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SUMMARY: R.A. 6971 grants to business enterprises with productivity incentive
program(s) a special deduction from gross income equivalent to 50 percent of total
productivity bonuses given to employees under the program, over and above the
total allowable ordinary and necessary business deductions for said bonuses under
the National Internal Revenue Code; it also grants this same privilege to business
enterprises which give grants for manpower training and special studies to rank-and-
file employees pursuant to a program prepared by the labor-management
committee for the development of skills identified as necessary by the appropriate
government agencies.
Productivity Incentives Act of 1990: A law whose time has come
Introduction
The perpetual increase in the cost of fuel, transportation, power and food has
brought a considerable pressure on the government, particularly the Regional
Tripartite Wages and Productivity Boards (RTWPBs), to raise the minimum wages of
workers. But while the present economic conditions call for some wage
adjustments, we should not be under any illusion that a higher standard of living can
be legislated into being.
Mandatory wage increases without corresponding increases in the productivity of
the workers will only result in higher inflation rate as firms would pass on the cost of
the wage increments to the cost of the product or the service being produced or
provided, thus, wiping out the value of wage increases almost as soon as they are
mandated. This is not the case, however, in a highly productive economy where
wages automatically rise as new enterprises bid higher and higher for workers
tapped from a shrinking pool of excess labor. The need for a legislated wage
increase, therefore, diminishes as wages rise automatically from the dictates of
"enlightened self-interest."
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Consider the following countries: South Korea, Taiwan, Singapore, Hongkong and
Japan have no minimum wage laws, yet their per capita GNP averages at US$4,968,
$7,509, $10,521, $10,939 and $22,879, respectively. The Philippines, on the other
hand, which sets a daily minimum wage for workers has a per capita GNP of only
$727.
These five countries overcame their low-wage, high-labor surplus condition in the
1970s not by legislating wage levels and wage increases but by reviving up their
economies to higher productivity in order to compete in the global market.
One of the best ways for productivity, and eventually for the wages of Filipino
workers, to rise even without any legal or legislative prodding is for the government
to commit itself to create a better climate for business enterprises and workers.
"Better climate" includes among others having political stability, reduced red tape,
better infrastructure, stabilized Philippine currency, moderate interest rates,
"friendlier" foreign investment code as well as greater productivity incentives to
both labor and capital.
With regard to the latter, the government has taken a bold step to provide impetus
toward increasing the overall level of productivity in view of its below-par
performance over the recent years. President Aquino has signed into law Republic
Act 6971 or the Productivity Incentives Act of 1990 in November, purposely to
encourage labor and management to aim for higher levels of productivity.
As a backgrounder, organized labor was originally pressing for a package of non-
wage benefits which would include increased tax exemptions for workers earning
P7,000 and below monthly, increased funding for housing and livelihood programs,
more workers' representatives to government policy-making bodies, additional
benefits from government financial institutions, a 10 percent profit sharing scheme
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and productivity gainsharing. Some of these proposed benefits were not included in
the non-wage benefits package approved by the President on November 22, 1990.
Congress itself has shown that it is not yet ready to make any profit sharing scheme
mandatory.
House Labor and Employment Committee chairman Alberto Veloso has said that
Congress approved the Productivity Incentives Act because the non-wage benefits it
would provide to workers and the tax incentives to employers are non-inflationary.
The true significance of the Act, however, lies in the extent of the changed
institutional relationship between employers and employees. The substantial gains
in productivity and income may only be achieved in an atmosphere of industrial
peace and greater sharing in the fruits of labor.
For so long a time, coercive measures have been heavily relied upon to foster
industrial peace. Companies were, for example, dictated upon by the government to
absorb new wage levels via legislation or arbitration. But almost everyone knows
that if a company's competitive edge is eroded by a prohibitive labor cost, no
government or state can compel that company to continue doing business. When
the choice between continuing and ceasing operations hinges on economics, no
political pressure can force an enteprise to remain in a business that is no longer
viable.
It is in this light that the relevance of the Act can be appreciated, for it seeks to
encourage, not coerce, labor and management to aim for higher levels of
productivity in the workplace, maintain industrial peace and harmony and promote
the principle of shared responsibility in their relations with each other, through a
grant of incentives to business enterprises undertaking a productivity incentives
program.
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The Productivity Incentives Act is essentially voluntary in nature. Rightly so, for it is
only here in the Philippines where productivity improvement has to be mandated.
Sad to say, the vast majority of Filipinos do not know what productivity is, and
hence, cannot appreciate its importance to business profitability, personal
enrichment, and eventually, to economic growth and development.
To lessen the impact of having productivity improvement legislated, the Rules
Implementing the Productivity Incentives Act allow flexibility for labor and
management to formulate their own productivity incentives agreements. Both
parties will be able to develop a productivity incentives program that is tailor-fit to
the nature and size of the operations, to the capital and labor requirement and to
the profitability, stage of growth, and level of the firm.
