Labor Law: Title II Wages; Chapter II Minimum Wage Rates

Title II

WAGES

Chapter II

MINIMUM WAGE RATES

Q: Which wage rate should be paid to the worker: the rate in the region where he works or the rate in the region where the employer's home office is located? 

Q: What is the rationale of and the exception to the non-diminution rule? 

Q: Where the piece-rate earnings are lower than the legal minimum wage, must the employer pay the difference?

Art. 99. Regional minimum wages. 
The minimum wage rates 
for agricultural and non-agricultural 
employees and workers 
in each and every region of the country 
shall be those prescribed by the Regional Tripartite Wages and Productivity Boards. 
(As amended by Section 3, Republic Act No. 6727, June 9, 1989).

Notes:

"Minimum wage" 

  • The lowest wage rate fixed by law that an employer can pay his employees. 
  • Paying a less than the minimum wage is illegal. 
    • The complaint may be brought before the DOLE regional office (Art. 129) or a Labor Arbiter. (Art. 217)
  • The employer cannot exempt himself from liability to pay minimum wages just because of poor financial condition of the company; the payment of minimum wages is not dependent on the employer's ability to pay. (Vda. de Racho v. Municipality of Ilagan, G.R. No. L-23542, January 2, 1968). 
  • Wage orders, however, usually allow petitions for exemption prescribed wage rates.

Juana T. Vda. de Racho v. Municipality of Ilagan, G.R. No. L-23542, January 2, 1968

  • Juana T. Vda. de Racho was the widow of Manuel Racho.
  • In 1954, Manuel was appointed as a market cleaner in the Municipality of Ilagan, Isabela. He was paid P 55.00 monthly.
  • In 1958, he was promoted and his salary increased to P 60.00 monthly.
  • In 1960, he tendered his resignation. He died the same year.
  • Juana filed a claim for salary differentials from 1957 - 1960 based on the monthly wage rate of P120.00 mandated by the Minimum Wage Law.
  • The Municipality of Ilagan argued that its shortage of funds exempted it from complying with the Minimum Wage Law.

WoN the Municipality of Ilagan is validly exempted from complying with the Minimum Wage Law. NO

Lack of funds of a municipality does not excuse it from paying the statutory minimum wages to its employees, which, after all, is a mandatory statutory obligation of the municipality. To uphold such defense of lack of available funds would render the Minimum Wage Law futile and defeat its purpose. This also disposes of the implication appellant is trying to make that its duty to pay minimum wages is not a statutory obligation which would command preference in the municipal budget and appropriation ordinance. 

Moreover, We cannot sanction appellant's proposition that it would eventually and gradually implement the Minimum Wage Law, "if and when its revenues can afford." The law — insofar as it affects government employees — took effect in 1952. It should have been implemented — or at least steps to implement it should have been taken — right then. To excuse the defendant municipality now would be to permit it to benefit from its non-feasance. It would also make the effectivity of the law dependent upon the will and initiative of said municipality without statutory sanction. 

Daily-Paid or Monthly-Paid

  • "Minimum wage" relates to a day's work which comprises eight hours at most. (Art. 83)
  • Daily-paid worker
    • If he gets paid only for days he actually worked. 
  • Monthly-paid worker
    • If his monthly rate covers all the days of the month. 
    • The Implementing Rules (Rule IV, Sec 2) state:
      • Employees who are uniformly paid by the month, irrespective of the number of working days therein, with a salary of not less than the statutory or established minimum wage shall be paid for all days in the month whether worked or not. For this purpose, the monthly minimum wage shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve.
  • A monthly paid employee cannot claim payment for an unworked half-day of Saturday and a whole day of Sunday where it is shown that his monthly salary computed by the formula Daily Rate ＝ (Monthly Wage x 12) ፥ 365 yields a daily rate meeting or exceeding the legal minimum wage.
    • This conclusion is not changed by the fact that the employer uses 304 as the divisor to compute the per day leave credits of the employees. Such divisor does not necessarily prove that the monthly salary does not include pay for 61 days. The 304 divisor is favorable to the employees as it yields a higher rate than 365 divisor. Thus, as explained under Article 94. (Odango v. NLRC, G.R. No. 147420, June 10, 2004 )

