SANTOS, ARLEEN INGRID A.

LABOR LAW REVIEW

2020-0233 Thursday 6:00-9:00PM

ASSIGNMENT
003 – 2021
LABOR LAW REVIEW
Atty. Porfirio DG. Panganiban, Jr.

1. Define the terms Wage and Salary? Distinguish the two, exhaustively.

Answer: Answer: Wages are remunerations or earnings payable by an employer to an

employee for work done or to be done or for services rendered or for services to be rendered. To
be considered as “wages,” the remunerations should arise from a relationship of employer-
employee.

The Labor Code does not even make any distinction between “salary” and “wage” as the legal
definition is very broad that it includes salary. Nevertheless, there is a fine distinction between
the two. Wage refers to compensation for manual labor, skilled or unskilled, paid at stated times
and measured by the day, week, month, or season; whereas salary denotes a higher grade of
employment, or a superior grade of services and implies a position of office.

2. Define and Distinguish Facilities and Supplements.

Answer: Facilities are items of expense, necessary for the employees’ subsistence. They
are part of wages. On the other hand, supplements are extra remuneration or special privileges or
benefits given to employees over and above their ordinary wages. They are not part of wages.

3. Provide Five at least five examples, for facilities and supplements. Explain why they
considered as such.

Answer: Facilities - board and lodging, rice ration, subsidized meals

Supplements - vacation leave pay, sick leave pay, car plan, pension, profit sharing.

4. Are facilities and supplements taxable?

Answer: Yes, facilities are taxable because they are considered as part of the wages while
supplements are not.

 5. Provide the requirements for deducting the amount of facilities.

Answer: The NWPC, in Section 1 Rule III of DO 126-13, tDeductibility of the value of
facilities, in order that the fair and reasonable value of the facilities may be deducted from the
wages of employees, the following requisites must concur:

a. Facilities subject of valuation are customarily furnished by the employer;

b. Deductibility of the value of the facilities must have been voluntarily accepted in writing by
the employee; and
c. Facilities must be charged at a fair and reasonable value.

6. Explain the circumstances regarding payment of wages:

a. As to Form of wages.

Answer: The law requires an employer to pay the wages of an employee in legal
tender. This is mandatory. Even if requested by the employee himself, the employer cannot pay
the employees wages by means of promissory note, vouchers coupons tokens tickets chit or other
form alledged to represent legal tender.

b. As to mode or time of payment.

Answer: Article 103 of the labor code provides that wages shall be paid at least
once every two weeks or twice a month at intervals not exceeding 16 days. If on account of force
majeure or circumstances beyond the employers control, payment of wages on or within the time
here in provided cannot be made, the employer shall pay the wages immediately after such force
majeure or circumstances have seas. No employer shall make payment with less frequency than
once a month. The payment of wages of employees and to each to perform a task which cannot
be completed in two weeks shall be subject to the following conditions, in the absence of a
collective bargaining agreement or arbitration award: 1. That payments are made at intervals not
exceeding 16 days, in proportion to the amount of work completed; 2. That final statement is
made upon completion of work.

c. As to place or Venue of payment.

Answer: Article 104 of the Labor Code provides that payment of wages shall be
made at or near the place of undertaking, except as otherwise provided by such regulations as the
Secretary of Labor may prescribe under conditions to ensure greater protection of wages.

The general rule is that wages of employees should be paid at or near the place of
undertaking. Payment in any other place is permissible under the following circumstances:

 1. When payment cannot be effected at or neat the place of work by reason of

deterioration of peace and order conditions, or actual or impending emergencies caused by the
calamity.
2. When the employer provides free transportation to the employees back and
forth; and
3. Under any other analogous circumstances, provided that the time spent by the
employees in collecting their wages shall be considered as compensable hours worked.

Employers are are prohibited from paying the wages of an employee in any bar,
night or day club, drinking establishment, massage clinic, dance hall, or other similar places
where fames are played with stakes of money. The prohibition does not apply to persons
employed in such places.

d. As to whom payment of wages is undertaken.

