Friday, November 1, 2013

Should basic wage of hotel employees be raised to at least RM900 to comply with Malaysian minimum wage requirement?

Hotel employees generally are paid a Basic Wage which is rather low. Customers pay service charges, of which this goes to employees of the hotel - it varies from month to month. Hotels for its administrative role of collecting, computing and disbursing service charge to employees take 10% of the service charge collected as their fee.[Service charge depends on customers, when there is no customers then no service charge, and in peak season higher service charge]

When it comes to Minimum Wages, the Union is of the position that the Basic Wages now being paid should be raised to at least RM900 to comply with the Minimum Wage law. The employers say that all that is required is that Basic Wage + Service Charge must be at least RM900-00 to comply with the Minimum Wage law.

Apparently, for Employee Provident Fund/KWSP contribution hotel employers now contribute according to just the Basic Wages (not taking into account Service Charges).

Below an article by Rusli Affandi, General Secretary of National Union of Hotel, Bar & Restaurant Workers, Peninsular Malaysia on service charge for your reading pleasure.



SERVICE CHARGE
by
Rusli Affandi, General Secretary of National Union of Hotel, Bar & Restaurant Workers, 
Peninsular Malaysia
 
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 Collective Agreement.

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.

5. 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.

8. 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. 1/6-699/03.

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.

21. The 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: W-40-24-97.

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.

On 8.11.2005, the Union submitted a Memorandum on the service charge issue to the Honourable Minister of Human Resources, YB Datuk Dr. Fong Chan Onn.

On 16.12.205, the Ketua Setiausaha, Y.Bhg. Datuk Dr. P. Manogran convened a meeting with the Union and the Union has been asked to look into the issue of service charge in the proportion of 60/40, being 60% for the employees and 40% for the employer...s.

The Union has taken a hard look upon the matter and has factually worked out the computations of Melia Hotel as an example.

Melia Hotel has a 5th collective agreement with the Union for a period from 1.2.2004 to 31.1.2007 and has the usual clause on service charge of 9:1.

From the statement of service charge submitted by Melia Hotel to the Union for September 2005 on the ratio of 9:1, the value per point is RM243.98. If the ratio of 8:2 is taken into computation, the value per point is RM216.87, a 11.11% drop in value.
If the ratio of 8:2 is taken into computation, the value per point is RM216.87, a 11.11% drop in value.

Cik Arbiah bte Awang, a Front Office Assistant with 3 points will take home for the family with a lesser amount with a drastic reduction of RM81.33.

En. Zambri bin Bakri, a waiter will have a reduction of RM108.44.

En. Azhar bin Ahmad, a Steward Supervisor will have a reduction of RM135.55.

If the ratio of 7:3 is taken into computation, the value per point is RM189.76, a 22.22% drop in value.

Cik Arbiah will have a reduction of RM162.66.

En. Zambri will have a reduction of RM216.88.

En. Azhar will have a reduction of RM271.10.

If the ratio of 6:4 is taken into computation, the value per point is RM162.66, a 33.33% drop in value.

Cik Arbiah will have a reduction of RM243.96.

En. Zambri will have a reduction of RM325.28.

En. Azhar will have a reduction of RM406.60.


Taking a close scrutiny of the above reduction in their service charge which is factually a colossal amount and it means substantially a lot to them.

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Their families will be greatly affected even though they have worked terribly hard for it and to eventually lose out unconscionably to the employer in a silver platter is untenable and not maintainable which ultimately is unacceptable in any stretch of imagination.

The substantial reduction would cause irreparable loss to them. They have families to care for, school children for bus fares and subsistence, house rental or installments and vehicle installments to pay for and not forgetting their own daily expenses.

Everything is thrown haywire. These are real facts and figures.

During the 1998 economic melt down, the JE and SARS problems, no honourable knights came forward to help them when the service charge fell to an all time low. They suffered in silence.

Many members faulted in payment of housing and vehicle loans with quite a number of members having had the proclamation of sales trusted upon them.

To recover the reductions, they have to work overtime and overtime does not simply exist. Even if they worked overtime, they will not be able to recoup the said reductions. They will still lose out. In other words they have now to work extra hours to try to get back what they have lost out in the first instant. With families’ commitment, not every employee works overtime.
 
 Factually it works out to:
9:1 x hours = x service charge
8:2 x + y hours = still not even x service charge
7:3 x + y + z hours = worst still not even x service charge
6:4 x + y + zz hours = x service charge is a foregone
conclusion.

