Executive summary

In the National Capital Region (NCR), a Wage Order sets the statutory minimum wage. A merit increase is a discretionary, performance-based salary adjustment granted by an employer. When a new Wage Order takes effect, only workers whose basic daily/monthly rate falls below the new statutory minimum must be raised to at least that minimum. Employees already above the new floor need not receive the Wage Order increase; their prior merit raises remain valid and cannot be clawed back under the rule against diminution of benefits.

Whether an employer may “credit” earlier increases (e.g., across-the-board or merit) against the mandated increase depends on the text of the specific Wage Order; however, pure merit/performance increases are typically not creditable unless the Wage Order expressly allows it and the employer can show the increase was intended to meet the new statutory floor.

Legal framework (Philippine context)

Republic Act No. 6727 (Wage Rationalization Act). Creates the National Wages and Productivity Commission (NWPC) and Regional Tripartite Wages and Productivity Boards (RTWPBs). RTWPBs issue Wage Orders per region (e.g., RTWPB-NCR), prescribing new minimum wage rates and rules on coverage, exemptions, and creditability.
Labor Code principles relevant here.
- Statutory minimum wage is the floor; paying below is unlawful.
- Non-diminution of benefits: Established, regular, and deliberate benefits (including salary rates and merit-based differentials) cannot be reduced or withdrawn absent lawful cause.
- Wage distortion: When a mandated increase compresses wage gaps between/among pay grades, the employer and union must negotiate adjustments; if no union, resolve through conciliation. Distortion correction is not required to mirror the full mandated increase; it must restore “substantial” differentials.
Coverage & exclusions. Wage Orders apply to all private-sector workers in NCR except those expressly exempted (e.g., some domestic workers who are covered by a separate law; entities granted exemption by the RTWPB under the Order). Public-sector rates are governed by separate compensation laws.

Key concepts: Wage Order vs. merit increase

Wage Order increase
- Nature: Mandatory; raises the minimum wage.
- Trigger: Effectivity date specified in the Order.
- Who must be adjusted: Any worker whose basic rate is below the new minimum.
- Creditable increases: Only if the Order says so and subject to its conditions (often excluding CBA-promised or anniversary/merit increases).
Merit increase
- Nature: Discretionary and performance-based; part of management prerogative if applied fairly and consistently.
- Purpose: Reward performance, skills acquisition, or high potential, not to comply with statutory minima.
- Legal effect: Becomes part of the employee’s basic pay once granted; cannot be used to reduce or offset mandated benefits (e.g., 13th month, OT basis) and cannot be withdrawn (non-diminution).

The 2025 NCR Wage Hike: What it means for merit increases

1) Employees below the new NCR minimum on effectivity

Employer must increase basic pay to at least the new minimum.
Merit increases already granted earlier in the year remain part of the pay; the employer cannot revoke them to “make room” for statutory compliance.
Can the earlier merit increase be credited as compliance?
- Only if the 2025 NCR Wage Order’s creditability clause expressly permits and the increase was clearly intended to meet the new minimum (rare for merit-based adjustments).
- In practice, pure merit/performance raises are usually non-creditable; they are conceptually distinct from compliance-driven increases.

2) Employees already above the new minimum on effectivity

No additional Wage-Order-mandated increase is required.
Merit raises are unaffected and continue as part of basic pay.
Employers may give across-the-board (ATB) or additional merit increases for internal parity/retention, but it’s not a legal requirement.

3) Wage distortion concerns

If the Wage Order lifts lower grades to (or near) higher grades, consider distortion correction to preserve meaningful pay differentials.
Distortion resolution is typically through CBA grievance procedures or conciliation; DOLE facilitation is available.
Correction may be an adjustment to ranges/differentials, not necessarily matching the Wage Order amount peso-for-peso.

Creditability of prior increases—how to analyze (without the text of the Order)

When you read the 2025 Wage Order and its Implementing Rules, look for a section titled “Creditability of Wage Increases” or similar. Evaluate:

Permitted credits. Does it allow employer-initiated increases within a specified window (e.g., 3 months before effectivity) to be credited?
Exclusions. Most Orders exclude increases due to CBA commitments, anniversary, merit, promotion, or salary step plans.
Proof and intent. If crediting is allowed, the employer must show documentary evidence that the prior increase was integrated into basic pay and intended to satisfy the mandated increase.
Scope. Crediting typically applies only up to the amount required to reach the new minimum; any excess remains a company benefit.

Rule of thumb: Treat merit increases as non-creditable unless the Order explicitly states otherwise.

