In 2012, the Department of Labor and Employment (DOLE), through the National Wages and Productivity Commission (NWPC), implemented the two-tiered wage system (2TWS). The two-tiered wage, as a policy reform measure, is aimed at minimizing the unintended outcomes of mandated minimum wage, improving the coverage of the vulnerable sectors, and promoting productivity improvement and gain-sharing. [Learn more]
How does the 2TWS work?
The two-tiered wage system is a reform that maintains the mandatory minimum wage (under R.A. 6727 or the Wage Rationalization Act) as the first tier; complemented by a voluntary productivity-based pay scheme as the second tier.
Minimum wage rates are determined by factors such as poverty threshold, prevailing wage rates as determined by the Labor Force Survey, and socio-economic indicators (i.e. inflation, employment figures, Gross Regional Domestic Product, among others), which insures better workers protection.
Over and above minimum wage is the voluntary productivity-based pay, which encourages workers and enterprises to become more competitive and productive by rewarding employees supplementary pay based on the quality of their performance.
How is the mandatory minimum wage set?
There are four factors that influence the fixing of minimum wage, namely:
- Needs of workers and their families
Demand for living wage
Wage adjustment vis-à-vis Consumer Price Index (CPI)
Cost of living and changes therein
Needs of workers and their families
Improvements in standards of living
- Capacity to pay
Fair return on capital invested and capacity to pay of employers
- Comparable wages and incomes
Prevailing wage levels
- Requirements of economic and social development
Need to induce industries to invest in the countryside
Effects on employment generation and family income
Equitable distribution of income and wealth along the imperatives of economic social development
Based on these factors, the regional boards determine the minimum wage at least once a year.
The 2014 edition of the Handbook on Workers’ Statutory Monetary Benefits provides a comprehensive outline of minimum legal requirements and mandatory monetary and non-monetary benefits workers are entitled to receive under the Labor Code and other existing laws. Access the handbook and a Q&A by clicking here.