Service charge cover

Service Charge made more Transparent for Employees

Najwa Abdulla
31/03/2021
Service charge cover

New Year's Day came with good tidings for the tourism sector. The service charge was made a mandatory levy by law with an amendment to clause 52 of the Employment Act in September 2020.

 

This was supposed to take effect from 1st January 2021 onwards.

 

The guidelines and rules following the change were published in the government's gazette on 16th March 2021.

 

 The main objective of this regulation is to ensure fair, transparent, and timely collection and distribution of service charges and to maintain accountability.

 

Following are the major aspects of the regulation:

 

Collection of Service charge

  • The regulation mandates all tourism sector businesses including tourist resorts, tourist hotels, tourist guesthouses, training resorts, transit hotels, city hotels, tourist vehicles/vessels, integrated tourist resorts, yacht harbors, and services provided by private islands, to collect a service charge of at least 10%.
  • The service charge must also be collected from dive schools, dive centers, spas, water sports facilities, excursion events, café/restaurant/canteens, etc… situated in the above tourist facilities.
  • This includes the facilities on tourist establishments that are outsourced to third parties as well.
  • The facilities/services such as restaurants and cafés operated only for the employees are not subject to service charge collection. It is not compulsory to take service charge from the products sold in the shops established in the above tourist facilities.
  • For businesses operating outside the Tourism sector which charge a service charge from customers, such businesses should also comply with the collection, distribution, and reporting principles in Service Charge Regulation. 

Distribution of Service charge

  • The time at which a service charge is levied on a transaction is the time that the service was received by the customer, although the customer has made an advance payment in part or in full.
  • Service charges collected from multiple businesses operating in the same location shall be collected and distributed together.
  • The employer shall not combine and distribute together the service charges collected from individual businesses operated in different locations.
  • The employer shall not combine and distribute the service charge collected from an outsourced business or any other type of business, situated in the place of business of the employer.
  • The service charge collected shall be distributed equally among all employees who were, directly and indirectly, involved in providing the service.
  • There shall be no discrimination between staff involved in the provision of services by a business, in the distribution of the service charge from that business.
  • The employer may retain an amount equivalent to 1% of the total service charge collection made as an administrative fee. An employer shall not at any time retain a sum larger than that 1%. 

Service Charge Computation

The regulation specifies that the amount of service charge for an employee will be determined based on the number of days each employee served during the month. While calculating the number of days served, any eligible leaves granted to the employees as per Employment Act should not be excluded. Service charge per employee shall be calculated as below:

 

 

                                                          Total SC collected for the month*

SC per employee =  --------------------------------------------------------------------------------------- X No. of days served by the employee in the month

                                     Sum of the no. of days served by all employees in the month

 

1% of the Administrative charge can be deducted if the employer wishes.                                SC: Service Charge

 

 

The service charge collected in the previous month shall be fully distributed by the end of the current month.

 

The employer must arrange a mechanism to inform employees of the total service charge collected in the previous month and the total service charge earned by the individual employee for that period, before the end of the current month. 


Record Keeping and Reporting

  • The following details must be kept and maintained by the employer who collects and distribute service charge as per the regulation:
  • Details of the total amount of Service charge collected for the month
  •  Administrative charge retained by the employer if any
  • The total amount of service charge that must be distributed to the employees
  • Records of employees who served during the month (including full name, identification/passport no. and designation)
  • Number of days served by each employee
  • The daily rate of Service charge earned for each employee served during the month
  • The total amount of Service charge paid to each employee during the month 
  • These records must be maintained either in Dhivehi or English language.
  •  During inspections conducted by Labor Relations Authority, the records requested by employment officers must be provided immediately in.
  • As per the regulation the records of service charge of the first 6 months of the year shall be submitted to Labor Relations Authority and MIRA before 1st October of the same year. The records of the last 6 months shall be submitted before 1st April of the following year.
  •  All employers collecting service charges shall register in the Labor Relations Authority in a manner described by the authority. If any information provided during the registration is changed, the information is to b updated within 7 days.

Penalty

  • The Labor Relations Authority is empowered to impose a financial penalty not exceeding MVR50,000 on an employer for defaulting either on regular maintenance of records, submission of those records to the two designated authorities, or refusing to share records as and when asked for them. First-time offenders are charged a financial penalty not exceeding MVR 10,000.
  • The Labor Relations Authority is equally empowered to impose a financial penalty not exceeding MVR100,000 on any business within the tourism industry which fails to levy the service charge or distributes it unequally between staff. 
  • All fine payments would be imposed by Labor Relations Authority and will be settled to MIRA unless another address for payment is informed by the Authority. 

 

 

The changes brought to the law will surely protect the interests of the employees in the tourism industry who work hard day and night away from their loved ones. The regulation will ensure that their sincerity is not taken advantage of by those with power and delivers equality among all the staff contributing to the successful running of the business.

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Najwa Abdulla
Associate Manager, Tax Advisory