Odango v. NLRC, G.R. No. 147420, June 10, 2004 

  • Petitioners are monthly-paid employees of Antique Electric Cooperative (ANTECO) with workdays from Monday to Friday and half of Saturday.
  • In 1989, Department of Labor and Employment (DOLE) found ANTECO liable for underpayment, instructing them to pay wage differentials, which ANTECO failed to do.
  • In 1995, 33 monthly-paid employees filed complaints with NLRC, seeking wage differentials, damages, and attorneys fees.
  • Labor Arbiter ruled in favor of petitioners, stating ANTECO's use of 304 as a divisor meant it paid employees for 304 days a year, owing wages for 61 days annually.
  • NLRC reversed the Labor Arbiter's decision, noting ANTECO's daily wage rates were above the minimum, and using 304 as a divisor favored employees, resulting in higher pay.

WoN the petitioners are entitled to their money claim. NO

The basic rule in this jurisdiction is no work, no pay. The right to be paid for un-worked days is generally limited to the ten legal holidays in a year.

The use of a divisor less than 365 days cannot make ANTECO automatically liable for underpayment. The facts show that petitioners are required to work only from Monday to Friday and half of Saturday. Thus, the minimum allowable divisor is 287, which is the result of 365 days, less 52 Sundays and less 26 Saturdays (or 52 half Saturdays). Any divisor below 287 days means that ANTECOs workers are deprived of their holiday pay for some or all of the ten legal holidays. The 304 days divisor used by ANTECO is clearly above the minimum of 287 days.

Agricultural and Industrial Rates

  • Agricultural wage rates are generally lower the the industrial. 
  • It is the nature of the work which classifies a worker as agricultural or industrial.
  • Agricultural rate applies to farm work from land preparation to harvesting;
  • Industrial rate applies to manufacturing or processing products.
"Agriculture" 

  • Defined as farming in all its branches and, among other things, includes cultivation and tillage of soil, dairying, the production, cultivation, growing and harvesting of any agricultural and horticultural commodities, the raising of livestock or poultry, and any practices performed by a farmer on a farm as an incident to or in conjunction with such farming operations, but does not include the manufacturing or processing of sugar, coconuts, abaca, tobacco, pineapples or other farm products.
  • Where the enterprise is highly mechanized and carries on processing activities not merely incidental to purely farming operations, employees employed in operations other than purely agricultural work are deemed industrial employees.
  • Thus, on a hacienda were milling is carried out, the following are deemed industrial workers: mill laborers, chemists, fuelmen, oilers, tractor and truck divers, etc. (Del Rosario v. CIR, 20 SCRA 650, 653)
  • It is legally permissible for a company to pay agricultural rate to its agricultural employees and industrial rate to the others. Kind of work determines the individual's kind of pay.

Del Rosario v. CIR and PLASLU, GR No. L-23133, July 13, 1967

  • Hacienda del Rosario, a 200-hectare land, was co-owned by Vicente del Rosario, et.al. They leased an additional 107-hectare land owned by the Roman Catholic Church for sugar cane operations.
  • PLASLU (Philippine Land-Air-Sea Labor Union) filed a charge of unfair labor practice against the owners before the Court of Industrial Relations (CIR) for dismissing 87 workers in the hacienda due to their union membership.
  • CIR ordered the reinstatement of about fifty hacienda workers who were dismissed due to union membership. Invoking the doctrine of Victorias Milling Co. vs. CIR, agricultural workers were exempted, but industrial workers fell under the CIR's jurisdiction.
WoN the CIR have jurisdiction over the case. YES

In an hacienda, there may therefore be both agricultural and industrial workers. Regarding the former, exclusive jurisdiction has been given to the Court of Agrarian Relations. As to the latter, exclusive jurisdiction has been placed in the Court of Industrial Relations. As regards those workers who perform functions the nature of which is industrial, therefore, suit was properly filed in the Court of Industrial Relations.

The positions in question, mill laborers, trapicheros, chemists, fuelmen, oilers, mangongogay, tractor and truck drivers, those involving taking or transporting sugar cane from the field to the mill and to the market, are positions commonly found in industrial concerns.

