How is minimum wage determined?

In 2012, the Department of Labor and Employment (DOLE), through the National

Wages and Productivity Commission (NWPC), implemented the two-tiered wage
system (2TWS). The two-tiered wage, as a policy reform measure, is aimed at
minimizing the unintended outcomes of mandated minimum wage, improving the
coverage of the vulnerable sectors, and promoting productivity improvement and gain-
sharing. [Learn more]

HOW DOES THE 2TWS WORK?

The two-tiered wage system is a reform that maintains the mandatory minimum wage
(under R.A. 6727 or the Wage Rationalization Act)  as the first tier; complemented by a
voluntary productivity-based pay scheme as the second tier.

TIER 1

Minimum wage rates are determined by factors such as poverty threshold, prevailing
wage rates as determined by the Labor Force Survey, and socio-economic indicators (i.e.
inflation, employment figures, Gross Regional Domestic Product, among others), which
insures better workers protection.

TIER 2

Over and above minimum wage is the voluntary productivity-based pay, which
encourages workers and enterprises to become more competitive and productive by
rewarding employees supplementary pay based on the quality of their performance.

HOW IS THE MANDATORY MINIMUM WAGE SET?

There are four factors that influence the fixing of minimum wage, 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

Based on these factors, the regional boards determine the minimum wage at least once a
year.

The 2014 edition of the Handbook on Workers’ Statutory Monetary Benefits provides a
comprehensive outline of minimum legal requirements and mandatory monetary and non-
monetary benefits workers are entitled to receive under the Labor Code and other existing
laws. Access the handbook and a Q&A by clicking here.