19 Feb 2019


Client update


Who should read this?

Owners and operators of TCI hotels, villas rented on a short-term basis and restaurants, and their staff.

Why should I read it?

Because the TCI Government has introduced a whole new service charge regime, and if you don’t comply with it, there will be trouble ahead.

When does this come into effect?

8th February 2019.

Who does this apply to?

  • Hotels. For this purpose, “hotel” means a building or group of buildings containing in the aggregate three or more bedrooms for the accommodation of guests for reward.  In other words, a villa in short-term rental is a hotel if it has three bedrooms or more.  
  • Restaurants that operate as part of an all-inclusive hotel.
  • Other restaurants that elect to levy a service charge.

But my short term villa is managed by a villa manager and I have no staff.  Who do I pay the service charge to?

A hotel or restaurant that has no employees must not levy or collect the service charge. If your villa manager is an independent contractor, then neither that manager nor its employees are employees of the “hotel” (the villa, in this instance) and so service charge is not collectable.

OK, it applies to me.  What do I have to do?

Each proprietor of a hotel or restaurant who was collecting or receiving service charge under the old 2003 Ordinance must, within one month of the commencement of this new law, apply to the Labour Commissioner in a prescribed form for the registration of its hotel or restaurant under the Ordinance (section 4(1)).

A proprietor who has not yet started to collect service charge but proposes to do so must likewise apply for registration at least one month before it intends to start doing so (and remember that this is compulsory for hotels, as defined, that have staff, and for restaurants in all-inclusive hotels).

The Labour Commissioner will then register the hotel or restaurant concerned, if it is one to which the Ordinance applies.

How much is the service charge?

10% of the total amount charged to the guest or customer concerned in respect of services provided.  For the purposes of the calculation, facility fees, tips and tax are excluded.  The Minister may vary the rate of service charge including to provide for different rates in respect of different classes of premises (section 8).

May I charge a facility fee?

Yes, a hotel or restaurant that is levying service charge may also charge a facility fee at a rate of its choosing (section 7(1)).  Like the service charge, the Minister may vary the rate of facility fee (section 8), though as the hotel or restaurant may choose the level of facility fee itself, that right on the part of the Minister to vary the facility fee seems redundant.  The facility fee belongs to the proprietor.

What must I do with the service charge?

Within 21 days of the end of each month, the proprietor must distribute amongst its employees all service charge collected or received in accordance with a scheme approved by the Minister and registered[1] with the Labour Commissioner OR if no scheme is registered for the proprietor, in accordance with a formula prescribed by the Minister in regulations.  No such regulations exist at the time of this note.   Each employee who receives such a payment is required to sign a statutory register to be maintained by the proprietor (section 9).

What about NIB, NIS and credit card fees?

Before distribution, the proprietor must deduct applicable NIS and NIB contributions from the service charge and the amount of credit transaction card fees associated with the collection of service charges (section 9(1A)).   

What is a troncmaster?

Any hotel or restaurant to which the Ordinance applies and which has a staff of twenty employees or more must designate one of its employees as the troncmaster.  The troncmaster is responsible for oversight of the management and distribution of the service charge to employees.  The troncmaster must not be the proprietor of the hotel of restaurant concerned. 

Do I have to keep accounts and records of all of this?

The proprietor of each hotel and restaurant must keep detailed accounts of all service charge collected and the manner of its distribution and must keep those accounts for a minimum of two years from the date of the last entry made in those accounts.

It is not enough just to keep those accounts: the proprietor must also keep:-

  • All original return forms under the Ordinance
  • Statements giving particulars of services provided to each guest or customer
  • Statements showing all the charges in respect of each guest or customer
  • Statements showing the amount of service charge payable by each guest or customer
  • Financial statements
  • Bank deposit statements
  • Any notes to clarify any transaction between the proprietor and the guest or customer
  • Sales books and general ledgers
  • Such other records as my be required from time to time

(section 11)

As well as keeping all of those records, do I have to give any information to the Government about this?

Yes.  Each proprietor of a hotel or restaurant must, within 30 days of the end of each month, prepare a statement showing the number of customers or guests who visited the establishment during that month and the amount of service charge collected and distributed, and such other information as the Minister may by regulation require (section 12).

This all sounds pretty bureaucratic.   What if I do not keep all those records?

The Labour Commissioner, or an inspector appointed by him or any person authorised by the Minister for the purpose, has fairly extensive powers of investigation and inspection (section 13).  In addition, there are various offences under the Ordinance including

  • Obstruction of the Labour Commissioner or any inspector in the exercise of any of the Labour Commissioner’s powers
  • Failure to comply with any requirement of the Labour Commissioner or inspector in the exercise of such power
  • Being knowingly concerned in taking steps with a view to the fraudulent distribution of service charge
  • With intent to deceive, producing or supplying any document which is materially false
  • When furnishing any information for the purposes of the Ordinance, making any statement which one knows to be materially false (including recklessly doing so)
  • Failing to impose the service charge
  • Failing to designate a troncmaster
  • Failing to keep the required accounts.

All carry fines up to $10,000.00 or a term of imprisonment for up to one year.

What about tips?

Tips or gratuities are not service charge under the Ordinance (section 5).  A tip is a payment given by a customer directly to an employee or employees, and can be in the form of actual cash or credit/debit charges.

The service charge is mandatory for relevant hotels and restaurants but tipping is optional.

What about existing reservations? What about guests who made a reservation already and who have paid in advance but will actually be accommodated after this new law comes into effect?

The service charge payable under this Ordinance does not apply to a hotel reservation made before the coming into effect of the Ordinance if the obligation to levy or pay service charge did not exist under the old service charge law.

This note is for guidance purposes only and should not be relied on as legal advice in any specific case.  If you have specific questions about your circumstances under the new Ordinance, please contact your Misick & Stanbrook professional.

Misick & Stanbrook

February 2019

[1] This registration of a scheme is separate from the registration of the hotel or restaurant itself for service charge and no hard details of the process are available at time of writing