In the Philippines, the regulation of wages is a matter of public policy, balancing the constitutional mandate to protect the rights of workers with the economic reality of business sustainability. Under the Labor Code of the Philippines and Republic Act No. 6727 (The Wage Rationalization Act), salary increases are generally not automatic unless mandated by law, collective bargaining agreements, or specific employment contracts.

The primary mechanism for mandatory salary adjustments is the issuance of Wage Orders.

1. The Rationalization of Wage Fixing

Prior to 1989, Congress set a uniform national minimum wage. However, Republic Act No. 6727 shifted this responsibility to regional bodies to account for varying costs of living, regional economic growth, and industry requirements across the archipelago.

2. The Key Governing Bodies

The Philippine wage system is managed by two main entities:

National Wages and Productivity Commission (NWPC): This body serves as the technical advisor to the Secretary of Labor and Employment and exercises oversight over the regional boards.
Regional Tripartite Wages and Productivity Boards (RTWPBS): Located in every administrative region (e.g., NCR, Region IV-A), these boards are composed of representatives from the government, employers, and workers. They are responsible for determining the minimum wage rates applicable to their specific regions.

3. Understanding Wage Orders

A Wage Order is a legal instrument issued by an RTWPB that establishes the new minimum wage rates for a region.

Frequency: A Wage Order generally remains in effect for 12 months. During this "period of tranquility," no new wage petition may be entertained unless there is a "supervening condition," such as an extraordinary increase in the price of basic goods or fuel.
Coverage: Wage Orders apply to all workers in the private sector, regardless of their position, designation, or method of payment. However, they primarily impact "minimum wage earners."
Exemptions: Certain entities may apply for exemption from a Wage Order, typically:
Distressed establishments.
New business enterprises (NBEs).
Retail/Service establishments regularly employing not more than ten (10) workers.
Establishments adversely affected by natural calamities.

4. The Concept of Wage Distortion

One of the most complex legal issues arising from mandatory increases is Wage Distortion. This occurs when a mandatory increase in the lower-level wage rates eliminates or severely narrows the quantitative differences between different pay scales within an establishment.

The Correction Process: The law does not require the employer to give the same "across-the-board" increase to higher-paid employees. Instead, it mandates that the employer and the employees (or the union) negotiate to restore the historical gap between salary levels.

The formula often suggested by the NWPC for correcting distortion is:

5. Statutory Prohibitions and Protections

The Labor Code provides strict protections regarding salary:

Non-Diminution of Benefits: Employers are prohibited from eliminating or reducing any benefits or supplements currently enjoyed by employees through a unilateral act. If a company has a long-standing practice of giving a certain increase, it may be ripened into a company policy that cannot be easily withdrawn.
Prohibition Against Setting Off: Employers cannot unilaterally deduct the cost of "facilities" (like meals or housing) from the minimum wage unless the employee's acceptance is voluntary and the fair value is proven.
Criminal Liability: Failure to comply with a Wage Order can lead to criminal prosecution under the Labor Code, which may include fines and even imprisonment for the responsible officers of a corporation.

6. Creditable Increases

Not every salary increase given by an employer can be credited against a new Wage Order. Generally, only increases granted within a specific window (usually three to six months) prior to the Wage Order, and which are specifically designated as an "advance on a future wage increase," may be credited. General merit-based increases or those mandated by a Collective Bargaining Agreement (CBA) are usually not creditable unless the CBA specifically says so.

7. Domestic Workers (Kasambahays)

It is important to note that domestic workers are governed by Republic Act No. 10361 (The Batas Kasambahay). Their minimum wages are also set by the RTWPBs but are distinct from the wage orders issued for industrial or commercial workers.## The Legal Landscape of Mandatory Salary Increases and Wage Orders in the Philippines