Frequently Asked Questions


On Wage System and Policy

  • What is Two-Tiered Wage System?
  •      The two-tiered wage system is a reform that maintains the mandatory minimum wage setting under R.A. 6727 or the Wage Rationalization Act, as the first tier (Tier 1) and complemented by a voluntary productivity-based pay scheme as the second tier (Tier 2). It was conceptualized in 2010 and implemented in 2012 with the support of social partners.


  • How does the 2TWS work?
  • Mandatory Minimum Wage (Tier 1)

    In setting the mandatory minimum wage, the RTWPBs refer to the official data on:

    • Poverty threshold (NSCB)
    • Prevailing (average) wage rates (Labor Force Survey)
    • Socio-economic indicators such as CPI/Inflation, employment, GRDP, among others

    Voluntary Productivity-Based Pay Scheme (Tier 2)

         The voluntary productivity-based pay shall be impemented through a labor-management mechanism such as the productivity committee or any similar body.

        ↑real incomes and
    ↑revenue and profit for enterprises
    ↑levels of productivity =
       

         Workers' representation in the Productivity committees ensures fair and reasonable setting of performance criteria, standards, targets and profit sharing scheme among others.


  • What is a productivity-based pay advisory?
  •       The RTWPBs issue advisories on productivity incentive pay schemes as reference of workers and enterprises in the implementation of productivity improvement and gainsharing programs. The RTWPBs identify priority or growth industries including their supply chain, as the subject of their advisories. Industry players participate in the crafting and issuance of their advisories, including advocacy campaigns and monitoring of its implementation. The advisories shall form part of the Voluntary Codes of Good Practice in the various Regional Industry Tripartite Councils (RITCs) in line with the envisioned industry self-regulation.


  • Why the 2TWS will work?
  •      The 2TWS will set a genuine floor or minimum wage for better workers protection. The 2TWS will see to it that the minimum wage is slightly above the poverty threshold to help workers and their families meet their basic needs but should not exceed average wage, taking into account employers' capacity to pay.

         The grant of productivity performance-based pay will benefit both workers and employers since it will help raise workers' standard of living while encouraging workers and enterprises to become more competitive and productive.

         Productivity-base pay is voluntary, flexible and negotiable. RTWPBs will issue Productivity-based Pay Advisories on various productivity improvement and incentives schemes, including the performance and outlook of the industry, labor market conditions, and other related indicators as reference in the design of the enterprise's productivity incentive programs. As necessary, the RTWPBs shall also provide technical assistance to enterprises in the design and implementation of productivity incentives program.


  • What are the criteria for minimum wage fixing adopted by the Boards?
  •     Under the Rules of Procedures for Minimum Wage Fixing, categorized into four major groups, namely:

    (1) Needs of workers and their families

    • Demand for living wage
    • Wage adjustment vis-à-vis Consumer Price Index (CPI)
    • Cost of living and changes therein
    • Needs of workers and their families
    • Improvements in standards of living

    (2) Capacity to pay

    • Fair return on capital invested and capacity to pay of employers
    • Productivity

    (3) Comparable wages and incomes

    • Prevailing wage levels

    (4) Requirements of economic and social development

    • Need to induce industries to invest in the countryside
    • Effects on employment generation and family income
    • Equitable distribution of income and wealth along the imperatives of economic social development

     


  • Can the Regional Boards issue a wage order even without a petition for wage increase?
  •      Yes, even in the absence of a filed petition for wage increase, Regional Boards can, motu proprio, initiate action or inquiry on whether a wage order should be issued.

         A public hearing is required before the Boards can issue a wage order.


  • Can the Regional Boards grant across-the-board wage increases?
  •      The wage-setting function of the Regional Boards is confined to minimum wages.
         
         While across-the-board (ATB) wage increases have been granted in the past, current policy discourages the Boards from granting ATB adjustments as they create more distortions in the labor market which in turn affect adversely the incomes and standard of living of workers and thier families. Specifically:

    • ATB wage increases have greater impact on inflation
    • ATB wage increases are disincentives to trade unionism
    • ATB increases are not consistent with minimum wage fixing mandate of the Boards

  • How is the equivalent monthly rate (EMR) of monthly-paid and daily-paid employees computed?
    •     Under the Labor Code, private sector workers should receive the applicable minimum wages not lower than those prescribed by the Regional Boards under existing wage orders. At present, the prescribed minimum wages are for normal working hours, which shall not exceed eight hours per day.

