A Review of The Hotel and Restaurant (Service Charge) Draft Bill 2018.
The 100% of the Service Charge for Employees is Included in this Bill…. But There are Some Areas of the Bill that Need Clarification.
First of all, let me take this opportunity to congratulate the Government of the TCI particularly the Premier on the Draft Service Charge Bill as this was a promise made by the Government.
The Government promised the workers in the Hospitality industry that they will get 100% of the service charges. After 18 months of being in power, the draft bill proposes to do so.
The Proposed Bill
The Bill proposes 100% of the 10% service charge be distributed to employees but the hotel or restaurant may levy an additional facility fee of 3% which they shall retain. This means that the guests now will be paying a minimum of 25% on top of the room rate, 12% for govt tax and 13% for service charges and levy charges rather than the previously 22% that most guests are currently paying.
Distribution of Service Charge
The proposed bill states that the rate of 10% shall be charged to guests and within 21 days distribute among employees in equal shares.
It is a practice for some of the hotels to use a point system by department or job responsibilityand distribute the service charge accordingly.By suggesting that the service charge be distributed equally among employees, the staff (such as housekeeping staff and front desk staff) that interacts directly with the guests will see the equal distribution as being unfair. On the other hand, the staff in the back office will support an equal distribution as they feel they provide support for the front office staff to perform effectively.
Some hotels also distribute service charge to employees based on the number of hours work. Hoteliers will add the total number of hours work by employee and pro-rate the service charge based on the hours worked. In light of this, is it fair to distribute service charge equally among employees even if some work less hours than others.
The Bill states that a hotel or restaurant may levy a facility fee at a rate of up to 3%. Personally, I do not think the Government should dictate to hoteliers what the facility fee should be. It should be up to a hotelier to determine the rate they charge for facility fee. The condos and hotels vary from each other and therefore while a 3% may be adequate for one resort, it may not necessarily be adequate for another resort. Resorts have different standards and costs and so the Government should not assume that the cost structure is identical among the hotels and the condos. Furthermore, if most hotels in the past were retaining 40% of the 10% service charge fee, the Government is now suggesting they decrease this by 1%. In addition, the government is also increasing the cost to the guests by 3%.
By instituting a levy charge, the Government is also limiting the possibility of an increase in accommodation tax in the future as the overall charges of 25% is already high.
National Insurance and National Health
The Ordinance does not take into consideration the national insurance charges and national health that the employer has to pay in connection with service charge.
Service charge is considered income for employees and so if employees are paid service charge, then the employer should pay National Insurance and National Health on the service charges paid. If the Hotelier and Restaurants are to pay 100% of the gratuity then the hoteliers should not have to absorb any costs. The Employer portion for National Health and National Insurance should be deducted from the 100%
Credit Card Charges
Most guests use credit cards to pay for their charges and the hotels absorb a cost for using credit cards. Some credit card companies charge as much as 5% on the value of the transactions. If the hoteliers and restaurants are going to pay 100% of the service charge, they should not absorb the costs of the credit card charges. The cost of the credit card charges should be deducted from the services charges before it is distributed to employees.
Timing of collection of service charges
The Ordinance is not cleared on the timing of the collection of service charges. It refers to all service charge collected or received during the month. Most hoteliers received service charges months in advance of the guests’ arrival date and so theservice charge should not be distributed until the guests arrives. This is not cleared in the ordinance.
Not mandatory for all hotels
The Ordinance is mandatory for all inclusive hotels and restaurants. However, if other hotels and restaurants elect to charge service charge, then they must follow this ordinance. If the Government wants to truly deliver its mandate for the distribution of 100% of service charge, shouldn’t they consider making it mandatory then that all hotels implement a service charge. What if a hotel who is currently all inclusive decides to forgo of the inclusive structure and adopt the European Plan structure, this hotel will not be obligated to charge a service charge to guests and therefore employees will not benefit.
Possible Consequences if the Bill is Passed
- An increase in the hotel rates by some hoteliers to accommodate the 1% shortfall thus making the destination even higher.
- Some hotels that are currently providing service charges may withdraw from the plan if they have to absorb certain costs such as NHIB, NIB and Credit Cards. In the end, the employees will lose as they will not get the service charge that some of them were accustomed to.
- Some employees will not get any increase in pay as the hoteliers will feel that the service charge will more than adequate for their compensation.
- Some employers may now charge their workers for uniforms, meals, and transportation.
This ordinance will certainly meet the expectations of the workers in the all-inclusive resorts but this Ordinance will upset the plans of the hoteliers if it is passed in the current format as it will become costlier for the hoteliers and their clients.
If the Bill is passed this year, some hoteliers will need time to adjust their budget as they may already budget the service charge for this fiscal or calendar year based on the current law.
The Government has certainly live up to its promise but there are other areas of this bill in the aforementioned that need to be amended or clarified before the bill is presented or passed in Parliament.