COLA (Cost of Living Allowance)

  • Oftentimes, a wage order issued by a regional wage board announces minimum wage with two components: 
    1. An x amount of base pay, and
    2. An x amount of COLA (cost of living allowance) per work day of eight hours.
    • Example: P 15.00 basic pay and P 10.00 COLA, thereby increasing the minimum wage from P466 to P491. 
  • The COLA is part of the employee's take home pay but not considered part of the basic wage in computing the "roll-on" cost of the pay.
    • To compute, for instance, the overtime pay or the SSS premium, the base pay refers only to the basic wage, excluding the COLA. 
    • In this manner, the business cost of the wage increase is somehow lessened. 
  • A DOLE Opinion dated September 16, 2011 further explains:
    • The cost of living allowance (COLA) is not payment in consideration of the fulfillment of official duty. As defined, cost of living refers to "the level of prices relating to a range of everyday items" or the cost of purchasing those goods and services which are included in an accepted standard level of consumption. Based on this premise, COLA is a benefit intended to cover increases in the cost of living.
  • A COLA becomes part of the basic wage only if it is "integrated" into it by order of the wage board. Integrating the COLA into the basic wage is itself a method of increasing the daily minimum wage.
Q: If an employee does not complete the eight hours of work in a day, should the COLA be computed on pro-rata (proportionate) basis? 
NO.
  • DOLE Secretary (Citing a court ruling):
    • All covered employees shall be entitled to their daily living allowance during the days that they are paid their basic wage even if unworked. The primordial consideration, therefore, for entitlement to COLA is that basic wage is being paid. In other words. the payment of COLA is mandated only for the days that the employees are paid their basic wage, even if said days are unworked. So that, on the days that employees are not paid their basic wage, the payment of COLA is not mandated.

Exemptions

Exceptions Under The Implementing Rules

The Implementing Rules contains the following exceptions to the coverage of the rule in minimum wage:

        (a) Household or domestic helpers (See Kasambahay Law, R.A. No. 10361), including family drivers and persons in the personal service of another; 

        (b) Homeworkers engaged in needlework;

        (c) Workers employed in any establishment duly registered with the National Cottage Industries and Development Authority in accordance with R.A. No. 3470, provided that such workers perform the work in their respective homes;

        (d) Workers in any duly registered cooperative when so recommended by the Bureau of Cooperative Development and upon approval of the Secretary of Labor; Provided, however, That such recommendation shall be given only for the purpose of making the cooperative viable and upon finding and certification of said Bureau, supported by adequate proof, that the cooperative cannot resort to other remedial measures without serious loss or prejudice to its operation except through its exemption from the requirements of this Rule. The exemption shall be subject to such terms and conditions and for such period of time as the Secretary of Labor may prescribe.

The law on cooperatives (R.A. No. 9520) and its implementing rules contain no provision superseding or contradicting the exceptions mentioned above.

Exemption of BMBEs

  • RA. No. 9178 or the "BMBE Act of 2002," approved on November 13, 2009, encourages the establishment of "barangay micro business enterprises" (BMBE) to serve as seedbeds for developing entrepreneurship and to integrate the informal with the formal sectors of the economy. 
  • To achieve this, R.A. No. 9178 gives certain incentives and benefits, among which is exemption from the minimum wage law and income tax.

“Barangay Micro Business Enterprise” 

  • Defined as any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000.00).

  • Under Section 5(b) of R.A. No. 10644 (2014), the Go Negosyo Act, the Department of Trade and Industry, through the Negosyo Center in the city or municipal level has the sole power to issue the Certificate of Authority for BMBEs to avail themselves of the benefits provided by R.A. No. 9178.

