LEGAL ASPECTS IN TOURISM AND HOSPITALITY

WEEK 1 INTRODUCTION TO HOTEL LAW

WEEK 1.1 MEANING OF HOTEL LAW

In this lesson, you'll learn more about hospitality laws and the regulatory bodies that
govern them. You'll be given examples for clarity of hospitality laws and how they are
used to protect you in public accommodations.

A Night Out
You decide to go to one of your favorite take-out restaurants. You order the chow mein
noodles with a side of Kung Pao and orange chicken. Hours later you feel terribly ill and
are having sharp pains in your belly, followed by vomiting throughout the night. You
decide to go to the emergency room where blood and stool samples are taken for
diagnosis.
After a short wait, the doctor diagnoses you with food poisoning. Once at home, you turn
on the television and on the news you see that 10 other people have complained of
symptoms of food poisoning after eating at the same restaurant. Though for most, food
poisoning is not a serious illness, it is not one that anyone should ever get after eating at
a restaurant.
There are laws and standards that every restaurant must abide by when serving
customers. Restaurants should always serve food that is edible and safe for
consumption. Outside of their moral obligation to prepare quality foods, it's their legal
obligation to ensure that patrons are not getting sick from eating in their establishments.
Hospitality law is a legal and social practice related to the treatment of a
person's guests or those who patronize a place of business. Related to the
concept of legal liability, hospitality laws are intended to protect both hosts and
guests against injury, whether accidental or intentional.
Hospitality laws relate to food service, travel, and lodging industries. It governs the
various nuances of the hotel, restaurant, bar, spa, country club, meeting, and convention
industries, among others. Much like entertainment law, homeowners association law, and
other specialty fields, hospitality law is much more a description of the types of clients
who seek out the attorneys who focus their practices in these areas rather than an actual
set of laws. Hospitality law commonly encompasses a wide array of laws including
contracts, anti-trust, torts, real estate, and many others.

Hospitality laws were created to ensure that restaurants, hotels, motels, and other
public accommodations are providing safety measures within their establishments to
ensure the well-being of their patrons. People are expecting to eat good foods when they
visit a restaurant. When lodging at a hotel or motel, people are expecting a good night's
stay free from any type of harm. They should be protected from any type of criminal
activity, such as robbery or assault. What protects us from harm are the laws in place to
reduce the chances of these things occurring.

WEEK 1.2 Important laws applicable to the hotel industry

The majority of the legislations governing the hospitality and hotels industry can
be divided into three main sectors.
I. The first head is the legislation for the construction and commissioning of
hotels, restaurants, guest houses and other establishments, and includes the
Foreign Exchange Management Act, the industrial licensing policies, land laws and
various development control orders issued by the central and state governments.
II.The second head has legislation for the operation, maintenance and
management of establishments, food and hygiene standards. It also includes
insurance laws, fire safety and weights and measures regulation. Further, various
licenses, such as a liquor license, dance license, lodging house license, eating
house license, police permissions, a license under the Shops and Establishment
Act, or a license under the Food and Drug Administration Act, granted on an
annual basis.
III.The third head has rules regarding taxation, employment and other contractual
relationships. This includes laws on income tax, service tax, expenditure tax,
excise duty, luxury tax, entertainment tax, as well as laws on employment matters
like Apprentice Act, ESI Act, etc.

WEEK 2.1Important Licenses Required by Hotels under Various Acts (page 9 & 43)
 Police License / Registration.
 License under Shops & Establishments Act.
 License under Prevention of Food Adulteration Act.
 Registration under the Luxury Tax Act.
 Registration under the Sales Tax Act.
 Registration under the Contract Labour Act.
 Registration under the Pollution Control Act.
 Registration under the Apprentices Act.
 Registration under the Provident Fund Act.
 Registration under the ESI Act.
 Entertainment License on Festival Occasions.
 License for Chimney under the Smoke Nuisance Act.
 Registration under the Weights & Measures Act.
 Factory License for Laundry.
 Central Excise License for Bakery Products.
 Registration & Permits under the Motor Vehicle Act for Tourist Coaches / Taxies.
 Eating House License.
 Municipal Beer Bar License.
 License for storage of Diesel Oil.
 License for storage of Kerosene & Compressed Gas (LPG).
 Sign Board Directions, Neon Signs.
 License to deal in Foreign Exchange under FEMA.
 Cold Storage License, (if over 25 cubic ft.).
 License for Boiler & Generators and Mixers and Grinders.
 Bar License (Foreign Liquor).
 Mild Liquor License.
 Temporary License for Awnings & covering of Terrace during monsoon.
 Building Completion Certificate.
 Copy Right License for Playing of Music.
 Lodging House License
 Approval from the Department of Tourism, Government of India.
 Registration from GTDC for new projects under the Package Scheme of Incentives.