Art. 105. Direct payment of wages. Wages shall be paid directly to the workers to
whom they are due, except:

a. In cases of force majeure rendering such payment impossible or under other

special circumstances to be determined by the Secretary of Labor and Employment in
appropriate regulations, in which case, the worker may be paid through another person under
written authority given by the worker for the purpose; or

b. Where the worker has died, in which case, the employer may pay the wages of
the deceased worker to the heirs of the latter without the necessity of intestate proceedings. The
claimants, if they are all of age, shall execute an affidavit attesting to their relationship to the
deceased and the fact that they are his heirs, to the exclusion of all other persons. If any of the
heirs is a minor, the affidavit shall be executed on his behalf by his natural guardian or next-of-
kin. The affidavit shall be presented to the employer who shall make payment through the
Secretary of Labor and Employment or his representative. The representative of the Secretary of
Labor and Employment shall act as referee in dividing the amount paid among the heirs. The
payment of wages under this Article shall absolve the employer of any further liability with
respect to the amount paid.

The general rule is that wages should be paid directly to the workers at whom
they are due. Payment of wages to another person is allowed in only under the following
circumstances:
1. Where the employee authorizes the employer in writing to pay his wages to a
member of the family or to another person
2. Where the law authorizes payment to another person; and
3. In case of death of the employee.

 In case of death of an employee, intestate proceedings are not necessary. The heirs
should simply submit to the employer an affidavit attesting to their relationship with the
deceased and the fact that they are his heirs, to the exclusion of other persons.

Upon presentation of the affidavit, the employer shall make payment to the heirs
as representative of the Secretary of Labor and Employment. Payment in accordance with the
foregoing procedure will relieve the employer from further liability with respect to the amount
paid.

7. Define and Explain the difference if any, between Minimum Wage and Living Wage.

Answer: Living wage is the amount of income determined to provide a decent standard of
living. It should pay for the cost of living in any location. It should also be adjusted to
compensate for inflation. The purpose of a living wage is to make sure that all full-time workers
have enough money to live above the federal poverty level.

On the other hand, minimum wage is the wage mandated by law, to keep employees above the
poverty level in their area. However, the minimum wage is simply not enough to provide one
with the means to live. It also is not enough to cover medical, auto, or renters and homeowner's
insurance.

8. Who determines the minimum wage?

Answer: Wage-fixing is a power that inherently belongs to Congress. However Congress

has delegated the said power to the Regional Tripartite Wages and Productivity Board. Congress
deemed it proper to have permanent boards decide on wages rather than leave wage
determination to Congress year after year and law after law, thereby leaving the question of
wages to the expertise of experts.

9. State and Explain the factors in determining minimum wage?

Answer: In the determination of regional minimum wages, the following standards are to
be considered:
1. Needs of the workers and their families
a. Demand for living wages
b. Wage adjustment vis-a-vis the consumer price index
c. Cost of living and changes therein;
d. Needs of workers and their families;
e. Improvements in standards of living;
2. Capacity to Pay
a. Fair return on capital invested and capacity to pay of
employers;
b. Productivity

 3. Comparable Wages and Incomes
a. Prevailing wage levels
4. Requirements of economic and social development
a. Need to induce industries to invest in the countryside
b. Effects on employment generation and family income
c. Equitable distribution of income and wealth along the
imperatives of economic and social development.

10. When is the Non-Diminution of Benefits principle applicable?

Answer: Article 100 of the Labor Code provides that nothing in this Book shall be
construed to eliminate or in any way diminish supplements, or other employee benefits being
enjoyed at the time of the promulgation of this Code.

Benefits granted voluntarily, regularly and unconditionally cannot be unilaterally reduced

or withdrawn by an employer. The reason is based given regularly, voluntarily and
unconditionally become part of the terms and conditions of employment.

11. What are the exceptions to the Non-Diminution Principle or Rule?

Answer: The principle of non-diminution fo benefits is not violated if the action does not
result in reduction or elimination of benefits. For example, in an establishment where the
employees enjoy a 15 day vacation leave with pay and 15 day sick leave in exchange for a 30
day vacation leave which the employees can avail of not only for vacation purposes but also in
case of sickness.

12. What is a Bonus? Is bonus a demandable right?

Answer: A bonus is a gratuity or act of liberality of the giver which the recipient has no
right to demand as a matter of right.

