Small businesses brace for wage hike in NCR

By Mark Joseph M. Sanchez

FILIPINO entrepreneur Wilson Lee Flores has kept Kamuning Bakery Café’s pandesal affordable through inflation spikes, supply disruptions and surging electricity bills.

As Metro Manila’s higher minimum wage takes effect on July 25, however, the owner of the 87-year-old bakery says preserving that balance between fair pay for workers and affordable prices for customers is becoming even more difficult.

“We support the goal of giving workers better wages because every employee deserves fair compensation and a better quality of life,” Mr. Flores told BusinessWorld via Viber.

“However, this latest wage increase also comes at a time when many small businesses nationwide are already struggling with rising costs of food ingredients, electricity, rent and transportation.”

His dilemma mirrors that of many micro, small, and medium enterprises (MSME) preparing for the National Capital Region’s (NCR) latest wage adjustment.

Rather than resorting to layoffs, many business owners said they would try to improve productivity, reduce waste and absorb part of the higher labor costs, while calling on the government to expand support programs for small businesses.

Under Wage Order No. 27, the daily minimum wage for nonagricultural workers in Metro Manila will increase by P60 to P755 from P695 on July 25 and rise further by P25 to P780 on Jan. 20 next year.

Agricultural workers, employees of retail and service establishments employing 15 or fewer workers, and manufacturing firms with fewer than 10 regular employees will receive corresponding increases, with their daily minimum wage rising to P718 and later to P743 from P658.

The wage increase comes as MSMEs, which account for more than 99% of registered businesses in the Philippines, continue to face higher costs for raw materials, electricity, rent and logistics.

Mr. Flores said Kamuning Bakery has little room to raise prices because its products are staples for students, senior citizens and low-income households.

“As much as possible, we will try to absorb the higher costs instead of passing them on to consumers. Our business is known for affordable and good quality breads and pastries, so we cannot increase prices,” he said.

Instead, the bakery plans to improve efficiency by training employees to perform multiple tasks, investing in energy-saving equipment, and reducing production waste through better planning.

Mr. Flores said broader government support would help businesses adapt without sacrificing jobs or raising prices.

He proposed temporary wage subsidies during the transition period, easier access to financing for equipment upgrades and digital systems, stronger tax incentives, lower electricity costs, improved transport infrastructure, skill training programs and simpler regulatory requirements.

Maria Avelaine S. Avellana, founder of CYO Charcoal Grilled Hotdog & Burgers, said small businesses recognize the need to improve workers’ incomes but are also operating on increasingly thin margins.

“As a micro business owner, I understand that the wage increase is intended to help workers cope with the rising cost of living, and I support the goal of providing fair compensation,” she told BusinessWorld through LinkedIn chat. “But from the perspective of MSMEs, this is really a major challenge.”

She said many people mistakenly equate high sales with strong profitability.

“From our daily sales, we still have to deduct the cost of ingredients, rent, utilities, government contributions, taxes, maintenance and labor costs. As a result, what is left for management to sustain the business in the long term is very small,” she said in mixed English and Filipino.

Ms. Avellana said her company operates under the Barangay Micro Business Enterprise (BMBE) Act, which exempts qualified enterprises from statutory minimum wage requirements. She said the measure has helped the business manage labor costs while maintaining employment.

“We do not want to immediately pass all of the additional costs on to our customers through price increases,” she said.

She added that the long-term solution lies in improving productivity rather than relying solely on wage adjustments. She urged the government to strengthen productivity and digitalization programs, expand financing and tax incentives, improve market access, and promote greater awareness of the BMBE law, noting that many entrepreneurs remain unfamiliar with its benefits.

Businesses outside Metro Manila echoed similar concerns even though they are not covered by the NCR wage order.

Gemma A. Berania, chief executive officer at Libro Espresso Ventures, Inc., said the company would prioritize operational efficiency before considering price adjustments.

Evianne T. Añonuevo, operations manager at Maru’s Food Lounge and Beachfront Rooms in Occidental Mindoro, said the business is reviewing cost-saving measures, product development and possible price increases.

The Foundation for Economic Freedom (FEF) earlier sought the suspension of Wage Order No. 27, arguing that the increase could worsen inflation, discourage investment and compel MSMEs to reduce hiring, shorten working hours or shut down because of higher labor costs.

‘STILL INSUFFICIENT’
Labor groups and economists rejected those arguments, saying similar predictions have repeatedly failed to materialize after previous wage increases.

“We recognize that some MSMEs face genuine financial pressures,” Federation of Free Workers National President Jose Sonny G. Matula told BusinessWorld via Viber. “However, the law already provides relief through exemptions for qualified Barangay Micro Business Enterprises and other establishments that meet the criteria under wage rules. It is therefore inaccurate to portray all MSMEs as equally burdened.”

Mr. Matula said higher wages stimulate consumer spending, benefiting small businesses because workers themselves are customers.

He urged the government to help MSMEs through easier access to credit, tax incentives, lower electricity costs, regulatory reforms, digitalization programs, productivity training and stronger enforcement against smuggling and cartels instead of restraining wage growth.

“The wage hike is welcome but still insufficient,” he said. “It provides immediate relief, but it does not fully offset the steep increases in the prices of food, transportation, rent, electricity and other essentials.”

IBON Foundation Executive Director Jose Enrique A. Africa likewise disputed claims that higher wages inevitably lead to layoffs.

“Labor costs are on average just 11% of total business costs across all enterprises of all sizes in all sectors nationwide,” he told BusinessWorld, citing government data.

He estimated that the entire P85 wage increase in Metro Manila would amount to only about 5.3% of average MSME profits.

Mr. Africa said businesses typically absorb wage increases through a combination of slightly lower profits, reduced discretionary spending or limited price adjustments rather than cutting workers.

He noted that replacing experienced employees is often more expensive than retaining them, especially for small firms already operating with lean staffing.

He added that stronger household incomes ultimately support local demand, helping MSMEs sell more goods and services.

For entrepreneurs such as Mr. Flores, the challenge now is finding enough efficiency gains to preserve both jobs and affordable prices while paying higher wages — a balance many small businesses say will depend not only on their own adjustments but also on how quickly government support reaches them.