LETTER OF INQUIRY

Dear Attorney,

Greetings! I am writing as a concerned employee from a medium-sized enterprise that employs more than ten individuals. I hope you could clarify whether it is mandatory under Philippine law to grant a salary increase to all employees simply by virtue of our company’s current headcount exceeding ten. Some of my colleagues have mentioned that there may be specific labor rules, wage orders, or other regulations that come into play once an employer surpasses a certain number of employees. However, I am uncertain how this rule, if it exists, actually applies in practice.

While I understand that there could be variances depending on our region, industry, and the specific classification of our workforce, I wish to determine whether the law imposes a strict requirement on companies above a particular size threshold to implement mandatory raises. If such an obligation does not exist outright, are there exceptions, doctrines, or administrative issuances that indirectly necessitate a salary increase?

Thank you for your attention to this matter. I look forward to your guidance.

Sincerely,

A Concerned Employee

LEGAL ARTICLE ON THE PHILIPPINE LAW CONCERNING MANDATORY SALARY INCREASES FOR EMPLOYERS WITH MORE THAN TEN EMPLOYEES

In the Philippines, remuneration of employees is governed primarily by the Labor Code of the Philippines, as well as various wage orders issued by Regional Tripartite Wages and Productivity Boards (RTWPBs). It is understandable for employees to wonder if a specific threshold—such as having more than ten employees—could automatically require an employer to provide a mandatory salary increase. The short answer is that there is no direct statutory rule stating, in unequivocal terms, that simply crossing the threshold of ten employees triggers an absolute obligation to raise wages. However, there are statutory, regulatory, and jurisprudential considerations that every employer must heed. The following comprehensive discourse aims to elucidate the relevant principles and clarifications:

Nature of Wage Regulation in the Philippines
Under Article 99 of the Labor Code of the Philippines, as renumbered, the minimum wage rates are set either by law or by appropriate wage orders from the regional wage boards. The purpose of the Labor Code, along with the RTWPBs, is to maintain standards for the minimum wage that must be paid to employees to ensure basic living conditions. These wage boards, established under Republic Act No. 6727 (the Wage Rationalization Act), have the authority to determine and fix minimum wage rates applicable to different regions, industries, or agricultural and non-agricultural sectors.

There is a crucial distinction between a “mandatory salary increase,” which implies that employers must routinely or periodically increase pay upon surpassing a certain number of employees, and the statutory requirement to ensure that employees receive at least the regional minimum wage. Philippine law does not provide a general requirement for across-the-board wage hikes merely because the employer hires more than ten workers. Instead, the law stipulates compliance with the prevailing minimum wage. If an employer pays wages above the mandated minimum, there is no direct legal provision obligating them to raise salaries upon reaching an 11th employee, or indeed any higher threshold.
Specific Statutory Obligations for Employers with More Than Ten Employees
Although there is no explicit statutory clause in the Labor Code that requires a blanket wage increase once a business employs more than ten workers, certain obligations and labor standards do hinge on the size of the workforce. For instance, some laws reference thresholds that determine coverage for social legislation, like the entitlement to holiday pay, service incentive leaves, or coverage under the Social Security System (SSS) or the Home Development Mutual Fund (HDMF, more commonly known as Pag-IBIG Fund). Yet these requirements typically involve registration, contribution, or benefit coverage, rather than an immediate across-the-board salary increment for all employees.

Additionally, the law sets forth that companies with more than ten employees are not exempt from paying holiday pay, unlike employers who regularly employ fewer than ten workers (in some contexts). This distinction, however, pertains to holiday pay entitlements, not mandatory salary increases. It is vital to separate these concepts because compliance with holiday pay or service incentive leave benefits is distinct from an obligation to raise base salaries.
Minimum Wage Compliance vs. Across-the-Board Increases
Employers have a general duty to ensure that workers’ salaries comply with the applicable minimum wage rates for their region and industry. When a new wage order is released by the RTWPBs, it sets forth increments or adjustments to the regional minimum wage. Employers, regardless of the number of personnel, must comply accordingly. If an employer’s workforce is above ten employees, this may exclude them from certain exemptions or from certain categories in the wage order, but the pivotal requirement is to meet the mandated minimum wage.

If an employer was already paying above the minimum wage prior to the issuance of a new wage order, they might not be required to adjust wages further unless the wage order specifically mandates adjustments to wages beyond the minimum. Typically, wage orders only directly adjust the statutory minimum pay. Nevertheless, some orders contain provisions on wage distortions, which can indirectly oblige employers to make incremental increases if certain salary levels are too close or identical to newly adjusted wages.

