Many of us are not really aware about 'service charge', in particular with reference Hotel, Bar and Restaurant Workers of Malaysia. It is a revelation to know how employers in this industry have been paying their workers such low wages, and depending a lot on payments that come from customers in the form of 'service charges'. It is shocking how employers are not giving workers 100% of the service charge, but are taking 10% (and even demanding more) for their themselves 'to defray administrative cost' for collecting and distributing.
The courts have determined that when it comes to determining overtime rates and rates for work on rest days/public holidays, service charge is to taken to be as part of wages for the purpose of calculation/computation of ordinary rate of pay. Same also for the purpose of calculating retrenchment and lay-off benefits.
In Malaysia, employers contribute 13% of wage amount, this being over and above wages paid to employees, to the Employees Provident Fund. Employees pay 11% of their wages, which is deducted from their wages into this fund. Now, the relevant Act was amended to exclude service charges, so employees Hotel, Bar and Restaurant sector are prejudiced.
When the minimum wages law came into being, it was suggested in the Guideline by the Wages Consultative Council, that 'service charge' be included in the computation of minimum wages that the worker is entitled to. [i.e. all that employers need to do is to fulfill their obligation of paying minimum wages of RM900, is to ensure that the basic wage plus service charge is equal to or more than RM900) The National Union of Hotel, Bar and Restaurant Workers (NUHBRW) opposed this stating that minimum wages should not include 'service charges', and that their basic wages be increased to RM900, the amount of minimum wages that workers are entitled as of January 2013. This position is consistent with the intention, i.e. the increment of basic wages to RM900 without affecting any other allowances, payments or benefits workers are getting.
However, according to Bro. Rusli Affandi, it seems that the former Secretary General of the Malaysian Trade Union Congress, without consultation with NUHBRW, seem to have agreed to this proposal. The NUHBRW is firm on its stand, and there is tension between MTUC and the Union, and the hope is that the newly appointed Secretary General of MTUC will undo the wrong done by his predecessor.
I am pleased to share 2 write ups about Service Charges, that I obtained from Bro. Rusli Affandi and NUHBRW, so that we too may get a better understanding of service charge. Service charge, as one will figure out, varies from month to month. Effective 10/5/2013, Bro. Rusli Affandi will be the General Secretary of NUHBRW.
1. Service charge was introduced in the 1960’s in the hotel industry
and was not imposed specifically to replace tipping. The amount of
service charge varies monthly depending upon the volume of business of
the Hotel. At all material times, employees are not allowed to request
for tips from the Hotel’s customers. To do so would constitute a
misconduct. Tipping was given by the Hotel’s customers on a voluntary
basis till today.
2. Under the Collective Agreement, service
charge is collected by the Hotel on behalf of its employees from the
Hotel’s customer when the bill is presented. It is then distributed to
the Hotel’s employees in accordance to the Service Charge Point
allocation under the Collective Agreement. The objective is to ensure
that all levels of employees are given the opportunity to share the
service charge given by the Hotel’s customers.
3. The service
charge belongs to the employees of the Hotel and is not the Hotel’s
money or resources. The Hotel does not contribute to the Service Charge
Fund. Once the service charge is in the hands of the Hotel, it is due by
the Hotel to the employees under the terms of Article 11 of the
4. As agreed with the Union, the Hotel is
only given 10% of the total Service Charge collected from the customers
for that month to defray the administrative cost incurred in the
maintenance of the service charge amount, collection and distribution of
the service charge, which is done on behalf of the Union.
The Collective Agreement obligates the Hotel to provide a monthly
statement to the Union with a monthly statement of the account of the
gross service charge collected. The monthly statement must be very
specific in its details, such as the total gross service charge, names
and individual service charge points, net increase or decrease of the
points and the value per point for that month. The Union also has a
right to inspect all documents pertaining to the service charge kept by
the Hotel upon notice.
6. In 1986, the Privy Council in the
case of P.A. Pereira & Anor v. Hotel Jayapuri Berhad & Anor
(Privy Council Appeal No. 29 of 1984) ruled that service charge is part
and parcel of wages within the meaning of s.2, Employees’ Provident Fund
Act 1951 and therefore, the Hotel was required to pay contributions on
the payment of service charge.
