In the Philippines, the relationship between an employer and an employee is governed by the Labor Code and various social legislations. One of the most frequent points of contention in this relationship is the matter of wage increases. While many employees believe that a yearly "raise" is a legal right, the reality under Philippine law is more nuanced.
1. The General Rule: No Automatic Right to Increase
Under the Labor Code of the Philippines, there is no general provision that mandates an employer to provide an annual or periodic salary increase to all employees. Wage increases are generally considered a management prerogative—meaning the employer has the discretion to decide whether to grant a raise based on performance, company profitability, or length of service.
However, there are four major exceptions where a wage increase becomes a legal obligation.
2. When a Wage Increase is Mandatory
A. Wage Orders (Minimum Wage Increases)
The most common way employees receive a mandatory increase is through Wage Orders issued by the Regional Tripartite Wages and Productivity Boards (RTWPB).
- If your current salary falls below the new minimum wage set for your region, your employer must increase your pay to meet the new floor.
- Failure to comply with a Wage Order can lead to legal sanctions and the payment of double indemnity under Republic Act No. 8188.
B. Collective Bargaining Agreements (CBA)
In workplaces with a recognized labor union, wages and benefits are often settled through a Collective Bargaining Agreement (CBA).
- If the CBA stipulates a specific wage increase schedule (e.g., a 5% increase every two years), that agreement has the force of law between the parties.
- The employer cannot unilaterally retract these increases once the CBA is signed and ratified.
C. Employment Contracts and Company Policy
If your Employment Contract explicitly promises a guaranteed increase (e.g., "The employee shall receive a 10% increase after the first year"), the employer is legally bound by that contract.
- Similarly, if a Company Handbook or written policy guarantees regular increases, it can be considered an enforceable benefit.
D. The Principle of Non-Diminution of Benefits
While this principle usually prevents the reduction of benefits, it also applies to wage increases that have become a company practice.
- If an employer has consistently and voluntarily granted a specific increase for many years without any conditions, it may ripen into a "vested right."
- The employer may be prohibited from suddenly stopping this practice if it is proven that the grant was deliberate and consistent over a long period.
3. Understanding "Wage Distortion"
When a mandatory minimum wage increase (via Wage Order) results in the elimination or severe contraction of the pay gap between different job levels, it creates a Wage Distortion.
Example: If Entry-Level staff receive a mandatory increase that makes their salary equal to their Supervisors, the "hierarchy" of the pay scale is distorted.
While the law does not require the employer to give the Supervisors the same amount of increase, the Labor Code (Article 124) mandates that the employer and employees must negotiate to correct the distortion to restore a reasonable pay gap.
4. Merit-Based vs. Inflation-Based Increases
- Merit Increases: These are rewards for high performance. Legally, an employer can deny a merit increase if the employee fails to meet KPIs, provided the evaluation criteria are fair and non-discriminatory.
- Across-the-Board (ATB) Increases: These are often given to offset inflation. Unless mandated by a CBA or Wage Order, these are entirely voluntary on the part of the employer.
Summary Table: Is a Raise Required?
| Scenario | Is the Increase Mandatory? | Legal Basis |
|---|---|---|
| New Minimum Wage Law | Yes | RTWPB Wage Orders |
| Performance Excellence | No | Management Prerogative |
| Union CBA Agreement | Yes | Contractual Law / Labor Code |
| High Inflation | No | (Voluntary by Employer) |
| Contractual Promise | Yes | Civil Code (Obligations & Contracts) |
Conclusion
In the Philippine context, an employee is only "entitled" to a wage increase if it is required to meet the legal minimum wage, if it is contractually promised, or if it is part of a CBA. Outside of these scenarios, a salary increase is a privilege granted by the employer, often used as a tool for retention and motivation rather than a statutory requirement.
Would you like me to draft a formal letter of request for a salary increase based on these legal grounds?