Thus, employees sometimes perceive that crossing an employee count threshold triggers mandatory increments, when in reality, it is the wage order mechanism and the minimum wage floor that govern. If the enterprise had fewer than ten employees, certain wage rules might provide allowances or partial exemptions. Once the employer’s workforce size grows, it could lose exemptions or privileges, thereby necessitating a compliance-based increase to at least match the prevailing minimum wage. This requirement, however, does not translate into a blanket across-the-board raise, but rather ensures that every employee receives the requisite statutory minimum wage under the new classification.
The Role of Wage Rationalization and Regional Variations
The reason that some employees believe a mandatory increase is triggered at “more than ten employees” often lies in the structure of wage orders. Regional wage boards commonly differentiate between “micro,” “small,” “medium,” or “large” establishments, setting varied rates or staged implementation periods. A micro-enterprise might be characterized as one with fewer than ten employees, while a medium or large enterprise is distinguished by employing a greater number. Depending on the region, such classification can mean that once a company surpasses the micro-enterprise threshold, it may be subject to the full or regular minimum wage. Therefore, if the employer’s previous workforce size enabled it to pay wages somewhat below the standard minimum (under permissible exemptions), it may be compelled to raise wages once it no longer qualifies for that exemption.

Moreover, some wage orders provide a more lenient or staggered implementation for smaller businesses. For example, a wage order might say that establishments with up to ten employees are entitled to a grace period or a lower incremental wage increase. Exceeding that threshold may then result in the employer being obligated to comply fully with the standard minimum wage. The net effect is an increase in wages, which from an employee’s perspective can be interpreted as a mandatory raise triggered by surpassing the threshold.
Exceptions, Exemptions, and Special Cases
While Philippine labor regulations aim to ensure fair compensation, certain exemptions sometimes apply in limited circumstances—for instance, specific groups of employees (apprentices, learners, persons with disabilities under certain conditions, etc.) or special business categories that face serious financial constraints. However, these are highly regulated and typically require an approval process through the Department of Labor and Employment (DOLE) or the regional wage boards.

Employers seeking exemptions from wage orders must comply with all the procedural requirements, such as filing a petition within the specified time frame and establishing a valid economic or business justification. Even then, such exemptions are generally time-bound and granted only under special circumstances. Exceeding a certain number of employees frequently restricts the ability of an employer to invoke these exemptions, effectively compelling the employer to comply with higher wage standards.
Impact of Other Labor Standards and Benefits
Aside from minimum wage laws, once an employer surpasses ten or more employees, there are other labor standards and benefits that must be meticulously observed, such as coverage of social benefits (SSS, PhilHealth, HDMF), statutory leaves, holiday pay entitlements, overtime pay guidelines, 13th-month pay, and so on. The presence of ten or more employees may subject the employer to additional administrative requirements (like mandatory registration with DOLE or local government offices). Nonetheless, these obligations do not simply translate to a new rule stating: “You must now implement a salary hike.” Rather, they serve as comprehensive labor standard frameworks designed to protect employees’ interests and ensure equitable pay and benefits.
Collective Bargaining Agreements and Company Policies
In some instances, a company’s internal policies or a Collective Bargaining Agreement (CBA) between management and a recognized labor union might contain provisions mandating wage increases based on specific metrics, which could include the size of the workforce. If a CBA states that whenever the company grows beyond a certain number of employees or meets certain profitability benchmarks, an across-the-board increase must be implemented, then that contractual stipulation is binding between the parties. However, this arrangement arises from a mutual agreement rather than a statutory provision of the Labor Code.

Therefore, if employees belong to a unionized environment or if company-specific policies exist, it is prudent to check whether there is an established guideline linking wage adjustments to workforce size. Employers are required to abide by the terms of the CBA and their own internal rules, provided these rules do not violate labor laws or result in employees receiving wages below the statutory minimum.
Wage Distortion and Its Possible Effects
Wage distortion is a phenomenon that occurs when a mandated wage adjustment skews the pay structure, causing employees who previously earned higher rates to receive pay that is nearly the same as less senior or newly hired workers now receiving a higher minimum wage. In the event that a company’s workforce expansion leads to a loss of certain exemptions and the employer thereby has to meet a higher minimum wage, a wage distortion scenario may arise. Consequently, employers may need to adjust salaries across the board to maintain internal equity and preserve the hierarchy of wages commensurate with tenure, position, or qualification.

However, wage distortion corrections are not typically automatic under the law; they often call for good-faith negotiations between management and employees, especially if there is a union. The resolution could entail incremental adjustments or a formula hammered out through negotiation or mediation. Even though the impetus for a wage increase might indirectly stem from surpassing the threshold for coverage by a certain wage order, it remains the wage order’s broader application or the need to correct wage distortion that drives the pay adjustment, not a standalone statute that compels employers to raise wages for having more than ten employees.
Common Misconceptions Surrounding the Ten-Employee Threshold
There can be confusion when employees or even management see references to “ten employees” in the Labor Code or related rules, and mistakenly conclude that an automatic pay increase is mandated. In reality, the threshold for coverage of certain labor standards—like the requirement to grant holiday pay—does indeed often use a figure of ten employees. Nonetheless, the code does not say, “If you have more than ten employees, you must raise salaries.”