WEEK 2.2 Importance of Knowledge of laws in the hospitality industry

A working knowledge of laws governing the hospitality industry isn't just a nice bonus
piece of knowledge. Employees, managers and other staff members have to know
enough about the law to avoid breaking it because failing to follow state and federal laws
can result in fines, lawsuits and negative publicity.
The hospitality industry encompasses arts, entertainment, recreation,
accommodation and food services. Industry laws relate to guests and employees, and
include legislation on employee health and safety, labor laws, environmental protection,
hygiene, alcohol licensing regulations, negligence, privacy and contracts. It is important
for industry entrepreneurs and managers to know these laws to promote employee
welfare, ensure adequate service to guests, manage business exposure to risk, and
maintain complete compliance with state and federal laws.
Employee Welfare
Service providers ought to be well-versed with all labor laws, given the unique
employment attributes in the hospitality industry. Unique challenges exist due to the
nature of the work and the variety of employees that exist in the industry. There are
permanent and seasonal workers regulated differently under the law. The hospitality
industry also takes on underage workers who work part-time and have specific
protections under the law. Considering that the hospitality industry tends to operate
24 hours a day, throughout the year, entrepreneurs and managers have to guard
against violation of wage and overtime laws, which guard against overworking and
underpaying employees. It is also important to know about the occupational health
and safety laws that protect employees at work.
Client Service
Operators in the industry are expected to ensure clients' welfare and are legally
liable when they fail to meet it adequately. Client services range from food
preparation and service; ensuring general hygienic conditions, and offering adequate
security to prevent criminal activity, which includes assuring the safety of guests
and protecting their privacy and confidentiality. Operators need to know their legal
duties and refrain from placing clients at risk of injury, illness, embarrassment or
loss due to ignorance or negligence.
Risk Exposure
Because offering hospitality spans a wide array of services, it is important to know
all the laws that apply to manage the industry's exposure to risk. Hospitality industry
service providers face the risk of lawsuits based on breach of contract arising out of
relationships with suppliers and guests, tortious claims such as when a guest gets
injured due to negligence, and bankruptcy when the business is not making enough
to pay the bills. The industry is also vulnerable to risks arising out of gambling and
liquor licensing laws that regulate when and where alcohol can be served and the
legal drinking age, as businesses can be held liable even when it is their guests who
breach the law. Therefore, industry entrepreneurs and managers need awareness of
laws to avoid exposure to risk that can lead to disruption or even closure of the
business.
Legal Compliance
State and federal laws prescribe standards for every industry, and in the hospitality
realm, there are a number of relevant laws that service providers must follow. Laws
on guest-tenant relationships, maintenance of public health through the creation of
smoke-free zones and food hygiene standards apply directly to the industry.
Legislation on consumer safeguards, such as protection from misrepresentation and
false advertising, as well as disability discrimination due to lack of access, also
affect the industry. Service providers require comprehensive knowledge of all
applicable laws to effectively manage all the legal issues that arise in the course of
operating their business.
WEEK 3 Hotel Business:Hotel tariff and basis of charging rooms

WEEK 3.1 Basis of charging rooms ( page 21)

Hotel Tariff:

                 Tariff is the rate or

charges offered to the guest by the hotel for the use of different
facilities ans services, during their stay. Commonly, tariff is a
charge of room rates and other facilities. Tariff is a charge of
room rates and other facilities. Tariff or room charges may
include meal or breakfast depending upon the plan as per the
guest choices. Prices of hotel services are incorporated in a card
known as the 'tariff card'.
                   Tariff card is the card containing the rates or price
charged by a hotel for accommodation. Tariff card may include
meals depending upon the types of plan the hotel offers to the
guests. Prices of meals and other hotel services are also printed in
the hotel tariff card.
Basis of charging room rates:
The sale of rooms contributes more than 50% of total revenue
generated in the hotel. rooms are charged on the following basis:
1. The 24 hours basis:
 In twenty-four hours basis the room is charged for the stay of 24
hours. If a guest arrives  at 9 am today, the room charges will
cover until 9 an tomorrow. No concession will be given if the guest
leaves few hours earlier. His/her hotel day begins at 9 am every
subsequent day. There is not any fixed time for check-in and
check-out.
2. The 12:00 noon:
 A particular time of a day is fixed, mostly 12:00 noon as a check-
in and check-out time for all the guests, hotel day begins at this
time. This method is advantageous that a room can be sold twice in
a same day. For example, Mr. A arrives at 12:00 noon and checks
out early. After few hours, Mr. Y arrives and is provided the same
room, he is also charged for whole day.
3. The Nightly basis:
 Here, the charge is fixed, according to the nights spent in the
hotel. If a guest stays from 10 am until 6 am the next day, the
guest in charged for one night or a day.
WEEK 3.2 Types of Rate Codes used in hotels ( page 22)
Hotels always have more than one rate code category for each room
type. Room rates categories generally correspond to types of rooms
available to sell in the hotel ( Eg: Suite, Deluxe, Premier, Studio,
Penthouse etc. ).
Room Rates and rate codes may also vary according to the available room
features such as room size, location, view, furnishing, décors etc and also
with competitors pricing.
Standard Room Rates and Rate codes used in
the hospitality industry:
Rack Rate:  Is the Standard rate or Published tariff defined by the hotel
management for a particular room category/type. This is generally printed
on the tariff sheet of the hotel and these details are also submitted to the
local government authorities for hotel licensing and in some countries for
Gov. tax compliance.  In other word's these rates are always without any
sorts of discounts.
Corporate or Commercial Rate: These are rates offered to companies
that provide frequent business for the hotel or its chain. This rate may vary
according to the volume of business guaranteed by the companies. Eg:
NEG1, COR1 etc.
ADHOC Rate Code: These are normally non-standard rates which are
offered as special one-time rates for first time corporate's.
Group Rate: These are rates which are offered to groups, meetings and
conventions using the hotel for their functions.
Promotional Rate Codes: These rates are generally offered during
low occupancy periods to any guest to promote occupancy. Early Bird
Rates, Stay for 3 and pay for 1 etc. are some examples. These rates may
also include certain add-ons to attract the customers like free WiFi for 24
Hrs, free buffet dinner etc.
Incentive Rate Code: The Rate offered to individuals who belong to an
association or holders of special membership cards or Credit cards.  Eg:
Amex / VISA / Master cardholders get 5% discount on Rack Rate,
Lufthansa Frequent Flyer members get a 25% discount etc. For hotels,
these rates always give potential referral business.
Early-bird Rate: This type of rates are only open X days before arrival.
Eg: Open only when 7 Days before arrival, 14 Days Before Arrival, 30
Days Before arrival Etc.
Family Rate: A rate reserved for families with children. Usually, these
rates include Extra Bed charges and may also include some free add-on
activities for children.
Package Rate: Rates that includes a guest room in combination with other
available events or activities. ( Eg: Best of London package which includes
room rental, all meals, site seeing, airport transfers etc. ) Package rate can
be also a simple room and meal package like American Plan ( AP), 
Modified American Plan  (MAP), Continental Plan ( CP )etc.
Best Available Rates ( BAR ): These rate codes are the lowest
discounted rate available for a day which can be offered to the guest by
the Reservation or Front desk staff. BAR can be of different types:
'Dynamic BAR' - Has different tiers and each tier will be opened and closed
according to the occupancy of the hotel. ( The new age hotel management
software's does this automatically for the Revenue Managers.)
Sample Dynamic BAR Rate
  Open / Close when
 BAR Level
Occupancy Between
BAR -01  0% TO 25 %
BAR -02  26 % TO 35 %
BAR - 03  36% TO 50%
BAR - 04  51% TO 75%
BAR - 05  76% TO 100%
'Daily BAR' - Has a pre-defined daily room rate regardless of room
categories ( Run of the house) and occupancy, these rates
are set according to the day of the week, as per the demand of hotel
rooms in the city, special day's or seasons, as per the room
demand forecast done by the hotel revenue manager.
Sample Daily BAR Rate 
 DATE  DAY   RATE ($)
19/10/2016  WED  200.00
20/10/2016  THU  200.00
21/10/2016  FRI  250.00
22/10/2016  SAT  250.00

23/10/2016  SUN  250.00

 24/10/2016  MON  200.00

25/10/2016  TUE  200.00

Complimentary Rate: A Room rate with zero room charge which is

offered to special guests, industry leaders, Gov. officials etc.
House use Rate: A Room rate with zero room charge which is used for
rooms stays for hotel purpose. Eg: Manager or duty room, In-house
General / Resident manager room etc.
Zero Rate Code: This kind of rates are used as system requirements
for PMS's as these would be tagged to Dummy rooms, Paymaster rooms
and Group Master rooms.
Virtual Rate / Follow Rates: A Special Type of rate codes whose values
are derived from another rate code or rate group. Eg: BAR1 which is 10%
off on the Rack Rate.