13. How is Bonus different from 13th month pay?

Answer: The key distinction between the 13th month pay and Christmas bonuses is that
the former is mandatory by law for all non-managerial staff, while the latter is at the discretion of
the employer. Furthermore, the 13th month pay must be paid on or before December 24.

14. What is the threshold of the 13th month pay?

Answer: Presidential Decree No. 851 Section 1 states that: “All employers are hereby required
to pay all their employees receiving a basic salary of not more than P1,000 a month, regardless
of the nature of their employment, a 13th month pay not later than December 24 of every year.”

 15. What are the tax ramifications of 13th month pay?

Answer: The 13th month pay is generally exempt from taxation.

16. Explain new tax obligation rate under train law for 2018 onwards?

Answer: Now, there is a prescribed limit to this exemption provided under Section 32 (B)(7)(e)
of the National Internal Revenue Code (NIRC) – which was amended by Republic Act No.
10963 or the TRAIN law on January 2018. The amendment stipulates that the 13th month pay
and other equivalent benefits shall not be subject to tax for a maximum of P90,000. This new
amount is a relative increase from the previous tax exclusion rate of P82,000.
Anything beyond the maximum exclusion rate of P90,000 must be included in the computation
of the employee’s gross income for the applicable taxable year.

17. Are maternity leave benefits included in the computation of 13th month pay?
Explain with legal basis.

Answer: No, maternity leave benefits are not included in the computation of the 13th month pay.
RA No. 8282 as amended, provides that maternity benefits are granted to employees in lieu of
wages and therefore may not be included in computing the employee’s 13th month pay for the
calendar year.

18. Are resigned or separated/terminated employees entitled to 13th month pay? How
much is the 13th month pay of a resigned or separated/ terminated employee?
Explain with legal basis.

Answer: According to jurisprudence, an employee who has resigned or whose services were
terminated at any time before the time for payment of the 13th month pay is entitled to this
monetary benefit in proportion to the length of time he worked during the year, reckoned from
the time he started working during the calendar year up to the time of his resignation or
termination from service. With regards, Terminated Employees: the payment of the 13th month
pay may be demanded by the employee upon the cessation of employer employer-employee
relationship.

19. Explain the term Wage Distortion?

Answer: The National Wages and Productivity Commission provides that wage distortion is a
situation where the application of a mandated wage increase results in the elimination of severe
contraction of existing salary differentials among employee groups in an establishment.

20. When does Wage Distortion happen?

21. Provide the Elements of Wage Distortion?

 Answer: Based on the case of Prubankers Association vs. Prudential Bank and Trusts Co., the
following are the elements of wage distortion:
a. Existing heirarchy of positions with corresponding salary rates.
b. Significant change in the salary rate of a lower pay class without concomitant increase
in the salary rate of a higher one.
c. Elimination of the distinction between the two levels
d. Existence of the distortion in the same region of the country

22. How do you correct Wage Distortion?

Answer: The NWPC provides that to correct wage distortion, for organized firms, the employer
and the workers’ union shall negotiate through the grievance procedures incorporated in their
Collective bargaining Agreement. If still, unresolved, the parties may push through with the
process of voluntary arbitration.

23. What sub-contracting?

Answer: Contracting or subcontracting is a situation where an employer engages the services of a

contractor who undertakes to perform a certain work, task or job on his ow account, under his
own responsibility, free from the control and discretion of his employer in all matters, except as
to the hours of work.

24. State the different kinds of sub-contracting.

Answer: DO 147-17 also prohibits the following employment arrangements for being contrary to
law or public policy:

• When the principal farms out work to a CABO, which is a person or group of persons or
a labor group which under the guise of a labor organization, cooperative or any entity,
supplies workers to an employer, with or without any monetary or other consideration,
whether in the capacity of an agent of the employer or as an ostensible independent
contractor;
• Contracting out of job or work through an in-house agency;
• Contracting out of job or work through an in-house cooperative which merely supplies
workers to the principal;
• Contracting out of a job or work by reason of a strike or lockout whether actual or
imminent;
• Contracting out of a job or work being performed by union members and such will
interfere with, restrain or coerce employees in the exercise of their rights to self-
organization;
• Requiring the contractor’s/subcontractor’s employees to perform functions which are
currently being performed by the regular employees of the principal;

