Prior to the Sixth Amendment to the Employment Act, rules on service charge provided in the Employment Act applied only to those employers who levy a service charge.
Following the Sixth Amendment, which came into force on 1 January 2021, all services provided in the tourism sector are required to levy a service charge at a rate not less than 10%. For all other sectors, levying a service charge has been made optional and determining the amount to be levied as service charge has been left to the discretion of those businesses.
Regardless of the sector, the Sixth Amendment[1] requires:
- service charge to be distributed equally amongst all employees
- service charge collected in previous month to be distributed before the end of the current month
- service charge to be distributed without any discrimination between employees and thereby requiring all employees to be treated alike
Here, “all employees” refer to all employees who are directly or indirectly involved with providing a service by way of their employment.[2]
The Sixth Amendment retains the discretion given to employers to withhold no more than 1% of total service charge collected per month as an administrative fee.
The amendment law additionally introduces record keeping requirements on employers who levy service charge. In this regard, employers are required to maintain regular records of total income received as service charge, number of employees to whom service charge is distributed in a particular month, the amount entitled to each employee as service charge and the amount distributed as service charge. Employers are also required to share this information bi-annually both with Labor Relations Authority (LRA) and Maldives Inland Revenue Authority (MIRA) in accordance with a regulation enacted by the LRA. This regulation is yet to be enacted.
Enforcement measures with respect to service charge introduced under the Sixth Amendment include obligation on employers to disclose the records on service charge as and when requested by LRA. Further measures include, imposition of a fine not greater than MVR 50,000 on those employers who fail to maintain records of service charge or disclose such records to LRA.
More stringent measures are aimed at tourism sector. Tourism businesses who fail to levy a 10% service charge or distribute service charge equally amongst the employees can face a penalty fine of not greater than MVR 100,000. The LRA is yet to publish regulation on imposition of penalty fines as required under the amendment law.
[1] See, Section 52, Employment Act
[2] Section 52(c)
