• Rules for exemption from paying minimum wage

    Persida Acosta

    Persida Acosta

    Dear PAO,
    I am planning to start a small business but I am not sure if I could afford to pay the minimum wage to my employees. Is it possible to be exempted from the payment of minimum wage? If so, what are the requirements?

    Dear Jess,
    As a rule, employers are mandated by Republic Act (R.A.) No. 6727 or the Wage Rationalization Act to pay the minimum wage to his employees. The minimum wage is determined by Congress itself through the enactment of a law, or by the Regional Tripartite Wages and Productivity Boards through issuance of wage orders (Article 99, Labor Code). However, there are exceptions to this rule. There are instances where an employer is exempted from complying with the mandated minimum wage, either because of the class of his employee, or the nature/circumstance of his business.

    Foremost, R.A. No. 6727 expressly excludes household or domestic helpers and persons employed in the personal service of another, including family drivers, from its coverage (Sec. 4(c), R.A. No. 6727). Nevertheless, with respect to household or domestic helpers, their minimum wage is set by the recently enacted R.A. No. 10361, more popularly known as Kasambahay Law.

    For exemptions based on the nature or circumstance of the employer’s business, the rules issued by the National Wages and Productivity Commission (NWPC) expressly states the following categories of employers who may be exempted from payment of minimum wages: (1) Distressed establishments; (2) New business enterprises (NBEs); (3) Retail/Service establishments employing not more than ten (10) workers; and (4) Establishments adversely affected by natural calamities (Section 2, NWPC Guidelines No. 2, s. 2007). You did not provide details concerning your planned business endeavor; nevertheless, from the enumerated exemptions, your case may fall under the exemptions of new business enterprises (NBEs) and retail/service establishments employing not more than ten (10) workers.

    The exemption is not automatic. The owner of the establishment must file an application for exemption, together with supporting documents, with the appropriate Regional Board which will review the application and determine whether the grant of exemption is warranted. In general, all applications for exemption must be accompanied by proof of notice of filing of the application to the President of the union/contracting party if one is organized in the establishment, or if there is no union, a copy of a circular giving general notice of the filing of the application to all the workers in the establishment. The proof of notice, which may be translated in the vernacular, shall state that the workers’ representative was furnished a copy of the application with all the supporting documents. The notice shall be posted in a conspicuous place in the establishment (Section 4, NWPC Guidelines No. 2, s. 2007). For exemption as an NBE, the application must also be supported by an affidavit from the employer stating the principal economic activity, date of registration with appropriate government agency and amount of total assets, and certificate of registration from the appropriate government agency. On the other hand, for exemption as an establishment with not more than ten (10) workers, the application must be supported by an affidavit from the employer stating that it is a retail/service establishment regularly employing not more than ten (10) workers for at least six (6) months in any calendar year, and business permit for the current year from the appropriate government agency (Section 4, NWPC Guidelines No. 2, s. 2007).

    Moreover, there are conditions before the grant of exemption may be given. For NBEs, first the establishment must be located outside the National Capital Region (NCR) and Export Processing Zones. Second, it must be established within two (2) years from effectivity of the Order. Lastly, the NBE must either be an agricultural establishment, whether plantation or non-plantation, or its total assets after financing is five million pesos (P5,000,000.00) or below (Section 3(B), NWPC Guidelines No. 2, s. 2007).

    For retail/service establishments regularly employing not more than ten (10) workers, an exemption may be granted under the following conditions: (1) it is engaged in the retail sale of goods and/or services to end users for personal or household use; (2) it is regularly employing not more than ten (10) workers regardless of status, except the owner/s, for at least six (6) months in any calendar year (Sec. 3 (C), (NWPC Guidelines No. 2, s. 2007).

    If your planned business endeavor satisfies the conditions for exemption from payment of minimum wage, we encourage you to apply with the appropriate regional board in order to enjoy the benefit.

    Incidentally, there is another exemption from payment of minimum wage found in another law. This will be discussed in detail in tomorrow’s article.

    We hope that we were able to enlighten you in your queries. Please be reminded that this advice is based solely on the facts that you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

    Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net


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