Frequently Asked Questions
On Wage System and Policy
Procedure on Minimum Wage Fixing
Coverage of Wage Orders and Exemption

On Wage System and Policy

What is the present Minimum Wage Fixing System in the country today?

     Since 1989, minimum wage fixing is done on a regional basis. Previously, it was done at the national level through acts of Congress or by presidential decrees or executive orders.

    The Regional Boards, located in each of the 16 regions of the country, are the wage setting bodies established by virtue of Republic Act RA 6727 , also known as the Wage Rationalization Act issued on 01 July 1989. These Boards set minimum wages for workers in the private sector.

What are the criteria for Minimum Wage Fixing adopted by the boards?

     There are 10 criteria for minimum wage fixing under RA 6727 and one 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 of employers/industry

    • fair return on capital invested and to pay of employers
    • productivity

(3) Comparable wages

    • prevailing wage levels

(4) Requirements for national 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.
     Current policy under R.A 6727 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 estimated equivalent monthly rate (EEMR) of the 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 EEMR, the procedure is as follows:

              EEMR = Applicable Daily Rate x 365 days

        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 no. of days in a 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 works everyday including Sundays or rest days, special days and regular holidays.

            EEMR = Applicable Daily Rate x 393.50 days

        Where 393.50 days     =  298.00 days -  Ordinary working days
    24.00 days -  12 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 no. of days in a year

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

             EEMR = ADR x 313 days

        Where 313 days     =  298 days -  Ordinary working days
    12 days -  Regular holidays
      3 days -  Special days
   313 days -  Total equivalent no. of days in a year

c) For those who do not work and are not considered paid on Saturdays and Sundays     or     rest days
               EEMR = ADR x 261 days

        Where 261 days =  246 days -  Ordinary working days
    12 days -  Regular holidays
      3 days -  Special days
   261 days -  Total equivalent number of days

Procedures on Minimum Wage Fixing

How long does it take the 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 from date of the last public 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.

Can the Wage Orders 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;
    • question of law;
    • grave abuse of discretion.

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.

What are some of the suggested formulae for correcting wage distortion?

 The following are some of the suggested formulas for correcting the effects of the implementation of wage orders in the existing wage structures of firms:

1. Pineda Formula
   Previous minimum wage  
  Wage distortion adjustment =
x Mandated wage Increase
  Wage of Employee  
2. Pineda-Cruz-So Formula
   Previous minimum wagen  
  Wage distortion adjustment =
x Mandated wage Increase
  Wage of Employee  
       Where : Exponent is represented by  n
3. Percentile Approach
  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 =
        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

Wage distortion adjustment =

 Existing minimum wage

Present wage of employee

x (Mandated wage Increase -
        Creditable Increase)
7. Bagtas Approach

Wage distortion adjustment =

 Mandated Wage Increase

Existing Minimum Wage

x Present wage of employee


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

    • registers  a  deficit 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 ratail sale of goods/services to end users, and
    • employing not more than ten (10) workers

       Establishments Adversely Affected by Natural Calamities

    • 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.
    • losses   or   damage  to  properties  as  a  result of the calamity amount to 20% or more of the capital/stockholders' equity

What kind of exemption can be granted to qualified establishments?

     The Board may grant a -

    • Full exemption of one year for all categories of establishments
    • Partial exemption  equivalent to 50%  may  be  granted in  the case of distressed establishments

     Under the present Rules on Exemption, no extension of the exemption period beyond one year is allowed.

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.


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