Y, Z and ZZ being overtime, the employees will not be able to reach the original x factor on service charge as it has been greatly diluted. The employers will then cause a demoralizing mode for the employees. In reality, the left hand knows exactly what the right hand is doing.

Alternatively, the employees will have to look for a second job to survive as what is happening in Hong Kong now.

Other than 9:1, any other form on proportion is not workable at all. The Union does not want the employers to take everyone for a ride as it is still at the expense of the employees.

SUB JUDICE
The other pertinent point is that the employers have filed judicial review in the High Courts on whether service charge is wages and the issue of proportion of 7:3.

This is a case of killing two birds with one stone. Here they are seeking the aid of the Human Resources Ministry to amend the Employment Act by excluding service charge from the definition of wages and simultaneously filing judicial review in the High Courts and any discussion on the same subject is sub judice. It might even proceed ultimately to the Federal Court for final determination.

Hotel Equatorial has filed for judicial review in the High Court Judicial Review No: R2-25-146-05 in Bukit Jambul Hotel Development Sdn. Bhd (Hotel Equatorial Penang) against our Union on the issue of service charge proportion of 7:3 and service charge points allocation. The case is scheduled for hearing on March 30, 2006.

The other case is High Court Judicial Review No: R1-16-18-03 between Central Holdings Management Services Sdn. Bhd (Holiday Inn Kuala Lumpur) and our Union. Here the Hotel is contending that service charge is not wages. The case is set down for hearing on 8.2.2006.

The Union is of the view that the above matters were not made known to your department. Due respects must be shown to the judgments of the Courts by the employers.

Even up todate, Melia Hotel has adamantly refused to comply with the Industrial Court’s ORDER in Award No: 241 of 2002 where the Court held that service charge is wages and ought to be computed in the retrenchment benefits and specific amounts have been awarded therein. Where is the respect of the ORDER of the Industrial Court by Melia Hotel and yet the employers have approached the Human Resources Ministry to amend the law.

There are a lot of preachers out there but very few practitioners!

Melia Hotel being dissatisfied with the Industrial Court’s decision filed an application for judicial review in the High Court in Civil Appeal No: R1-25-88-01.

When the case same up for hearing in the High Court on 4.11.2003, the Hotel withdrew its application and was dismissed with costs.

In summary, the employees are now faced with dire consequences if the amendment is made without the prospect of a decent living but the prospect of giving away their rights and a prospect of finding a totally new job.

In Malaysia, our government has introduced for the first time a minimum wage which is RM900.00 monthly in Peninsular Malaysia and RM800.00 monthly for Sabah and Sarawak. It covers all industries and be effective as from 1.1.2013, however a few industries and hotels under Malaysia Association of Hotels have been granted the commencement date as from 1.10.2013.

With regard to the above, we are governed by the National Wages Consultative Council Act 2011 and the Council has recommended to the government where the Minister of Human Resources has made the Minimum Wages Order 2012....

Pursuant to the minimum wage of RM900.00 and RM800.00, the National Wages Secretariat thereafter issued a guideline of items which can be taken into account to restructure the minimum wage and one of the item is service charge. Employers are recommended to utilize part or all of the service charge to make it RM900.00.

This did not go down well with our Union as we are of the view that the guideline has no force of law. We said many times before that we will base minimum wage on the Principal Act and the Order.

We are also of the view that the object of the Act which is in the preamble indicates the intendment of the Act.

The issue of service charge is always the sore point. Service charge is paid by the payer / customer and solely intended for the employees passing through the hands of the employer acting as a collecting agent. It is not intended for the employer and as such it is incorrect to top up the minimum wage using the service charge which varies monthly.

The hotels have now boldly submitted to us that they would completely stopped implementing service charge and average out to top up the minimum wage which would even be more. We will resist them as they have indirectly been threatening us.

They have now proposed a clean wage system incorporating all the service charge into it. Our contention is that a clean wage has only one meaning, i.e. only one wage without any other allowances, overtime, bonus and what not. The hotels cannot pick and choose the service charge and call it clean wage which is pulling wool over one’s eye.

We have now taken a hotel to the Industrial Court over the clean wage system and hopefully the court will reject the hotel’s contention.

For the betterment of our members we are prepared to take this issue on minimum wage to its conclusive end of not using service charge at all.

Rusli Affandi (shared by mzailani)
General Secretary of
National Union of Hotel, Bar & Restaurant
Workers, Peninsular Malaysia

Dated13 September 2013.

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