Exemption of Retail and Service Establishments

  • RA No. 6727 (known as the Wage Rationalization Act, approved on June 9, 1989) provides for the statutory minimum wage rate of all workers and employees in the private sector, but its Section 4 exempts "retail and service establishments." It reads:
    •  Retail/service establishments regularly employing not more than ten (10) workers may be exempted from the applicability of this Act upon application with and as determined by the appropriate Regional Board in accordance with the applicable rules and regulations issued by the Commission. Whenever an application for exemption has been duly filed with the appropriate Regional Board, action on any complaint for alleged non-compliance with this Act shall be deferred pending resolution of the application for exemption by the appropriate Regional Board.
    • In the event that applications for exemptions are not granted, employees shall receive the appropriate compensation due them as provided for by this Act plus interest of one per cent (1%) per month retroactive to the effectivity of this Act.
  • The exemption of "retail/service establishments" in RA. No. 6727 is similar to the exceptions stated in Article 94 on holiday pay and Article 95 on service incentive leave (SIL). Note, however, the difference in the qualifying number of employees.
    • Holiday pay and SIL
      • apply to establishments employing "less than ten" employees, meaning one to nine. 
    • Minimum wage 
      • specifies "not more than ten" employees, meaning one to ten. 
    • With nine or fewer employees the establishment is exempted from the minimum wage standard, the holiday pay, and the SIL.
  • Note further that the exemption from minimum wage law has to be obtained by applying for it with the regional wage board.
    • In contrast, the exemptions from holiday pay (Art. 94) and from service incentive leave (Art. 95) are granted by the Labor Code itself and may be availed of by the employer without need of a prior application for exemption.
    • But, of course, if the claimed exemption is unwarranted, the employees may question it.

"Retail/Service," Definition

Q: What is a "retail/service establishment" that qualifies for exemption? What is meant by "regularly employing not more than 10 employees"?

  • The DOLE Manual has adopted explanations of pertinent provisions of the Federal Labor Standards Acts (FLSA) after which our original minimum wage law (R.A. No. 602) was patterned. 
  • Such explanations, the Manual also says, will guide the department "until it is otherwise directed by authoritative decisions of the court, or concludes, upon reexamination of interpretation, that it is incorrect."
  • To qualify for exemption, the retail or service enterprise must prove that it is engaged in selling goods and services or both. 

A "retail enterprise" is one engaged in the sale of goods that are commonly bought by private individuals for personal or household use and is characterized by small sales.

A "service enterprise" is engaged predominantly in providing personal service to individuals for their own or household use.

  • The exemption has reference only to sale of services of the type performed by establishments that are traditionally recognized as retail service establishments such as restaurants, sari-sari store, repair shops, etc. 
  • The intention of the Act is to exempt only those establishments which are recognized in the particular industry as retail sale or service. (Sec. 4312.02, DOLE Manual)

Additional Exemptions

  • The NWPC Guidelines on Exemption from wage order adds categories of exemptible enterprises such as:
    • distressed establishments, 
    • new business enterprises, and 
    • establishments adversely affected by natural calamities.
  • Moreover, it allows the regional wage boards to add exemptible categories of employers, but the addition needs strong justification and is subject to review or approval by the NWPC.
  • The guidelines recognizes three justifying exemptions, they are: 
    1. To assist establishments experiencing temporary difficulties due to losses to maintain the financial viability of their businesses and continued employment of their workers;
    2. To encourage the establishment of new business and their creation of jobs, particularly in areas outside the National Capital Region, and Export Processing Zones, in line with the policy on industry dispersal; and
    3. To ease the burden of micro establishments, particularly in the retail and service sector, that have a limited capacity to pay.

Other Exemptions

  • Wage orders issued by the wage boards under Articles 99 and 122 may provide for other exemptions from the minimum wage law.

Payment-by-Result

  • The legal minimum wage corresponds to a normal workday consisting of eight hours of work or agreed portion thereof such as part time work.
  • Where the pay is not time-based, the amount of pay may be higher or lower than the per-day rate fixed by law. 
  • This is exemplified by payment per result method recognized and explained or under Article 101.


Art. 100. Prohibition against elimination or diminution of benefits. 
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 promulgation of this Code.