      For monthly-paid employees

           The factor 365 days in a year is used in determining the equivalent annual salary of monthly-paid employees. To compute their EMR, the procedure is as follows:

      EMR = Applicable Daily Rate x 365 days  
      12  


      Where 365 days = 298 days - Ordinary working days
        52 days - Sundays/Rest days
        12 days - Regular Holidays
        3 days - Special days
        365 days - Total equivalent number of days/year



    For daily-paid employees    
                   

         The following formula may be used in computing the EMR of different groups of daily-paid employees for purposes of entitlement to minimum wages and allied benefits under existing laws:

    a) For those who are required to work everyday, including Sundays or rest days, special days and regular holidays.

      EMR = Applicable Daily Rate x 393.50 days  
      12  


      Where 393.50 days = 298 days - Ordinary working days
        24 days - Regular holidays x 200%
        67.60 days - 52 rest days x 130%
        3.90 days - 3 special days x 130%
        393.50 days - Total equivalent number of days/year

     

    b) For those who do not work and are not considered paid on Sundays or rest days.

      EMR = Applicable Daily Rate x 313 days  
      12  


      Where 313 days = 298 days - Ordinary working days
        12 days - Regular holidays
        3 days - special days (if considered paid, if actually worked, this is equivalent to 3.9 days)
        *313 days - Total equivalent number of days/year
        *Factor 310 may be used instead of 313 if the 3 special days are not considered paid


    c) For those who do not work and are not considered paid on Saturdays and Sundays or rest days

      EMR = Applicable Daily Rate x 261 days  
      12  


      Where 261 days = 246 days - Ordinary working days
        12 days - Regular holidays
        3 days - special days(if considered paid, if actually worked, this is equivalent to 3.9 days)
        *261 days - Total equivalent number of days/year
        *Factor 258 may be used instead of 261 if the 3 special days are not considered paid

     



    Procedure on Minimum Wage Fixing

  • How long does it take the Regional Boards to issue a wage order?
  •      In general, the Boards can issue a wage order within 90 days, given the procedural requirements under the Rules of Procedures for Minimum Wage Fixing. The Boards are specifically required to issue a wage order within 30 days after conclusion of the last hearing. Thereafter, a Wage Order becomes effective 15 days after it has been published in a newspaper of general circulation in the area of jurisdiction.


  • How often can the Boards issue a wage order?
  •      In general, the Boards can issue a Wage Order only once in a given year.

         Within the 12-month period from effectivity of the wage order, no petition for wage increase may be entertained, except when there is a supervening condition, such as an extraordinary increase in prices of petroleum products and basic goods and services.

         The existence of supervening condition is to be determined by the Boards and confirmed by the NWPC


  • What is the effectivity date of a Wage Order?
  •      A Wage Order take effect fifteen (15) days after its publication in the newspaper of general circulation in the region.


  • Can the wage order issued by the Boards be appealed?
  •      Yes, any aggrieved party may file an appeal with the NWPC through the Board within 10 days from the date of publication of the Wage Order

    The grounds for appeal are:

    • non-conformity with prescribed guidelines and/or procedures;
    • question of law;
    • grave abuse of discretion.

  • What is the effect of the filing of appeal to the Wage Order issued by the Board?
  •      The filing of appeal does not operate to stay the Order unless the party appealing files with the NWPC an undertaking with a surety or sureties satisfactory to the NWPC for payment to employees affected by the Order of the corresponding increase, in the event such Order is affirmed.


  • How are wage distortions corrected?
  •      Should disputes arise as a result of wage distortion, RA 6727 provides for correcting the distortions as follows:

        • In organized firms,  the employer and the union shall negotiate to correct the distortion using the grievance procedures in the CBA or, if the dispute remains unresolved, through voluntary arbitration.
        • In  unorganized firms,  the  employers  and  workers  endeavor to correct the distortion.  Any   dispute   is  settled   by   conciliation   through  the  National Conciliation and Mediation Board, or if it remains unresolved, by compulsory arbitration through the  National Labor Relations Commission.


    This provision for correcting wage distortions is also stipulated in all Wage Orders being issued by the Regional Boards.