Interplay with CBAs, salary structures, and pay policies

CBAs: If a CBA is in force, apply the Wage Order first to ensure no one is below the statutory floor, then implement CBA increases according to the agreement. CBA increases are usually on top of statutory adjustments unless the CBA provides a higher floor.
Salary ranges & bands: After a Wage Order, review range minima to confirm no range minimum is below the statutory minimum for corresponding schedules (daily vs monthly).
Merit matrices: Keep merit grids unchanged in principle. If compression appears, consider a one-time structural adjustment or band refresh distinct from merit.

Pay computation touchpoints

13th-month pay: Computed from basic salary actually received within the year. If the Wage Order lifts pay mid-year, the 13th month will pro-rate that higher basic.
Overtime, night shift differential, holiday pay: Based on current basic rate. When the minimum rises, ensure OT/NSD/holiday computations reflect the updated base.
Allowances & COLA: Check whether the 2025 Wage Order grants COLA and whether it is integrated into basic or stays as a separate allowance (this affects OT/13th month bases).
Statutory contributions & tax: Higher basic pay may affect SSS/PhilHealth/HDMF brackets and withholding tax; minimum wage earners remain exempt from income tax on their basic pay, but taxable on certain allowances/OT.

Compliance & documentation checklist

Obtain and file the 2025 NCR Wage Order and Implementing Rules.
Identify all NCR-based employees and their basic rates (daily and monthly equivalents).
Flag any rate below the new minimum; prepare payroll adjustments effective on the Order’s effectivity date.
Review creditability clause:
- If the Order allows crediting, compile proof (payroll registers, memos) for any prior ATB increases.
- Treat merit increases as non-creditable unless the Order clearly says otherwise.
Assess wage distortion and plan grade/band adjustments if necessary; document consultations or CBA grievance steps.
Issue a payroll advisory to employees explaining (a) statutory adjustment for those below the new minimum, (b) no automatic Wage-Order add-on for those already above, and (c) status of merit increases.
Update payroll systems: new rates, OT/holiday/NSD bases, 13th-month projections, contribution brackets.
Preserve non-diminution: Do not reduce or recharacterize existing merit pay to offset compliance.
Keep records for DOLE inspection: payrolls, pay slips, time records, advisories, exemption applications (if any).
Train line managers to respond consistently to “Why didn’t I get the Wage Order increase?” FAQs.

Practical scenarios

Scenario A: Below minimum despite merit raise. A clerk receives a ₱500/month merit increase in July 2025 but remains below the new NCR minimum on effectivity. Employer must raise the rate to at least the new floor on top of the merit increase. The merit increase cannot be withdrawn.
Scenario B: Above minimum due to past merit. A technician’s rate already exceeds the new minimum because of a 2024 merit bump. No additional Wage-Order increase is required. The 2024 merit remains intact.
Scenario C: Attempt to credit merit. Employer tries to credit a May 2025 merit increase against the Wage Order. Unless the Order expressly allows crediting of merit increases, this is non-compliant. Result: Employer still needs to top up to the statutory minimum.
Scenario D: Wage distortion Helpers moved to the new minimum now sit just ₱10 below senior helpers. Management should restore a meaningful gap via band/step adjustments after consultation. The correction need not equal the Wage Order amount; it must re-establish significant differentials.

Communications template (internal memo)

Subject: Implementation of NCR 2025 Wage Order and Impact on Merit Increases Effective [Effectivity Date], the NCR minimum wage has been adjusted per the Wage Order.

Employees below the new minimum will be adjusted to at least the new statutory floor.

Employees already above the new minimum will keep their current rates; the Wage Order does not require an additional increase.

Merit increases remain separate and will not be reduced or withdrawn.

We will review wage differentials to address any wage distortion created by the new floor. For questions, contact [HR/Payroll Contact].

Risks & penalties

Underpayment below the statutory minimum exposes employers to back wages, penalties (including double indemnity), possible administrative/criminal liability, and DOLE compliance orders.
Unilateral withdrawal of established merit increases risks a non-diminution violation and potential money claims.

Bottom line: Are merit raises affected by the 2025 wage hike?

Legally separate. Merit increases do not satisfy a Wage Order unless the Order’s creditability clause explicitly permits it (uncommon for pure merit).
No clawbacks. Merit increases, once granted, cannot be reduced to offset statutory compliance.
Who must be raised? Only those below the new minimum on effectivity must be adjusted; those above are not automatically entitled to the Wage Order increase.
Mind the differentials. After compliance, assess and correct wage distortion to preserve fair pay structures.

Quick HR action plan for 2025 NCR

Map NCR employees’ basic rates vs the new statutory minimum.
Top up only those below the floor; leave merit intact.
If the Order includes creditability, check whether any ATB increases qualify (assume merit does not unless the text says otherwise).
Review and, if needed, restore pay differentials.
Document, communicate, and update payroll bases for all derivative pay items.

This approach keeps you compliant, fair, and audit-ready while preserving the integrity and purpose of your merit program.