 • Requiring the contractor’s/subcontractor’s employees to sign, as a precondition to

employment or continued employment, an antedated resignation letter; a blank payroll; a
waiver of payroll standards including minimum wages and social or welfare benefits; or a
quitclaim releasing the principal or contractor from liability as to payment of future
claims; or require the employee to become a member of a cooperative;
• Repeated hiring by the contractor or subcontractor of employees under an employment
contract or short duration;
• Requiring employees under a contracting or subcontracting arrangement to sign a
contract fixing the period of employment to a term shorter than the term of the Service
Agreement, unless the Contract is divisible into phases for which substantially different
skills are required and this is made known to the employee at the time of engagement;
and
• Other practices, schemes or employment arrangements designed to circumvent the right
of workers to security of tenure.

25. What are the recognized requirements of a valid subcontracting?

Answer: Requirements of a valid subcontracting:

1. The contractor must have a distinct and independent business.
2. The contractor must have substantial capital or investment in the form of tools,
equipment, machineries, work premisesand other materials necessary in the conduct of his
business; and
3. The contractor must perform the job, work or service on his own account, under
his own responsibility, according to his own manner and method, free from control and direction
of the principal in all matters connected with the performance of the work, except as to the
results thereof.

26. Explain the legal consequences of an illegal sub-contracting?

Answer: The following are the effects:chanroblesvirtuallawlibrary

a. The subcontractor will be treated as the agent of the principal. Since the act of an agent is the
act of the principal, representations made by the subcontractor to the employees will bind the
principal.
b. The principal will become the employer as if it directly employed the workers engaged to
undertake the subcontracted job or service. It will be responsible to them for all their entitlements
and benefits under the labor laws.
c. The principal and the subcontractor will be solidarily treated as the employer.
d. The employees will become employees of the principal, subject to the classifications of
employees under Article 28 of the Labor Code.
If the labor-only contracting activity is undertaken by a legitimate labor organization, a petition
for cancellation of union registration may be filed against it, pursuant to Article 239(e).

27. Explain the wisdom of DOLE DO 174.

 Answer: The Department of Labor and Employment (DOLE) has issued Department Order No.
174, series of 2017 (DO 174), providing a new set of guidelines to govern contracting and
subcontracting.
DO 174 identifies two arrangements that constitute labor-only contracting, which is prohibited
under the law. The first type is when (a) the contractor does not have substantial capital or it does
not have investments in the form of tools, equipment, machineries, supervision, work premises,
among others; and (b) the contractor’s employees are performing activities which are directly
related to the main business of the principal. The second type is when the contractor does not
exercise the right of control over the performance of the work of its employees.

28. Provide all the requirements of DO 174.

Answer: NEW
A. – Three (3) copies of Duly accomplished Application Form - Proof of 5M capitalization
B. Any of the following:
- Certified true copy of certificate of registration from SEC with Articles of Incorporation
- Certificate of DTI Registration or Certification
- Certified True Copy of the Certificate of Registration from CDA
- Certified copy of Registration from the DOLE if applicant is Union
C. Certified true copy of License or Business Permit/Mayor’s Permit Issued by the Local
Government Unit where the contractor operates
D. Copy of duly audited financial statement, for Corporation or Partnership, Cooperative or
Union; or copy of the latest Income Tax Return (ITR), for sole proprietorship (If applicable)
E. Sworn disclosure that the registrant, its officers and owners or principal stockholders have not
been operating or previously operating as a contractor under different business name or entity;
the list of clients, if any; the number of personnel assigned to each client, if any; and the services
provided to the clients.
F. Certified Listing with proof of ownership or lease contract of facilities, tools, equipment,
premises implements, machineries and work premises, that are actually and directly used by the
contractor in the performance or completion of the job, work or service contracted out.
- Lease Contract/Certificate of Land Title/Authority from the owner to use the office (original to
be presented upon filing of the application)/ Letter of Consent/authority or Affidavit of Free
Occupancy
G. Photo of the office building (with Signage) and premises where it holds office.
H. For Private Security Agency/Security Service Contractor
1. Certificate of Membership issued by the Philippine Association of Detective and Protective
Agency Operators, Inc. (PADPAO) or other
associations recognized by the PNP-CSG-SOSIA 2. License to Operate issued by PNP-CSG-
SOSIA
I. P100,000.00 Registration Fee (Manager/Cashier’s Check)

