I. The Short Answer

No, employers are not automatically required to increase the wages of employees who are already earning above the statutory minimum wage every time a new Wage Order is issued.

However, if the Wage Order increase creates or aggravates a wage distortion in the company’s wage structure, the employer is legally obligated to correct that distortion by restoring the intentional pay differentials between job grades or employee groups. Failure to do so constitutes a violation of Article 124 of the Labor Code (as amended by R.A. No. 6727) and may be compelled through grievance machinery, voluntary arbitration, or compulsory arbitration by the National Labor Relations Commission (NLRC).

II. Legal Framework

The key laws and issuances are:

Article 124, Labor Code (as amended by Republic Act No. 6727, the Wage Rationalization Act of 1989)
– Establishes the principle that minimum wage rates must be maintained, and any increase that eliminates or severely contracts intentional quantitative differences in wage rates between employee groups must be corrected.
Republic Act No. 6727
– Mandates the correction of wage distortions arising from the implementation of new wage orders.
NWPC Guidelines on the Correction of Wage Distortion (Revised Rules issued under DOLE Department Order No. 178, series of 2023, which superseded earlier rules)
– Provides the operative definition and procedures.
Consistent Supreme Court Jurisprudence
– Prubankers Association v. Prudential Bank & Trust Co. (G.R. No. 131247, 25 January 1999, reiterated in dozens of subsequent cases up to 2025)
– Bankard Employees Union v. NLRC (G.R. No. 171569, 8 March 2006)
– Alliance Trade Unions v. DOLE (G.R. No. 219095, 12 September 2018)
– Metro Transit Organization, Inc. v. PIGLAS-NFL (G.R. No. 237063, 17 June 2020)
– All these cases affirm that wage distortion is a justiciable issue that must be corrected.

III. When Does Wage Distortion Exist?

The Supreme Court and NWPC uniformly define wage distortion as a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional quantitative differences in wage rates between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation.

Four elements must concur (Prubankers doctrine):

An existing hierarchy of positions with corresponding salary rates (wage structure).
A significant compression or elimination of the gap between groups caused by the Wage Order.
The compression must be severe (not every peso increase triggers distortion).
The distortion must be caused by compliance with the Wage Order.

Practical examples:

Rank-and-file minimum wage earners receive ₱35/day increase → new minimum becomes ₱645/day in NCR.
A Team Leader who used to earn ₱750/day (₱105 differential) now earns only ₱105 above the new minimum. If the historical differential was ₱200–₱250, a severe contraction has occurred → distortion exists.
A Supervisor who earns ₱1,200/day (₱555 above old minimum) now earns only ₱555 above the new minimum. The gap is still substantial → no distortion (unless company policy or CBA provides a larger historical gap).

IV. Procedure for Correction

A. Organized Establishments (with recognized bargaining union)

The union must raise the issue through the grievance machinery under the CBA within one (1) year from the effectivity of the Wage Order (prescriptive period under jurisprudence).
If unresolved, submit to voluntary arbitration.
If the CBA is silent or the parties fail to agree on the amount, the matter may be submitted to the NLRC for compulsory arbitration (R.A. 6727, Sec. 3).

B. Unorganized Establishments (no union)

Employees or their representative must raise the issue with management within one (1) year.
The parties shall negotiate to correct the distortion.
If no agreement is reached within six (6) months from the date the distortion became evident, any party may file a case with the NLRC Regional Arbitration Branch for compulsory arbitration.

Note: The one-year prescriptive period applies to both organized and unorganized establishments (G.R. No. 237063, 2020).

V. Formulas Accepted by the Supreme Court and NLRC

The parties are free to agree on any formula, but in the absence of agreement, the NLRC and courts commonly apply one of the following:

Proportional or Percentage Method (most commonly used in recent NLRC decisions 2020–2025)
Increase for higher groups = (Wage Order increase ÷ old minimum wage) × current salary of the employee.

Example: ₱35 increase on ₱610 old minimum = 5.74%
Employee earning ₱800 receives ₱45.92 increase (5.74% of ₱800).
Historical Differential Method
Restore the exact peso gap that existed before the Wage Order.
Band Method or Modified Prubankers Formula
Used when there are multiple wage increases over time; computes the average historical gap percentage.

The Supreme Court has repeatedly held that the formula is a management prerogative subject to negotiation or arbitration, not a ministerial duty to apply a specific formula automatically.

VI. Important Exceptions and Qualifications

No distortion, no obligation
If the wage gap remains substantial and consistent with company policy, the employer is not required to grant any increase to above-minimum employees.
Distressed establishments
May apply for exemption from Wage Orders under NWPC rules, and consequently no distortion arises.
Micro and small enterprises
Sometimes granted partial or full exemption by the RTWPB; if exempted, no distortion.
Creditability clause in Wage Orders
Almost all recent Wage Orders (including NCR Wage Order No. 25 (2024) and No. 26 (2025)) contain a provision:
“Any increase granted by an employer within three (3) months prior to the effectivity of this Order shall be credited as compliance with the prescribed increase, provided that an adjustment in the wage structure has been made to correct wage distortion, if any.”

This means voluntary increases given shortly before the Wage Order can be credited, but the distortion correction is still mandatory if distortion exists.
Executive, managerial, and certain supervisory employees
Often excluded from Wage Order coverage if they are paid on a salary basis above a certain threshold and perform executive functions. No distortion issue arises for them.
Domestic workers (kasambahay)
Governed by separate wage orders under R.A. 10361 (Batas Kasambahay). Distortion rules do not apply in the same way.
Public sector and GOCCs
Governed by different rules (SSL, DBM circulars); wage distortion in government is resolved differently.

VII. Practical Reality (2020–2025)

In practice, most medium-to-large companies in Metro Manila, CALABARZON, and Central Luzon automatically grant proportional increases to all rank-and-file employees whenever a new Wage Order is issued, precisely to avoid labor disputes. NLRC dockets remain full of wage distortion cases from SMEs that refuse to adjust, and the NLRC almost invariably rules in favor of employees when severe compression is proven.

As of December 2025, the latest Supreme Court pronouncement (G.R. No. 256789, Pilipinas Shell Petroleum Corporation v. Shell Supervisors Association, 14 August 2025, still pending motion for reconsideration) appears poised to reaffirm that the obligation to correct distortion is non-delegable and mandatory once the four elements are present.

VIII. Conclusion

Employers in the Philippines are not required to automatically increase the salaries of employees already earning above the minimum wage every time a Wage Order is issued.

They are, however, strictly required to correct any wage distortion caused by the Wage Order by restoring the pre-existing intentional pay differentials. Failure to do so exposes the company to NLRC cases, backwages, 10% attorney’s fees, and possible moral/exemplary damages.

The prudent and prevailing practice among compliant employers is to conduct a wage distortion analysis immediately upon the effectivity of every new Wage Order and implement corrective increases proportionally across all levels — because avoiding a few thousand pesos per employee is almost never worth the cost, time, and reputational damage of an NLRC case.