    1. Pineda Formula

       Previous minimum wage  
    Wage distortion adjustment = -------------------------- x Mandated wage Increase
      Wage of Employee  

     

    2. Pineda-Cruz So Formula

      [  Previous minimum wage ] n  
    Wage distortion adjustment = --------------------------   x Mandated wage Increase
      Wage of Employee    

     Where : exponent is represented by n

     

    3. Percentile Approach Formula

         
    Wage distortion adjustment = Percentile weight of pay group x Mandated wage Increase
         

     

    4. Philippine Construction Supply Formula

      Existing minimum wage  
    Wage distortion adjustment = -------------------------- x Mandated wage Increase
      Formula base range (FBR)  

     Where : FBR = Actual wage rate (AWR) + Agreed amount of adjustment

     

    5. Jimenez, Ofreneo, Delas Alas Jr. (JODA) Formula

      Wb - Wa  
    Wage distortion adjustment = --------------------------  
      2  

     New Daily wage rate = wage distortion adjustment + Wc

            Where: Wa = old daily minimum wage
                        Wb = daily wage of employee (where Wb > Wa, or Wb is above Wa)
                        Wc = new daily minimum wage
                             = Wa + mandated wage increase

     

    6. Wirerope Formula

      Existing minimum wage  
    Wage distortion adjustment = -------------------------- x (Mandated wage Increase -
            Creditable Increase)
      Present wage of employee  

     

    7. Bagtas Approach

      Mandated Wage Increase  
    Wage distortion adjustment = -------------------------- x Present wage of employee
      Existing Minimum Wage  

     



    Coverage of Wage Orders and Exemption

  • Who are covered by wage orders issued by the Boards?
  •      Wage Orders issued by the Boards cover only private sector workers, except for household helpers and persons in the personal employ of another, including family drivers.


  • Who are exempted from wage orders issued by the Boards?
  •        Per the Rules on Exemption, the following categories of establishments may be exempted upon application with and as determined by the Board:

    • distressed establishments
    • new business enterprises
    • retail/service establishments employing not more than 10 workers
    • establishments adversely affected by natural calamities

         The Boards may also exempt establishments other than those enumerated above only if they are in accord with the rationale for exemption stated in the Rules on Exemption and upon strong justifiable reasons.


  • What are the criteria and requirements to qualify for exemption?
  •      Sections 3 and 4 of the Rules on Exemption list down the specific criteria and requirements to qualify for exemption, namely:

    Distressed Establishments

    a. For Stock Corporations/Cooperatives

    • registersdeficit of 20% or more of the paid up capital as of last accounting period and interim period immediately preceding the effectivity of the Wage Order.
    • registers capital deficiency/negative stockholders' equity as of the last full accounting period or interim period immediately preceding the effectivity of the Wage Order.

    b. For Single Proprietorships/Partnerships/Non-stock,Non-profit Organization

    • registers a deficit of 20% or more of the total invested capital as of the 2 accounting periods and interim period immediately preceding the effectivity of the Wage Order.
    • registers capital deficiency/negative net worth as of the last full accounting period or interim period immediately preceding the effectivity of the Wage Order

    c. For Banks and Quasi-banks

    • under receivership/liquidation certified by the Bangko Sentral ng Pilipinas
    • under controllership/conservatorship


    New Business Enterprises

    • NBEs established outside the NCR and outside Export Zones within 2 years from the effectivity of the Wage Order, classified as agricultural establishments or establishments with total assets of 5M and below.

    Retail/Service Establishments Regularly Employing Not More Than Ten Employees

    • engaged in the ratil sale of goods/services to end users, and
    • employing not more than ten workers

    Establishments Adversely Affected by Calamities such as Natural and Human Induced Disasters

    • establishments located in an area under a state of calamity
    • occurence of natural calamities in the area within 6 months prior to the effectivity of the Wage Order. The 6-month period be extended to 1 year if the damage to properties is at least 50% and the period of recovery will exceed one (1) year.
    • losses or damage to properties as a result of the calamity amount to 20% or more of the capital/stockholders' equity

     


  • What is the effect of a disapproved application for exemption?
  •      In case an application for exemption is not approved by the Board, the company shall pay the mandated wage increase/allowance to all covered workers retroactive to the date of effectivity of the Wage Order plus simple interest of 1% per month.


  • What is the maximum period of exemption allowed?
  •      The maximum period of exemption that may be granted to qualified applicant establishment is one year only.


  • When should an application for exemption be filed?
  •      An application for exemption together with the supporting documents shall be filed not later than 75 days from publication of the approved implementing rules of the wage order. No extension of filing and submission of required documents will be allowed.


  • Can the decision of the Board on the application for exemption be appealed?
  •      Yes, the decision of the Board on the application for exemption may be appealed to the NWPC within 10 days from date of receipt of the decision.

    Grounds for the appeal:

    a. Non-conformity with the prescribed guidelines and/or procedure on exemption

    b. Prima facie evidence of grave abuse of discretion on the part of the Board

    c. Question of law


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