How Minimum Wage Increase Affects Small Business Enterprises

Iris Perez | December 3, 2019

3 min read

With the fast-paced industries in the Philippines, to the modernization of most business sectors, with the integration of new tax schemes – TRAIN LAW – How is our Economy doing today?

The economy kept continuously growing throughout the years. There may some declines but it strives back to grow to its desired potential. In the Philippines, Cebu is the center of economic activities in the Visayas and Mindanao areas. It is also the second-largest central urban economic center in the country. Cebu is base on over 80% of inter-island shipping capacity in the Philippines, according to DTI Philippines

The economy depends mostly on the labor workforce – and yes, the cost is inevitable on this part. It essentially does the work of business enterprises to achieve their goals and objectives. Without it, businesses are merely a name and couldn’t survive.

Last November 26, 2019, news came out that there is an expected increase of PHP18 for minimum wage workers. Minimum wage earners who are employed in a company with more than 10 employees will get an adjustment of PHP18, while an increase of PHP10 for those who work in a company with a maximum of 10 employees. This was after the approval of Regional Tripartite Wages and Productivity Board (RTWB) after a series of public hearings for Region 7 (Central Visayas). It is set to take effect on January of 2020.

However, Philip Tan, RTWPB business sector representative, said the National Wages Productivity Commission will have to review the new rate and endorse it to Labor Secretary Silvestre Bello III. After Bello signs it, it will go back to the RTWPB for publication.

One of the requisites for a change in the wage of workers is what we called a “supervening event”. The Government will look for a legitimate reason to assess the relevant matters upon changing the current wage and set it to a new amount that will align or set to the poverty level. One main reason, for example, is the cost of living.

Raising the minimum wage, tends to increase tenure, reduce turnover, and can induce productivity improvements might be because employees felt that they are more valued or because they know that their managers expect more from them since they are being paid more.

These effects also result in cost-savings for businesses because they can pass at least some of the cost to customers without being at a competitive disadvantage.

DOLE Central Visayas Regional Director Salome Siaton said the purchasing power of peso, inflation rate, and regional poverty threshold were among the economic indicators considered in the decision to increase the daily minimum wage.

“One of the major factors that we considered is the poverty incidence right now of some of the areas where the wage is low. We have to adjust to that wherein the salary is below the poverty threshold,” Tan said in a mix of Cebuano and English,

It would be entailing a higher cost on the part of the small business groups since an PHP18 daily wage increase means that it will be an additional of PHP468 monthly increase based on a 6-day work period per week. Or an annual hike of PHP5,616.00. This is through for one employee only. So, there would be a minimum increase of PHP61,776.00 for just 11 employees. It would be a drag to those small business enterprises that have just been started.

While for a PHP10 daily wage increase will have an additional PHP260 monthly increase based on a 6-day work period per week. Or an annual increase of PHP3,120.00. Therefore, it would have a maximum increase of PHP31,200 for those companies that employ for up to 10 workers.

One of the best alternatives for small businesses is through applying for Barangay Micro Business Enterprises(BMBEs).

“BMBEs are essential to the country’s economic development since they effectively serve as seedbeds of Filipino entrepreneurial talent”.

Barangay Micro Business Enterprise Act of 2002 (RA 9178)

This way, small business entities will have the chance to avail of an exemption for minimum wage increase so that they can mitigate expenses and give the industry the stability they want.