Notes:

  • Non-diminution rule
    • Benefits being given to the employees cannot be taken back or reduced unilaterally by the employer because the become part of the employment contract, written or unwritten.
  • Applied to employment benefits initiated after the issuance of the Code. (May 1, 1974)
  • The rule against diminution of supplements or benefits is applicable if it is shown that the grant of the benefit is based on:
    1. An express policy or 
    2. Has ripened into a practice over a long period of time and the practice is consistent and deliberate. (Three straight years)
  • But it will not apply to practices due to error in the construction or application of a doubtful or difficult question of law.
    • But even in cases of errors should be shown that the correction is being done soon after the discovery of the error. 
  • The law prohibits diminution or elimination of benefits by unilateral action of the employer. 
  • The law is not violated if the action resulted from a joint or negotiate the decision freely made with the employer and the employees. 
  • In one case, the employees through the union even proposed reduction of their pay and the benefits as to prevent the closure of the enterprise. The Court upheld the arrangement. (Insular Hotel Employees Union v. Waterfront Insular Hotel Davao , September 22, 2010)

  • Waterfront Insular Hotel Davao suspended operations due to business losses. Davao Insular Hotel Free Employees Union (DIHFEU-NFL) proposed to help the hotel.
  • A Memorandum of Agreement (MOA) was signed, downsizing the workforce to 100 employees and implementing new terms and conditions.
  • NFL filed a complaint alleging wage and benefit reduction..
  • AVA Olvida ruled the MOA invalid and ordered reinstatement of wages. The case was referred to AVA Montejo, who upheld the wage and benefit reinstatement.
  • Both parties appealed.
  • Court of Appeals ruled in favor of the hotel, confirming the MOA's validity and directing compliance from both parties.

WoN the CA erred in concluding that Article 100 of the Labor Code applies only to benefits already enjoyed at the time of the promulgation of the Labor Code. NO

While the terms of the MOA undoubtedly reduced the salaries and certain benefits previously enjoyed by the members of the Union, it cannot escape this Court's attention that it was the execution of the MOA which paved the way for the re-opening of the hotel, notwithstanding its financial distress. More importantly, the execution of the MOA allowed respondents to keep their jobs. It would certainly be iniquitous for the members of the Union to sign new contracts prompting the re-opening of the hotel only to later on renege on their agreement on the fact of the non-ratification of the MOA.

Bonus

  • Neither is there an unlawful diminution if the benefit being claimed is a contingent or conditional benefit, whose demandability depends on certain pre-conditions. An example is bonus. 
  • Bonus is given if there is basis for giving it.
    • As a rule, a bonus is an amount granted voluntarily to an employee for his industry and loyalty which contributed to the success and realization of profits of the employer's business.
    • It is also granted by an enlightened employer to spur the employee to greater efforts for the continued success of the enterprise. 
  • From the legal point of view, a bonus is not a demandable and enforceable obligation. It is an act of generosity. 
    • Exception: It becomes an obligation when it is made a part of the wage or compensation.
    • In such a case, the latter would be a fixed amount and the former would be a contingent one dependent upon the realization of profit.
  • Whether or not bonus forms part of wage depends upon the circumstances and conditions for its payment. 
    • If it is an additional compensation which the employer promised and agreed to give without any conditions imposed for its payment, such as success of business or greater production or output, then it is part of the wage.
  • The employer's practice of holding Christmas party with raffle or the giving of service awards are in excess of what the law requires. 

  • Atok-Big Wedge Mutual Benefit Association submitted demands to Atok-Big Wedge Mining Co., Inc., including a wage increase.
  • Some demands were granted, and hearings were held for the rejected demands, resulting in fixing the minimum wage for laborers at P3.20.
  • The petitioner argued that as the Court if Industrial Relations found, the laborer and his family at least need the amount of P2.58 for food, and this should be the basis for the determination of his wage, not what he actually spends.

WoN the efficiency bonus paid the laborer should have been included in his (minimum) wage, in the same manner as the value of living quarters.  NO

Whether or not bonus forms part of wages depends upon the circumstances or condition for its payment. If it is an additional compensation which the employer promised and agreed to give without any conditions imposed for its payment, such as success of business or greater production or output, then it is part of the wage. But if it is paid only if profits are realized or a certain amount of productivity achieved, it cannot be considered part of the wages. 

In the case at bar, it is not payable to all but to laborers only. It is also paid on the basis of actual production or actual work accomplished. If the desired goal of production is not obtained or the amount of actual work accomplished, the bonus does not accrue. It is evidence that under the circumstances it is paid only when the labor becomes more efficient or more productive. It is only an inducement for efficiency, a prize therefor, not a part of the wage.