It is more accurate to understand that the threshold can affect which labor standards or wage orders apply in full or in an exempt/modified manner. Some small businesses with fewer than ten employees enjoy partial exemptions from certain rules, but once they exceed that threshold, the exemptions vanish, and they must comply fully with all the obligations that apply to a non-exempt establishment. If those obligations include paying the higher minimum wage (assuming the business was previously covered by a more lenient wage category), then employees will experience a pay increase. This can create the perception that crossing the threshold triggers a mandatory raise, but in truth, it is the broader wage order coverage that compels compliance.
Practical Advice to Employers and Employees
For employers, due diligence is essential to understanding precisely which labor laws and wage orders apply once the business surpasses a certain headcount. Consulting with legal experts, reviewing DOLE issuances, and closely monitoring changes from the regional wage boards will help avoid inadvertent violations. It is also vital for employers to anticipate the financial impact of losing exemptions so that wage adjustments and benefits can be budgeted appropriately.

For employees, it is advisable to study the applicable wage orders, confirm current minimum wage levels for the region, and check if any wage distortions have arisen. If confusion persists, employees may directly consult with DOLE or seek advice from reputable labor law practitioners. It may also be prudent for employees to suggest clarificatory meetings or labor-management councils to address any misunderstandings about entitlements once the company size grows beyond ten employees.

Relevant DOLE Issuances and Jurisprudence
Case law from the Supreme Court of the Philippines provides limited direct pronouncements on a mandatory salary increase triggered solely by surpassing a ten-employee threshold. Instead, the jurisprudence discusses compliance with minimum wage laws and wage distortion scenarios. DOLE Department Orders, Labor Advisories, and wage board releases typically do not contain a clause that states, “All employers with more than ten employees must automatically raise wages.” Rather, they specify that any employer not falling under an exemption must abide by the minimum wage set by the pertinent wage order.

In instances where an employer previously qualified for a small-establishment exemption but later expanded the workforce, the employer is naturally obligated to follow the main wage order, which may well result in a salary increase. That mechanism is the main reason some employees perceive a direct link between surpassing the threshold and an across-the-board raise. However, there is no separate, free-standing legal requirement specifying that every time a business hits employee number eleven, the salaries of all employees must automatically increase by a specific percentage or amount.

Enforcement, Penalties, and Compliance Strategies
Noncompliance with wage orders and labor standards can expose an employer to administrative or civil liabilities. DOLE’s routine inspections or complaint-based inspections can lead to compliance orders, monetary awards for underpaid wages, and even potential criminal liability if the violations are egregious. Consequently, prudent employers assess their workforce count and ensure they are providing wages that meet or exceed regional minimums. If, upon surpassing ten employees, an exemption no longer applies, the employer should immediately rectify the wage rates of affected employees.

Employees, on the other hand, may file complaints with DOLE or the National Labor Relations Commission (NLRC) if they believe their employer failed to adjust wages as mandated by law. The best compliance strategy for both sides involves open communication and a thorough understanding of wage orders, acknowledging that losing an exemption can indirectly trigger a pay raise requirement.

Substantive Takeaway
The heart of the matter is that no blanket legislative provision states that employers who surpass ten employees must automatically grant salary increases. However, once that threshold is crossed, an employer may lose certain exemptions under wage orders or labor regulations, thereby necessitating compliance with the higher standard minimum wage and other labor standards. In effect, it may appear to employees as a newly mandated increase, but it is grounded on the minimum wage machinery and the gradual phasing out of exemptions for micro-enterprises.

It is crucial for every stakeholder—employers, employees, human resource practitioners, and labor law attorneys—to verify the specific rules applicable under the relevant wage order. Staying informed about the classification of the establishment, especially regarding how many employees it regularly engages, is critical in determining whether or not a legal obligation arises to raise wages.

Conclusion
In conclusion, Philippine labor law does not impose a direct, one-size-fits-all obligation to grant a mandatory salary increase merely because an establishment has more than ten employees. Nevertheless, the interplay of labor regulations, minimum wage orders, exemptions, and coverage thresholds can and often does bring about pay adjustments. Employers that were once exempt or partially exempt find themselves subject to full compliance once their headcount rises, thus resulting in higher wages for their employees.

Hence, to definitively answer the question: No, there is no outright statutory mandate requiring an employer with more than ten employees to automatically issue salary increases, absent a wage order or CBA stipulation. Instead, any required increases would usually stem from the transition to full compliance with minimum wage laws or from addressing potential wage distortions. While employees may interpret this as a “mandatory salary increase,” the reality is that it is the broader legal framework of wage orders, labor standards, and the gradual phase-out of exemptions that mandates compliance.

Ultimately, employers who are on the cusp of expanding beyond ten employees must remain vigilant in understanding the pertinent wage orders and labor standards. Employees who believe they are entitled to higher wages upon surpassing that threshold would do well to check the prevailing regional wage rates, clarifications from DOLE, and their company’s internal policies or collective bargaining agreements. If in doubt, seeking professional legal advice is recommended to ensure that no labor standards are inadvertently disregarded and that employees receive the lawful compensation they deserve.

This article is provided for informational purposes, reflecting general principles of Philippine labor law as of this writing. It should not be construed as definitive legal advice. For specific concerns, all parties are encouraged to seek professional counsel.