7. Pursuant to aforesaid
decision, the Parliament passed the Employees’ Provident Fund
(Amendment) Act 1986 (A642) to exclude service charge from the
definition of wages under the EPF Act 1951. There was, however, no
corresponding amendment made to the definition of wages under s.2,
Employment Act 1955 to address the issue of service charge.
It has never been the practice and understanding to exclude service
charge from the definition of wages under Section 2 of the Employment
Act or to exclude it from the computation of the ordinary rate of pay on
overtime, public holidays and rest days as contracting out is illegal,
even though there was no changes in the collective agreement.
9. Further there does not exist any type of practice or understanding
whatsoever and it was factually an afterthought after the Hotel’s appeal
was dismissed by the Court of Appeal in Hotel Equatorial (M) Sdn. Bhd.
v. Thomas George a/l M.J. George on 15.9.2003 vide Civil Appeal No:
W-04-24-97 where it affirmed the Labour Court’s decision and the High
Court’s judgment that service charge is wages under the definition of
wages under the Employment Act for the computation of the ordinary rate
of pay for working on Agong’s Birthday, a public holiday in June 1993.
10. As contacting out is illegal and save that 90% service charge
collected by the Hotel is to be distributed to the employees and 10%
retained by the Hotel to defray administration expenses for managing the
service charge funds on its behalf and further that there was no claim
made against the Hotel from 1976 till 1994, the Union states that there
does not exist any type of practice or understanding whatsoever not to
compute the service charge for the ordinary rate of pay for overtime,
public holidays and rest days in this Hotel or the entire hotel industry
in Peninsular Malaysia.
11. The Union further states that as
far back as in 1981 the Union has initiated a case before the Industrial
Court that service charge is wages and ought to be computed in the
ordinary rate of pay for overtime, public holidays and rest days in
National Union of Hotel, Bar & Restaurant Workers v. Holiday Inn,
Kuala Lumpur and in its Award No: 33/81, Harun J., the Learned President
of the Industrial Court held in favour of the Union’s contention.
12. In 1994, a claim was filed by one Thomas George against Hotel
Equatorial (Thomas George v Hotel Equatorial Sdn Bhd (Labour Court Case
No: 813/94) for the shortfall of his pay in respect of work done on a
public holiday in June 1993 amounting to RM59.42. This claim was made
under the Section 69(1) of the Employment Act 1955 (as amended by Act
716/89) at the Labour Department.
13. One of the main issue
before the Labour Court was whether service charge fell within the
meaning of wages under s.2 of the Employment Act 1955 for the
computation of Ordinary Rate of Pay to determine the payment for work
done of public holiday.
14. The Labour Court answered the said
question in the affirmative and directed the Appellant to pay the
shortfall in payment. The said decision was endorsed by the Court of
Appeal on 15-9-2003 vide Civil Appeal No. W-04-24-97. Although the Court
of Appeal affirmed the Labour Court decision that service charge is
part of wages under section 2 of the Employment Act 1955, it did not
deal with the issue as to whether the shortfall of payment done on
public holiday should come from the service charge pool or the funds of
the hotel as this was not raised at all by the Hotel. The Court of
Appeal did not hand down any written judgment for its decision.
15. On 15th October 2003, the Hotel filed an application under section
33(1) of the Industrial Relations Act 1967 at the Industrial Court for
the following question to be determined:-
“ In respect of the
computation of Ordinary Rate of Pay to calculate pay for overtime and
work done on public holidays and rest-days, should the element of
service charge in respect of such payments be payable from the Service
Charge Pool collected under article 11 of the Collective Agreement?”
16. The Hotel averred in its Application For Interpretation of
Award/Collective Agreement dated 15th October 2003 that when computing
Ordinary Rate of Pay for the purpose of computing pay for overtime and
work done on public holidays and rest-days, the service charge element
in respect of such payment should be paid from the Service Charge pool
collected by the Hotel on behalf of the employees within the scope of
the collective agreement and not from the Hotel’s funds. The application
for interpretation was registered as Industrial Court Case No.