RENEWAL

 Three (3) copies of Duly accomplished Application - Proof of 5M capitalization

Copies of updated supporting documentary requirements pursuant to Section 15 of D.O. 174:
- Any of the following:
• Certified true copy of certificate of registration from SEC
with Articles of Incorporation
• Certificate of DTI Registration or Certification
• Certified True Copy of the Certificate of Registration from
CDA
• Certified copy of Registration from the DOLE if applicant is
Union
Certified true copy of License or Business Permit/Mayor’s Permit Issued by the Local
Government Unit where the contractor operates
Copy of duly audited financial statement, for Corporation or Partnership, Cooperative or Union;
or copy of the latest Income Tax Return (ITR), for sole proprietorship
Sworn disclosure that the registrant, its officers and owners or principal stockholders have not
been operating or previously operating as a contractor under different business name or entity;
the list of clients, if any; the number of personnel assigned to each client, if any; and the services
provided to the clients.
Certificate of membership and proof of SSS, BIR, ECC, PAG-IBIG & Philhealth loan
amortization for the last three (3) years;
Certified Listing with proof of ownership or lease contract of facilities, tools, equipment,
premises implements, machineries and work premises, that are actually and directly used by the
contractor in the performance or completion of the job, work or service contracted out.
- Lease Contract/Certificate of Land Title/Authority from the owner to use the office (original to
be presented upon filing of the application)/ Letter of Consent/authority or Affidavit of Free
Occupancy
Photo of the office building (with Signage) and premises where it holds office.
Certificate of No Pending; or No Pending Labor Standards Violation case/s with the NLRC and
DOLE
For Private Security Agency/Security Service Contractor
1. Certificate of Membership issued by the Philippine Association of Detective and Protective
Agency Operators, Inc. (PADPAO) or other
associations recognized by the PNP-CSG-SOSIA 2. License to Operate issued by PNP-CSG-
SOSIA
Copy of previous Certificate of Registration
Proof of Submission of Contractor’s /Sub-Contractor’s semi-annual reports
P100,000.00 Registration Fee (Manager/Cashier’s Check)

29. Are there any exceptions to DO 174? Explain.

Answer: DO 174 applies only to a trilateral relationship which characterizes contracting or

subcontracting arrangement. It does not contemplate to cover information technology-enabled
services involving an entire or specific business process such as:

 - BPO
- KPO
- Legal Process Outsourcing
- IT Infrastructure Outsourcing
- Application Development
- Hardware and/or Software Support
- Medical Transcription
- Animation Services
- Back Office Operations Support

30. State exhaustively the prohibitions of illegal subcontracting.

Answer: DO 174 provides under Section 5 the absolute prohibition against labor-only
contracting. It provides that labor-only contracting, which is totally prohibited, refers to an
arrangement
where:
a. i. the contractor or subcontractor does not have substantial capital, or
ii. the contractor or subcontractor does not have investments in the form
of tools, equipment, machineries, supervision, work premises, among
others, and
iii. the contractor’s or subcontractor’s employees recruited and placed are performing
activities which are directly related to the main business
operation of the principal; or

b. the contractor or subcontractor does not exercise the right to control over
the performance of the work of the employee.

31. Provide the recognized other illicit forms of employment or contractual

arrangements.

Answer: The Labor Code and its regulations also prohibit certain contracting
arrangements, including the following:
• 1. When the principal farms out work to a cabo.
• 2. Contracting out of job or work through an in-house agency.
• 3. Contracting out of job or work through an in-house cooperative which merely supplies
workers to the principal.
• 4. Contracting out of a job or work by reason of a strike or lockout whether actual or
imminent;
• 5. Contracting out of a job or work being performed by union members and such will
interfere with, restrain or coerce employees in the exercise of their rights to self-
organization as provided in Article 259 of the Labor Code, as amended.
• 6. Requiring the contractor’s/subcontractor’s employees to perform functions which are
currently being performed by the regular employees of the principal.