The most important aspects of the Implementing Rules are discussed in detail
below:
Formation of a labor-management committee
The Rules provide that a business enterprise and/or its employees may initiate the
formation of a Labor-Management Committee (LMC) to establish a productivity
incentives program within the enterprise. At the request of any party, the National
Conciliation and Mediation Board (NCMB) or its appropriate regional branch or any
third person chosen and agreed upon by both parties may provide assistance to
enable the parties to form an LMC.
A business enterprise with an existing LMC may use such committee to establish a
productivity incentives program, provided again that the basic requirements of the
program as stated in the Rules are met.
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Establishment of a productivity incentives program
A productivity incentives program is a formal agreement created to promote gainful
employment, improve working conditions and improve productivity levels in a
business enterprise. It has two basic components, namely, productivity
improvement program and productivity gainsharing program. To be valid, it has to
be ratified by a majority of the employees who have rendered at least six months of
continuous service.
The Rules allow some amount of flexibility in the choice of a productivity
improvement program to be implemented, in the formula to measure productivity,
the factors to be considered in determining productivity bonuses and in the manner
of sharing productivity gains. To make things easier for the parties concerned,
considering the difficulty in measuring productivity, the Rules provide some
examples/illustrations of generally-accepted productivity measurement models.
To encourage business enterprises with existing gainsharing programs or schemes to
avail of the benefits provided for in the Act, such schemes may be accredited or
converted into a productivity incentive program, provided that the requirements of
the productivity incentives program are met.
Who are covered by the Act
All business enterprises with or without existing and duly recognized or certified
labor organizations and government-owned and controlled corporations performing
proprietary functions may establish a productivity incentive program and avail of the
benefits provided for in the Act. Business enterprises referred to are industrial,
agricultural and agro-industrial firms engaged in the manufacturing, processing and
repacking or assembly of goods, including service-oriented enterprises.
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Benefits and incentives for employers and workers
Although the establishment of a productivity incentives program is voluntary on the
part of labor and management, there are certain "givens" which cannot be
negotiated by either party because of the limitations imposed by the Act itself. One
such given is the percentage share of workers in the productivity gains which shall
not be less than 50 percent. Another is the base period for determining productivity
increase which shall be the preceding three consecutive years. This is not true,
however, for new enterprises that have been in operation for less than three years.
In this case, their LMCs can agree on other base periods.
The productivity bonuses granted to the workers may be in cash or kind. Said
bonuses shall be given not later than every six months from the start of the
productivity incentives program. Since there is a great probability that although
there is productivity increase the company is losing money, the Rules provide for the
deferment of the payment of bonuses up to a maximum of twelve months from the
date said bonuses are due.
Review of productivity incentives program
As incentives for adopting a productivity incentives program, business enterprises
are granted special deductions from their gross income equivalent to the total
allowable ordinary and necessary business expenses. Companies providing
manpower training and special studies to rank-and-file employees may also avail of
similar tax deductions.
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Although it is the employer which initiates a training program, it is the government,
specifically the Regional Manpower Development Office of the National Manpower
and Youth Council, which shall review and approve the program. Since it is the
government which will subsidize said program, it should have a hand in seeing to it
that the skills training requirements of workers in covered industries are provided
for.
To avail of the tax incentives, employers or business enterprises must submit copies
of the ratified productivity incentives program to the appropriate RTWPB for review
and to the Bureau of Internal Revenue for information and record purposes.
Effects of the productivity incentives program on CBAs
Productivity agreements reached by the parties may supplement existing CBAs.
Inversely, if during the existence of the productivity incentives program the
employees form or join a union, said program may, in addition to the terms and
conditions agreed upon by the parties, be integrated in the CBA that may be entered
into.
Resolution of disputes
Considering that productivity is a non-adversarial issue, all disputes, grievances and
other matters arising from the interpretation and implementation of the program
shall be resolved within the LMC, which may seek the assistance of the NCMB for
such purpose. Any dispute which remains unresolved within twenty days has to be
submitted for voluntary arbitration as provided for in the Labor Code.
Suspension of benefits
Notwithstanding its non-adversarial nature, conflicts between the parties may arise.
Hence, strikes or lockouts arising from any violation of the productivity incentives
program shall suspend its effectivity pending settlement of such disputes. During the
pendency of the settlement, tax incentives which accrued prior to the occurrence of
the strike or lockout are not deemed forfeited. The same is true with productivity
bonuses already granted to workers.
Indeed, the intent and spirit of the Productivity Incentives Act is good because it
makes both labor and management conscious of the need for cooperative effort in
order to have a bigger slice of the economic pie. Not that its implementation would
be problem free. In fact, in the various consultation meetings conducted by NWPC
with government agencies involved in its implementation, there were several issues
or problems raised.
If all parties, however, would acknowledge the importance of productivity in their
lives, whether personal or professional, then it is already a step toward the right
direction. The so-called problems in the implementation of the Productivity
Incentives Act should be viewed as opportunities that can be turned into benefits.
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