17. The Union then filed its Statement in Reply
dated 10-1-2004 to contest the Section 33(1) Application . One of the
main points of objection was that there were various disputes of fact
arising from the said application and therefore, the application was
premature and should be dismissed.
18. Due to various disputes
of fact that arose from the Section 33(1) Application, the Hotel
withdrew the aforesaid application on 2-4-2004. The Hotel also informed
the Industrial Court that in light of the various disputes of fact, the
Hotel will be pursuing the matter as a trade dispute under sections 18
and 26 of the Industrial Relations Act 1967. The Union did not object to
the said withdrawal.
19. Thereafter, the Hotel issued a
letter dated 8-4-2004 to the Director General of Industrial Relations to
report the service charge issue as a trade dispute. In the said letter,
the Hotel reported the issue of whether the element of service charge
in respect of such payments be payable from the Service Charge Pool
collected under article 11 of the Collective Agreement in respect of the
computation of Ordinary Rate of Pay to calculate pay for overtime and
work done on public holidays and rest-days, to the Director General as a
trade dispute. The letter was filed pursuant to section 18(1) of the
Industrial Relations Act 1967.
20. The Union avers that on
29.11.2003 the Hotel graciously paid to Thomas George RM59.42 by cheque
from the 90% service charge pool of November 2003.
Union further avers that it lodged a complaint under section 56(1) of
the Industrial Relations Act 1967 with the Industrial Court on 4.6.2005
as Industrial Court Case No: 1/1-878/2004 and the said Court in Award
No: 1681 of 2005 dated 30.8.2005 subsequently ruled in favour of the
Union that the Hotel cannot use the 90% service charge pool to discharge
its own liabilities.
22. The Union avers that the Minister’s
reference directly refers to Article 11 on Service Charge of the
Collective for the period 2001 to 2004.
23. The Union state
that Article 11 is specific as to the mode of distribution or payment of
service charge on the points system in accordance with Appendix C of
the Collective Agreement.
24. The Union further avers that the
Hotel’s claim is an afterthought and done in bad faith having its appeal
dismissed by the Court of Appeal in Hotel Equatorial (M) Sdn. Bhd. v.
Thomas George a/l M.J. George on 15.9.2003 vide Civil Appeal No:
25. The Union states that although service charge
belongs to the employees, the Hotel is acting in a fiduciary capacity
and is not entitled to utilize the 90% service charge to pay the
employees for the ordinary rate of pay for overtime, public holidays and
rest days but from its own funds.
26. The Union states that
the Hotel’s claim which is without merit or basis be dismissed by the
Honourable Court and that the Union’s contention be upheld that the
payment for the ordinary rate of pay for overtime, public holidays and
rest days be made from the Hotel’s own fund.
HISTORY OF SERVICE CHARGE IN MALAYSIA
The service charge system is unique in the Hotel industry and it is
intertwined with the remuneration system of its employees. A ten per
cent (10 %) service charge is imposed on all bills and this amount is
incorporated in the same bill which the customer is required to settle.
The basis for such an imposition of service charge is for services
rendered. Out of the 10 %, the Hotels keep 1 % for the administrative
charges and 9 % goes to the employees. This standard has been affirmed
by the Industrial Court continuously.
A point allocation is
used to distribute the service charge among the employees, depending on
the Hotel and the provisions of the collective agreement.
absolute distribution would be dependent on the business of the hotel
and the number of employees covered within the scope of the collective
LOW MONTHLY SALARY
The service charge had been intended to complement the low monthly salaries paid to the employees.
On the average, the monthly salaries for the category of gardener,
telephone operator, steward, dishwasher, chambermaid, linen maid, public
area cleaner, etc. will be in the range of RM180.00 to RM250.00
depending on the hotels. This is way below the subsistence levels,
applying any reasonable standard.
At the higher range the
monthly salaries range between RM190.00 to RM280.00 which is applicable
to the category of cashier, waiter, waitress, front office assistance
and bell captain.
The said service charge is paid in addition
to this paltry salary. A chambermaid which will usually receive 2
service charge points at an average of RM200.00 per point will take home
a salary of RM580.00 per month.
