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NWPC Guidelines No. 02

Series of 2012

GUIDELINES ON THE IMPLEMENTATION OF THE

TWO-TIERED WAGE SYSTEM

Pursuant to RA 6727, the following guidelines are hereby adopted for the
implementation of the Two-Tiered Wage System, a reform within the current minimum
wage system.

Section l. The Two-Tiered Wage System is an approach to minimum wage setting which
aims to improve the coverage of minimum wages; promote worker and enterprise
productivity and; address the negative effects of minimum wage policies.

Since it is a reform under the current system, it maintains regional minimum wage setting by
the RTWPBs. It upholds the policy of setting minimum wage to protect vulnerable workers
and recognizing collective bargaining as the primary mode for setting wages and other
terms and conditions of employment.

Section 2. Definition of Terms

a. Board - refers to the Regional Tripartite Wages and Productivity Board.

b. Commission - refers to the National Wages and Productivity Commission.

c. Order - refers to the Wage Order promulgated by the Board pursuant to its wage-
fixing authority.

d. Advisory - refers to the Wage Advisory issued by the Board in accordance with the ~
two-tiered wage system. {1j'1'--.
e. Two-Tiered Wage System - refers to a pay system consisting of:
l. minimum wage; and
2. incentive pay based on productivity improvement and gainsharing.

f. Minimum Wage - refers to the lowest wage rate fixed by law ~f

g. Regional Average Wage - refers to the average basic wage of workers in the private
sector in the region.

h. Regional Poverty Threshold - refers to the minimum

for a family/individual
income/expenditure
to meet the basic food and non-food requirements.
required
y
i. Productivity Incentive - refers to bonuses given to workers as a result of increases in

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productivity.
Section 3. FIRSTTIER - Regional Minimum Wage

The first tier shall be the regional minimum wage rates provided in a Wage Order issued by
the Boards.

a. Concept -The setting of a minimum wage aims to protect vulnerable workers. It shall
be set higher than the poverty threshold without creating negative effects of
)ninimum wage policies. Reference shall be made to the poverty threshold, average
wage and socioeconomic indicators, considering the criteria prescribed in RA 6727.

Poverty threshotd' reflects demand for living wages, wage adjustments vis-a-vis the
consumer prices, cost of living and changes or increases therein, needs of workers
and their families and improvements in standards of living.

Average wage2 reflects prevailing wage levels, equitable distribution of income and
wealth along the imperatives of economic and social developments.

Other socioeconomic indicators include need to induce industries to invest in the

countryside, fair return of the capital invested and capacity to pay of employers and
effects on employment generation and family income.

b. Formula - The Boards shall refer to the regional poverty threshold, average wage
and region-specific socioeconomic indicators in determining the minimum wage
using the following formula:

Regional Minimum [Floor] Wage = x{Poverty Threshold) + y{Average Wage) + (socio-

economic indicators)

~
Where:
x-is the weight for poverty threshold, expressed in percent
y-is the weight for average wage, expressed in percent
The sum of x and y should be equal to 1.

c. A weighting system for poverty threshold and average wage shall be used to reflect ~
the relative importance of each indicator. The weights may vary across regions
depending on the gap between minimum wages, poverty threshold and average
wage and the impact of the socioeconomic indicators.

{For instance, the Board may assign the biggest weight to poverty threshold if
minimum wages are already close to or have exceeded average wage and the Board
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1 derived from official poverty statistics of National Statistical Coordination Board

2 derived from the Labor Force Survey of the National Statistical Office

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 may want to consider moderate increases in minimum wages; or the Board may
assign the biggest weight to average wage if minimum wages are close to or are
below poverty threshold and the Board may want to consider more substantial
increases in the minimum wages to keep them above the poverty threshold.)

d. The weights shall be reviewed, as appropriate, and may be modified to achieve a

structure where minimum wages are kept above poverty threshold.

e. The NWPC will, initially, provide the Boards data on poverty threshold and average
wage until such time that the NWPC has provided the Boards the necessary technical
support to enable them to source and process these data.

f. In consultation with the NWPC, the Boards shall be responsible for assigning a value
to represent region-specific socioeconomic conditions, which value shall be reviewed
as necessary.

f. In estimating family poverty threshold, the Boards shall apply the international
consumption equivalence scale of 3.7 to the estimated per capita poverty threshold
to estimate the poverty threshold for a 5-member family.

Section 4. SECONDTIER - Advisory

The second tier shall consist of productivity bonuses and incentives based on agreement
between workers and management.

a. Concept - The Boards shall issue an Advisory to guide enterprises or industries on a

range of productivity incentives. The Advisory may be used as basis for employer
initiatives or enterprise-level negotiations. {Jtf(
b. Identification of Priority Industry- The Board may identify a priority industry or sub-
industry or sector (based on the 2009 Philippine Standard Industrial Classification) as
the subject of an Advisory. As criteria for selecting a priority industry, the Board may
consider the industry's share to employment; contribution to economic output;

c.
growth in labor productivity; wages and other relevant factors.

Conduct of Industry Study and Consultation -The Board shall undertake studies on
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the performance and outlook of the industry. The Board may undertake these
studies on its own or commission the academe or a research institution to conduct
these studies for them. The Board shall involve industry stakeholders in these

v
studies.

d. Issuance of an Advisory - The Board shall issue an Advisory based on the results of
the studies and consultations with industry stakeholders. It shall contain an
assessment of the region's overall economic performance; industry/sub-
industry/sector-specific data on labor productivity, wages, profitability, outlook and

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 other relevant information; and a recommendation on a range of productivity
incentives.

e. Monitoring and Assessment - The Board shall monitor and assess the
implementation of its Advisory.

f. Advocacy - The Boards shall conduct information and awareness campaign on the
Advisory.

g. Applicability of RA 6971 - Enterprises with existing productivity committees may

avail of the tax incentives under RA 6971 provided they comply with the provisions
therein.

h. Assistance to enterprises - The Board shall provide technical assistance and advice to
enterprises in the application of the Advisory.

Section 5. DATA REQUIREMENTS

The Board shall, within 90 days from the effectivity of this Guidelines, submit to the
Commission the data required for the implementation of the Two Tiered Wage System for
endor~ement to the National Statistics Coordination Board and other concerned statistical ('--rl~
agencies. U~
Section 6. EFFECTON EXISTING NWPC GUIDELINES ON MINIMUM WAGE FIXING

The existing procedural guidelines provided in NWPC Guidelines No. 01, Series of 2007 on
the Amended Rules of Procedure on Minimum Wage Fixing shall remain effective and
continue in force.

Section 6. EFFECTIVITY

This guidelines shall take effect on 2(, (Jur. 2012.

Manila, Philippines. 11 o::vr, 2012.

LOU~MONTE ~~
Chairperson-Designate

EMMANUEL
l)~ () I ---,
F. ESGUERRA
Vice-Chairperson-Designate
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 &twf" -
CEDRIC R. BAGTAS FRANCI~ iORO
Member MeJ2~~FLI

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DAVID L. DIWA, JR. EDUARDO T. RONDAIN
Member Member