WEEK 4 Hospitality Labor Laws

WEEK 4. 1 Service Tax for Hotel Industry ( page 26)

When you eat out at restaurants in town, both fine dining and mid-range, do
you ever pay much attention to the constitution of the bill? For a meal where
you may have ordered dishes worth Rs.1000, you may often end up paying
around Rs.1400-1500. The extras include taxes and service charge.
Hotels, inns, commercial guest houses, serviced apartments and other
businesses providing temporary stay facilities, play a major role in the travel and
tourism industry.

Service Charge:

In recent years, customers have had to pay 7-20 percent of their bill value as
service charge, irrespective of the services they received. This amount is a
sort of ‘forced tip’ that the diner must pay, which is supposed to be divided
amongst the staff of the restaurant. It keeps them motivated and pushes them
towards greater service standards. However, The Department of Consumer
Affairs has rung in the New Year with a statement that empowers customers
to ask for the service charge to be waived off if the services offered are not up
to the standard expected.

Service Tax:

The government levies several taxes, one of which is the service tax. It is the
tax levied on the service provider but eventually is borne by the customers
utilizing that particular service. This is a mandatory inclusion in your bill.
However, takeaway outlets have the flexibility to include this tax into their
menu pricing so what you see is what you pay. You may have mistakenly
believed that service charge is also a government levied mandatory charge.
However, it is essential to note that the government does not impose a
service charge in restaurants and it is charged by the restaurants themselves,
for services rendered. The amount they charge varies, depending upon the
establishment.
Service Tax is payable to services provided by the provider. It is similar to
excise duty where an amount is payable on goods that are manufactured. It is a
type of indirect tax that is collected by the government after consuming the taxable
services provided by travel agents, restaurants, cable providers, cab services, etc.

Rooms, Laundry, Transportation:

VAT - 12%
Local Tax - 0.75%
Food:
VAT - 12%

Local Tax - 2.5% ( Local government units (LGUs) derive their revenues
from local and external sources. Local sources include tax revenues
from the real property tax and the business tax, and non-tax revenues
from fees and charges, receipts from government business operations
and proceeds from sale of assets.)
Beverage:
VAT - 12%
Local Tax - 0.6%

Differences between service tax and service charge:

 1)      The service tax is a government levied tax and is fixed in every state
of India, at 14 percent. On the other hand, service charge is an extra cost
charged by the restaurant, which varies. It is a means to cover ‘tip’ cost, as a
lot of customers in India may not tip.

 2)      The service tax conforms to certain guidelines laid down by the
government. Unlike this, the service charge is not bound by any guidelines
from the government.

 3)      Officially, only a restaurant which is centrally air-conditioned/heated is

eligible to levy a service tax on the customers.  However, some restaurants
may be seen practicing this even if they do not come under this category.

 4)      The service tax is recovered by the government. On the other hand, the
service charge goes directly to the restaurant.

 5)      While the service tax is the same throughout the country, service
charge varies from restaurant to restaurant.

Service Tax Service Charge

Description A government tax levied for An unofficial charge
services provided levied for services
provided.
Levied by Levied by the Government Levied by the restaurant
or business.
Paid to Paid to the Government Not paid to the
Government.
Applicable by Applicable for restaurants, Can be levied by any
eating - joints, or messes restaurant, eating -
that have air conditioning. joints, messes, or
Restaurants that do not businesses.
have air-conditioning are
exempted.
Applicable on Applicable on only certain Can be and usually is
parts of the bill, not the applicable on the whole
whole bill. bill.

Applicability of VAT for Hotels

A value-added tax (VAT) is a consumption tax placed on a product
whenever value is added at each stage of the supply chain, from
production to the point of sale. The amount of VAT that the user pays is
on the cost of the product, less any of the costs of materials used in the
product that have already been taxed. The sale of food products by a
restaurant in a hotel attracts VAT under the relevant state laws. All prices
in the Philippines are subject to 12% Value Added Tax.

Applicability of Service Tax for Hotels

Declared tariff is the charges for all amenities provided in the room like
furniture, air - conditioner, etc., without including any discount offered on
the published charges. It is applicable only on 60% of value of rent of
room, inn, guest house, clubs or other commercial places meant for
lodging purposes. However, when service tax is paid only on 60% of the
total value, no CENVAT credit or Input Credit can be claimed by the
service provider.

Example: Hotel service tax

In case a hotel has a declared tariff of 1500 per room per night,
provides a discount of 500 and charges 900 to the customer, then the
service tax applicable would be as follows:
 Service Tax Exemption: Though the charge levied to the customer is
900, service tax would still be applicable as the declared tariff is
1500, which is above the service tax exemption threshold.

( RESEARCH ON LOCAL TAX )

WEEK 4. 2 Expenditure tax in Hotels and Restaurants ( page 30)