The Php21 Minimum Wage Hike and How It Affects HR and Finance

The Php21 Minimum Wage Hike and How It Affects HR and Finance

Metro Manila’s wage board has finally come to a decision. Last week, it approved a Php21-minimum wage hike for workers in the region. That’s an increase from Php491 to Php512. The new base pay will be implemented this October and shall apply to all minimum wage earners in the private sector in NCR regardless of their position, designation, or status of employment. It’s also irrespective of the method through which they are being paid.

That’s a bit of a good news for workers who live off the minimum, but for us in HR and finance, the raise is major point of adjustment. It’s important that we have a background on the factors that bring about such a change so we could easily field questions about the new base wage, be they from the higher ups or from the employees we serve. Some of us may already have budget and human resource plans for the next fiscal year, so it also makes perfect sense to look at how private-sector businesses like ours can cope with such changes.

Minimum wage: why and how did it increase?

The Php21 increase was reviewed and passed after petitions from different labor unions: the Associated Labor Unions (ALU), the Trade Union Congress of the Philippines (TUCP), and the Association of Minimum Wage Earners and Advocates (AMWEA). The said unions originally asked for different increases. ALU asked for Php184; TUCP, Php259; and AMWEA, Php175.

To increase the minimum wage, NCR’s Regional Tripartite Wages and Productivity Board had to come up with a figure that basically hinges on 3 things: poverty threshold, employment rate, and cost of living specific to the region. In particular, Article 124 of Republic Act 6727 or the Wage Rationalization Act stipulates that all regional boards in the country must consider the following factors in determining the mandatory minimum wage:

1. Needs of workers and their families
(a) The demand for living wages
(b) Wage adjustment vis-à-vis the consumer price index
(c) The cost of living and changes or increases therein
(d) The needs of workers and their families
(e) Improvements in standards of living
2. Capacity to pay
(f) Fair return of the capital invested and capacity to pay of employers
Productivity
3. Comparable wages and incomes
(g) The prevailing wage levels
4. Requirements of economic and social development
(h) Effects on employment generation and family income; and
(i) The equitable distribution of income and wealth along the imperatives of economic and social development.
(j) The need to induce industries to invest in the countryside

How does our minimum wage fare compared to those of other countries?

Currently, NCR’s minimum wage (Php491) consists of a basic wage of Php481 plus a Cost of Living Allowance of Php10. In US dollars, it’s valued between $9.03 to $9.77.

According to the latest matrix of wages published by the National Wages and Productivity Commission, NCR’s minimum wage is higher than those of our ASEAN neighbors, specifically the minimum wages of Indonesia ($3.36-$8.42), Malaysia ($7.16-$7.79), parts of Vietnam ($4.92-$5.56), and Thailand ($9.03-$9.33). But we fare a lot less compared to countries like Hong Kong ($33.26), Taiwan ($33.36), South Korea ($45.93), and Japan ($52.04-$67.55).

Implications on HR and Finance

In our companies, HR and Finance leaders like us stand at the forefront of adapting to the wage hike. It’s one of the trickiest matters to deal with: a move that benefits workers but invites qualms from some members of the management board, especially if the business isn’t ready for it. It gives birth to a number of organizational issues. Because it’s our job to keep everything under control and to report the hike’s impact on our company’s future, we should start reviewing our company’s financial and economic standing as well as pay attention to the different implications that the change has.

Here are some of the things that we should consider in our human resource and budget plans in the light of a wage hike.

Overall pay and management structure

Increasing the base pay of your minimum wage earners may come to mean adjusting the pay of your salaried employees. No company wants to lose valuable talent from what may appear as a lack of fairness; salaried employees who have worked their way up to middle management wouldn’t be happy about getting the same pay as contractual or entry-level workers. They may also resent their additional responsibilities and think that they’re not getting enough for holding onto their supervisory roles. This is the best time to address problems like these and to reevaluate your company’s management structure.

Automation

Experts have always emphasized the value of automation in coping with pay increases. And why not? Times like these make machines and software come out as cost-effective substitutes for human labor. Industries like food and retail, for example, have resorted to touchscreen devices and apps to serve their customers and to manage their employees.

Benefits

A minimum wage hike presents a lot of workers the opportunity and the means to look for greener pastures — especially if they don’t feel happy and engaged in their current companies. One way to manage the risk of losing manpower is to revisit the benefits that your company offers. See how they fare when measured against those of your competitors and industry standards.

For businesses that are fighting to stay afloat, however, benefits may wind up as casualties. Some will be left with no choice but to cut expenses. In such a situation, reducing benefits may be inevitable.

Multiple locations

If your company has branches or offices in regions other than Metro Manila, you may need to come up with better strategies in looking out for the needs of those who aren’t covered by the wage increase. A significant regional wage gap can get under the skin of those who aren’t at the winning end. There’s also the added burden of having to deal with paperwork with pay rate changes, especially if you’re manually preparing your payroll documents.

Source of funds

Perhaps the biggest question that needs to be addressed is where the funds will come from. Adapting is a two-pronged road: some companies will cut expenses while others will implement price increases. It’s our task to pay attention to how either option will affect our employees and stability. For instance, one expert suggests that instead of cutting payroll to meet ends meet, companies can consider investments that, over time, “will drive down costs to a point at or below what you would lose in payroll increases.”

We in HR and Finance play a major role in communicating the upcoming wage hike to employees and in helping our companies adapt to its various outcomes. That said, we need to keep an eye on updates and examine the implementing rules and regulations closely as soon as they are released. We can also seek guidance from fellow leaders and industry experts by joining ongoing conversations in live forums and in social media.