At the top end of the
business, a 5-star hotel will pay a chambermaid a monthly basic salary
of RM250.00 and coupled with the service charge points (2 @ RM250.00),
the same chambermaid will take home a salary of RM750.00 per month.
With such low basic salaries, it is impossible for any employee to
survive in any area of the country and cover for the basic necessities
such as room rent, bus fares, subsistence,
clothing etc. It is even unfair to expect foreign workers to rely on
such low salaries as they would be exposed to such inhumane conditions.
As service charge is paid by customers, employers have saved
substantially in terms of payment of monthly salaries as compared to
For example, all things equal :
Hotel Industry Commercial Industry
RM180 a month RM750
200 employees 200 employees
A saving in monthly salary of RM114,000 a month and RM1,368,000 a year.
Even with the incorporation of the service charges, the employees
employed in the hotel industry are much worst off than their
counterparts in other sectors.
The hotels pay one third of the
monthly salaries with the rest coming from the customers and the hotels
cannot be allowed to squeeze the employees any further by disregarding
service charge as “wages”.
The employees have suffered sub
silentio under the nose of the employers who had saved such a
substantial amount from their pockets that they are clamouring for more.
The hotels also save on EPF contributions.
The Employment Act 1955 does not exclude service charge from the
definition of wages. This is abundantly demonstrated by the following
In Kes Saman Ketua Pengarah Buruh No:
KBKL/813/94, Thomas George a/l M.J.George v. Hotel Equatorial (M) Sdn.
Bhd., the Labour Court held that service charge is wages under Section 2
of the Employment Act for the computation of the ordinary rate of pay
for working on the Di Pertuan Agong’s Birthday.
Being dissatisfied with the decision, the Hotel appealed to the High
Court and on 19.5.1997 His Lordship, Dato’ Azmel J. in Kuala Lumpur
Civil Appeal No: R2-16-6-95 dismissed the Hotel’s appeal with costs.
His Lordship’s judgment is clear that under section 2 on wages, the
service charge was not in the items (a) to (f), and as such it is wages.
For ease of reference, I reproduce the definition of wages:
“wages” means basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but does not include :
(a) the value of any house accommodation or the supply of any food, fuel, light or water or medical attendance, or of any approved amenity or approved service;
(b) any contribution paid by the employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme established for the benefit or welfare of the employee:
(c) any travelling allowance or the value of any travelling concession;
(d) any sum payable to the employee to defray special expenses entailed on him by the nature of his employment;
(e) any gratuity payable on discharge or retirement; or
(f) any annual bonus or any part of any annual bonus
The Hotel has filed an appeal against the judgment of the High Court
Judge in the Court of Appeal and the Court of Appeal had dismissed the
appeal with costs after hearing submissions, thus affirming the judgment
that service charge is wages.
In Award Nos: 361/2000 and
362/2000 the Industrial Chairman, Pn Siti Saleha held the service charge
to be wages for the computation of retrenchment and retirement benefits
in the case of Hotel Fortuna Management Services Sdn. Bhd.
Award No: 707/2000, the Industrial Court Chairman, En. Abu Hashim held
that service charge is wages for the computation of retrenchment
benefits in the case of Rits Garden Hotel Sdn. Bhd.
No: 241/2002, the Industrial Court President, En. Yussof Ahmad held that
service charge is wages for computing retrenchment benefit in the case
of Pudu Sinar Sdn. Bhd. (Melia Kuala Lumpur) and he cited the case of
Tsoukka & Others v. Potomac Restaurants Limited where His Lordship
Sir Diarmaid Conroy, Q.C. held as follows:
“Once the money has come into the hands of the restaurant proprietor, it is part of the income of the restaurant, and he can deal with that money as he pleases, subject to any contract he may have with his employees. If the contract with the employees, i.e. the waiters, provides either expressly, or by custom, or by implication, that some or all of the surcharge shall be distributed in a certain way among the waiters, then in our view that is wages or remuneration paid by the restaurant from its own money to the waiter. It is different from a tip, which never becomes the property of the restaurant. The service charge is the restaurant’s own money when it receives it.”