 • 7. Requiring the contractor’s/subcontractor’s employees to sign, as a precondition to

employment or continued employment, an antedated resignation letter; a blank payroll; a
waiver of labor standards including minimum wages and social or welfare benefits; or a
quitclaim releasing the principal or contractor from liability as to payment of future
claims; or require the employee to become member of a cooperative;
• 8. Repeated hiring by the contractor/subcontractor of employees under an employment
contract of short duration.
• 9. Requiring employees under contracting/subcontracting arrangements to sign a contract
fixing the period of employment to a term shorter than the term of the Service
Agreement, unless the contract is divisible into phases for which substantially different
skills are required and this is made known to the employee at the time of engagement.
• 10. Such other practices, schemes or employment arrangements designed to circumvent
the right of workers to security of tenure.

In instances where there is a finding of labor-only contracting or illegal employment

arrangements, the principal shall be deemed the direct employer of the contractor’s or
subcontractor’s employees.
In labor-only contracting, the statute creates an employer-employee relationship for a
comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is responsible to the employees of the
labor-only contractor as if such employees had been directly employed by the principal
employer. A finding of a “labor-only” contractor is equivalent to a finding that an employer-
employee relationship exists between the company and the labor contractor’s employee, the
relationship being such as provided by the law itself. (In technical terms, the principal employer
is solidarily liable with the labor-only contractor for all the rightful claims of the employees).

32. Explain what is substantial capital? Can substantial capital be sufficient to

legitimize subcontracting?

Answer: DO 174 provides that substantial capital refers to paid-up capital stock/shares at least
P5,000,000 in case of corporations, partnerships and cooperatives; in the case of single
proprietorship, a net worth of at least P5,000,000.00.

Jurisprudence provides that a person who has no capital or money of his own to pay his workers
or to comply with his obligations to them, falls short of the requisites or conditions necessary to
classify him as an independent contractor.

33. State the legal ramification if a legitimate subcontractor cannot pay the rightful
wages of the employees it hired to perform the job outsourced by the principal
employer. Explain thoroughly with legal basis.

 Answer: DO 174, in relation to ART. 106. provides: whenever an employer enters into a contract
with another person for the performance of the former’s work, the employees of the contractor
and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and extent that he is liable
to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within these types of contracting and determine
who among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.

34. Discuss the significance of RA 11360 to labor law.

Answer: RA 11360 is a new law that requires all service charges collected by hotels, restaurants
and other similar establishments to be distributed completely and equally amongst relevant or
“covered employees”.
So what does that mean? It means that 100% of the service charges collected by these businesses
must now be divided up and paid out equally to their employees. Before the Service Charge
Law, rank and file workers were entitled to receive only 85% of service charges collected. The
remaining 15% would go to management. This was required under Section 14 of Presidential
Decree 850.

35. State the difference between Service Charge and TIPS?

Answer: Amounts an employer requires a customer to pay are service charges. This is true even
if the employer or employee calls the payment a tip or gratuity. Examples of service charges
commonly added to a customer’s check include: (1) large dining party automatic gratuity; (2)
banquet event fee; (3) cruise trip package fee; (4) hotel room service charge; and (5) bottle
service charge (nightclubs, restaurants).

 Generally, service charges are reported as non-tip wages paid to the employee. Some employers
keep a portion of the service charges. Only the amounts distributed to employees are non-tip
wages.

On the other hand, Tips are discretionary (optional or extra) payments determined by a customer
that employees receive from customers. Tips include: (i) cash tips received directly from
customers; (ii) tips from customers who leave a tip through electronic settlement or payment
(this includes a credit card, debit card, gift card, or any other electronic payment method); (iii)
the value of any noncash tips, such as tickets, or other items of value; and (iv) tip amounts
received from other employees paid out through tip pools or tip splitting, or other formal or
informal tip-sharing arrangements.
In general, the following factors characterize a payment as a tip:
1. The payment must be made free from compulsion;
2. The customer must have the unrestricted right to determine the amount;
3. The payment should not be the subject of negotiation or dictated by
employer policy; and
4. The customer should generally have the right to determine who receives
the payment.

Absent these factors, the payment is likely a service charge.