The compensation of local government officials and employees is a frequent subject of administrative inquiry and judicial scrutiny. A recurring question for Local Chief Executives (LCEs) and Sanggunian members is whether a salary increase, mandated by a local ordinance, can be applied retroactively.

While the power of the purse resides in the local legislative body, this power is not absolute and must operate within the framework of the 1987 Constitution, the Local Government Code of 1991 (RA 7160), and the regulations issued by the Department of Budget and Management (DBM).

1. The General Rule: Prospectivity

In Philippine law, the general principle is that laws and ordinances operate prospectively. Article 4 of the Civil Code states that "Laws shall have no retroactive effect, unless the contrary is provided."

In the context of public salary increases, this principle is reinforced by the prohibition against "double compensation" and the rule on "additional compensation." Under Section 8, Article IX-B of the Constitution, no elective or appointive public officer or employee shall receive additional, double, or indirect compensation unless specifically authorized by law.

2. The Legal Basis for Local Salary Adjustments

The authority of Local Government Units (LGUs) to adjust salaries stems from:

Section 81 of RA 7160: This empowers the Sanggunian to determine the compensation of officials and employees, provided it complies with the salary scales prescribed by the President or the law.
The Salary Standardization Law (SSL): Currently governed by periodic Executive Orders (e.g., EO 201 series of 2016 or RA 11466), which provide the "tranches" of increases that LGUs may adopt.

3. When Retroactivity is Valid

Retroactive salary increases are generally considered valid only under two specific conditions:

A. Explicit National Mandate

If a National Law or a Presidential Executive Order explicitly provides for a retroactive effect, LGUs must comply. For example, if a new Salary Standardization Law is signed in June but states that its effectivity is "retroactive to January 1," the LGU may pass an ordinance providing for back-pay, provided the funds are available.

B. The "Vested Right" and Legal Obligation

Retroactivity is valid if it is meant to correct a previous error or to fulfill a legal obligation that should have been met at an earlier date. If an LGU failed to implement a mandatory salary grade adjustment required by a prior law, a current ordinance can provide for the retroactive payment to satisfy that legal debt.

4. Limitations and "Notice of Salary Adjustment" (NOSA)

Even if a retroactive increase is contemplated, it must navigate the following hurdles:

The 45%/55% Personal Services (PS) Cap: Under Section 325(a) of RA 7160, the total appropriations for Personal Services for one next fiscal year shall not exceed 45% (for 1st-3rd class LGUs) or 55% (for 4th class and below) of the total annual income from local sources of the next preceding fiscal year. If a retroactive increase breaches this cap, it is void.
Appropriation Ordinance: A salary increase cannot be implemented via a mere resolution. It requires an Appropriation Ordinance or a Supplemental Budget.
The Rule on "Actual Service": Generally, salary increases are only payable for services actually rendered. Retroactivity cannot be used to grant "bonuses" disguised as back-pay for periods where no employer-employee relationship existed.

5. Jurisprudence and COA Rulings

The Commission on Audit (COA) frequently disallows retroactive salary increases that are granted purely based on the "discretion" of the Sanggunian without a specific enabling law from Congress.

Key Takeaway: The Sanggunian cannot, on its own whim, declare a salary increase retroactive to "reward" employees for past performance. Without a national law authorizing such retroactivity, such an act is considered an illegal use of public funds and a violation of the rule against "additional compensation."

6. Common Risks of Invalid Retroactivity

Disallowance by COA: The most immediate risk is a Notice of Disallowance, which makes the officials who authorized the payment and the employees who received it solidarily liable to refund the amount.
Administrative Liability: Local officials may face charges for Grave Misconduct or Conduct Prejudicial to the Best Interest of the Service before the Office of the Ombudsman for violating budget circulars.
Violation of the Anti-Graft and Corrupt Practices Act (RA 3019): Granting unauthorized retroactive pay may be seen as giving "unwarranted benefits" to certain parties.

Summary Table: Retroactivity Checklist

Factor	Condition for Validity
Legal Basis	Must be based on a National Law or EO that explicitly allows retroactivity.
Funding	Must be within the 45%/55% PS Cap.
Form	Must be via a duly enacted Appropriation Ordinance.
Effective Date	Cannot precede the date of effectivity set by the National Government.
DBM Review	Should ideally be consistent with the LGU's updated Plantilla of Personnel.