Last 30 June 2025, the National Capital Region (NCR) Regional Tripartite Wages and Productivity Boards (RTWPB) has announced that a daily minimum wage increase of Fifty Pesos (P50.00) will be implemented in the Region. This increase, granted by NCR-RTWPB through Wage Order No. 26, is said to be the highest granted by said Board and will make the daily minimum wage for non-agriculture sectors to P695.00, P658 for the agriculture sector, service and retail establishments employing 15 or less workers, and manufacturing establishments regularly employing less than 10 workers. Thus, in a month, non-agriculture workers will have a monthly wage of about ₱15,247 to ₱18,216 for a five-day and six-day workweek, respectively, inclusive of mandatory government contributions. The increase is set to take effect on 18 July 2025.

According to the NCR-RTWPB, it authorized the enormous increase by taking into consideration the gross domestic product (GDP) which was at 5.4% in the first quarter of 2025. Department of Labor and Employment (DOLE) Secretary Laguesma, in a Press Release, mentioned that “in deciding the amount of minimum wage increases, the role of the wage boards is to balance the rights of workers to be protected from unduly low pay and of management to reasonable profits, as well as the overall development objectives of promoting employment and productivity and preventing inflation.” The new wage order is indubitably in line with the Labor Code’s basic policy that the State shall afford full protection to labor and the promotion of full employment.

While around 1.2 million wage earners are said to enjoy this wage increase, around 1.7 million workers would likewise indirectly benefit therefrom, as adjustments are imminent at the enterprise level in view of correction of wage distortion.

Wage Distortion

As defined in Article 124 of the Labor Code, as amended by R.A. 6727 or the Wage Rationalization Act, wage distortion shall mean a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional quantitative differences in wage or salary rates between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation.

It is important to note that the wage distortion specified in the said provision pertains to wage adjustments and increases due to a prescribed law or wage order. It does not cover, however, increases in salaries initiated by the employer at its own instance. Thus, not all increases in salary which lessen or obliterate the salary differences of certain employees should be perceived as wage distortion.

In Pubankers Association v. Prudential Bank and Trust Company (Prubankers), the Supreme Court further elucidated on the statutory definition of wage distortion, viz:

Wage distortion presupposes a classification of positions and ranking of these positions at various levels. One visualizes a hierarchy of positions with corresponding ranks basically in terms of wages and other emoluments. Where a significant change occurs at the lowest level of positions in terms of basic wage without a corresponding change in the other level in the hierarchy of positions, negating as a result thereof the distinction between one level of position from the next higher level, and resulting in a parity between the lowest level and the next higher level or rank, between new entrants and old hires, there exists a wage distortion. [x x x] The concept of wage distortion assumes an existing grouping or classification of employees which establishes distinctions among such employees on some relevant or legitimate basis. This classification is reflected in a differing wage rate for each of the existing classes of employees.

In the same case, the Supreme Court laid down its elements, to wit:

1. An existing hierarchy of positions with corresponding salary rates.
2. A significant change in the salary rate of a lower pay class without a concomitant increase in the salary of a higher one.
3. The elimination of the distinction between the two levels.
4. The existence of the distortion in the same region of the country.

As applied to the recent increase made by the NCR Wage Board, it is undeniable that the possibility of wage distortion within the region is imminent. The increase of P50.00, one that is said to be the highest in history, is a significant change in the salary of minimum wage earners, which might result in the elimination of the distinction between them and a higher pay class. It is therefore incumbent for the employer to correct the distortion to prevent any possible labor dispute.

Correction of Wage Distortion; Proper Procedure and Formula

Thankfully, the National Wages and Productivity Commission (NWPC) of the DOLE has issued NWPC Advisory No. 01, Series of 2023, which provides for the procedure for correcting wage distortions arising from the implementation of minimum wage orders. It bears stressing that the procedure to correct wage distortions depends on whether the Firm is organized (with union) or unorganized (without union):

In addition to the above, the said Advisory likewise attached several formulas and examples to serve as a guide in adjusting wage structures. But before that, it is essential that we first determine the existence of “severe contraction”. As per the Advisory, the contraction is severe if it is more than fifty percent (50%) of the intended quantitative difference in pay between two rates. For example:

To determine the existence of severe contraction, the following formula shall be utilized:

Applying the formula above,

Ergo, since the result is more than 50% of the intended quantitative difference in pay between two rates, it is unquestionable that there exists a severe contraction which needs to be corrected. It is therefore necessary to correct it using the formulas mentioned in the Advisory. However, for purposes of this Article, we will focus on the Pineda Formula.

Using the example above, let us now get the adjusted wage of the accounting staff:

Thus, her adjusted wage, computed by adding her rate before wage order issuance and the WDA, is P684.53. Now, a question should be asked: Did the increase in the wage of the accounting staff result in a severe contraction between her wage and that of the accountant? We follow the first formula. Hence,

Applying the formula above,

Since the contraction is not more than fifty percent (50%) of the intended quantitative difference in pay between two rates, then there is no need to increase the wage of the accountant; there is no wage distortion to speak of.

The above notwithstanding, it should be noted that these are only guides that the NWPC has formulated for the rectification of any wage distortion. This does not preclude the employers and workers to develop and agree on their own formula based on their specific needs and circumstances.