Thirteenth Month Pay
  • Whereas a bonus is not a statutory obligation, the 13th-month pay is required by Presidential Decree No. 851, hence, mandatory.
  • It is an additional income based on wage, but it is not part of the wage. 
  • It is 1/12 of the total basic salary earned by the employee within a calendar year. 
  • All the rank and file employees regardless of their designation or employment status and irrespective of the method by which their wages are paid, are entitled to this benefit, provided that they have worked for at least one month during the calendar year. 
  • An employee who was resigned or whose services were terminated at anytime before the time for payment of the 13th-month pay is entitled to this monetary benefit pro rata, i.e., in proportion to the length of time he worked during the year. (International School of Speech, March 18, 1995) 
  • Even piece-rate employees are entitled to 13th-month pay. (Labor Congress, May 21  , 1998)
  • Managerial employees are excluded by the Decree, but company policy or established practice or the employment contract may cover them. 
  • The decree exempts employees who are already paying their employees a 13th-month pay or "its equivalent". 
  • The Decree does not cover government employees.

Art. 101. Payment by results.
The Secretary of Labor and Employment
shall regulate the payment of wages by results,
including pakyao,
piecework, 
and other non-time work,
in order to ensure the payment
of fair and reasonable wage rates,
preferably through time and motion studies
or in consultation with 
representatives of workers’ and employers’ organizations.

Notes:

  • Piece-rate method is preferred where the work process is repetitive and the output is standardized and easily countable. 
  • In the task or pakyaw method, the payment is a lump sum calculated to match the difficulty and time requirement of the job.
    • Ex: plowing a given area of land, painting a building.
  • Payment by result is a method of computing compensation. 
    • It is not a basis for determining the existence or absence of employer-employee relationship.
    • One may be paid based on work result or time spent, and possibly acquire an employee status, depending on whether the elements of employer-employee relationship are present.
The Bureau of Working Conditions explains that the application of labor legislation, piece-rate workers may be subdivided into two categories:

  1. Those who are paid piece rates which are prescribed in Piece Rate Orders issued by DOLE (regional office).
    • Wages and earnings are determined by simply multiplying the number of pieces produced by the pay rate per piece. 
      • The Rule on Hours of Work which provides for premium and overtime payments does not cover these workers.
      • Whatever they earn after working for a certain number of hours in a particular day shall be their actual earnings even if the work time exceeds eight hours. 
      • Because the output and pay rate formula has been found reasonable, hence approved by DOLE. It is binding upon the employer and the employees.
  2. Those who are paid output rates prescribed by the employer which are not yet approve by the DOLE.
    • The number of pieces produced is multiplied by the rate per piece as determined by the employee.
      • If the resulting amount is equal or greater than the applicable legal daily rate in proportion to the number of hours work, the worker receives such equal or greater amount.
      • But if that amount is lower than the legal daily rate, the employer must make up the difference, that is, the legal minimum wage must be met. (Implementing Rules, Book III, Rule VII, Sec. 8)
  • It is beneficial to secure the DOLE's approval of a piece-rate pay policy. It is supposed to be a win-win scheme. 
    • The worker gets the worth of his effort or output.
    • The employer gets work output in proportion to the pay.
  • Another classification: piece-rate employees and piece-rate non-employees.
  • The entitlement of piece-rate employees to holiday pay, premium paid, 13th-month pay, service incentive leave, as well as overtime pay, is analyzed and upheld by the Supreme Court (through the Chief Justice) in Labor Congress of the Philippines vs NLRC, Empire Food Products G.R. No, 123938, May 21, 1998. 
  • According to Sec. 8(b), Rule 6 of Book III of the Implementing Rules, employees paid by results or output are entitled to holiday pay. (Art. 94)
    • It shall not be less than his average daily earnings for the last seven actual working days immediately preceding the regular holiday. 
    • Such holiday pay shall not be less than the applicable statutory minimum wage rate. 
  • On the basis of existing labor regulations, piece-rate employees are entitled to the following minimum wage benefits:
    1. the applicable statutory minimum daily rate;
    2. yearly service incentive leave of five (5) days with pay;
    3. night shift differential pay;
    4. holiday pay;
    5. meal and rest periods;
    6. overtime pay (conditional);
    7. premium pay (conditional);
    8. 13th-month pay;
    9. other benefits granted by law, individual or collective agreement or company policy or practice.

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