restaurants and similar establishments must distribute service charges under RA 11360, who is covered, timing, payroll treatment and records.
Republic Act No. 11360, which amended Article 96 of the Labor Code in 2019, requires that all service charges collected by hotels, restaurants and other similar establishments be distributed completely and equally among covered employees, except managerial employees. Before the amendment, employers could retain 15% of service charges; now the full amount goes to covered employees. The law also requires distribution at least once every two weeks or twice a month, at intervals not exceeding sixteen days.
Check DOLE's implementing rules and get advice for situations the summary below does not cover.
Key rules at a glance
| Rule | Summary |
|---|---|
| Coverage | Hotels, restaurants and similar establishments that collect service charges, including entities operating primarily as private clubs |
| Share | 100% of service charges to covered employees |
| Who receives | Covered employees, excluding managerial employees |
| Distribution | Equal shares, according to DOLE's implementing rules |
| Frequency | At least twice a month, at intervals not exceeding 16 days |
| If abolished | If service charges are discontinued, employees' average share is integrated into their wages |
Service charge vs. tips
Service charges are amounts added to the customer's bill by the establishment. Voluntary tips given directly by customers are different and are not covered by the same rule. Keep them separate in your POS and accounting so the service charge pool is clear.
Process from POS to payroll
- Record service charges separately at the POS, per outlet, not mixed with sales (restaurant POS).
- Exclude statutory discounts correctly: compute service charges according to your policy and the applicable rules for discounted bills, and document the method.
- Summarize the service charge pool per outlet per distribution period, based on amounts collected.
- Determine covered employees for the period per outlet (excluding managerial employees), with data on employees who joined, left or were on leave, handled according to DOLE's rules.
- Compute equal shares and send them to payroll as a separate earning.
- Pay at least twice a month and show the amount on payslips.
- Keep records of the pool, the list of employees and the computation for each period.
Payroll and tax treatment
Service charge shares are part of employees' compensation. They should appear as a distinct earning on payslips. Apply withholding tax rules to the employee's total compensation, and confirm with your adviser how service charge shares interact with minimum wage earner exemptions and benefit computations. See withholding tax on compensation.
Multi-outlet groups
When a group runs several restaurants or hotels:
- Keep pools per establishment or outlet as the rules and your structure require
- Make sure employees who work in more than one outlet are handled consistently
- Use one payroll process for all outlets with clear outlet tags
Common compliance issues
- Retaining a portion of service charges for breakage or losses
- Distributing late or only monthly
- Including managerial employees in the pool, or excluding eligible rank-and-file staff
- No documentation of the computation
- Service charges recorded as regular sales
Where Cirquolus fits
Cirquolus Point of sale records sales by branch and cashier for restaurant and other workflows, and Cirquolus Payroll handles income adjustments, statutory contributions, withholding tax and approvals, with payslips in the employee portal. Configure the service charge earning and distribution method with your HR and legal advisers during implementation. Related: hotels and resorts ERP.
Frequently asked questions
How much of the service charge goes to employees?
Under RA 11360, 100% of service charges collected must be distributed to covered employees, excluding managerial employees.
How often must service charges be distributed?
At least once every two weeks or twice a month, at intervals not exceeding sixteen days.
Are managers entitled to service charges?
Managerial employees are excluded from the distribution under RA 11360.
Is the service charge taxable for employees?
Service charge shares are compensation. Apply withholding tax rules and confirm specific treatment with your adviser.
Bring this workflow to a Cirquolus demo.
Show us your current process, companies and branches. We will map it to the modules you need and propose a realistic rollout.