What is the COLA in Philippine salary? Here’s a complete guide to the rules and how to calculate the COLA amount.
Although the future is uncertain, the prices of housing, products, and services are bound to go up. To counteract this inflation, businesses, governments, and unions usually make cost-of-living adjustments or COLA. Unlike bonuses or increases, COLA is not a performance reward but a way to maintain the employees’ spending power.
Ultimately, COLA aims to preserve the standard of living a person had before the price increase. This, in turn, should allow people to maintain their current lifestyle despite inflation.
To get a better understanding of cost-of-living adjustment (COLA) in salary, keep on reading. Here, we will explore its meaning, importance, and how it works.
What does COLA mean in salary?
COLA, which stands for cost-of-living allowance or cost-of-living adjustment, is an extra payment provided to employees. This aims to help them cope with the impact of inflation on their basic living expenses. These living expenses typically include necessities like food, housing, clothing, and transportation.
The calculation of COLA is often based on changes in the Consumer Price Index (CPI), which tracks variations in the prices of consumer goods and services over time. However, it’s important to note that not all businesses incorporate COLA into their compensation structures. It is more common in government entities and labor unions to ensure that employees’ purchasing power remains stable in the face of rising living costs.
In the private sector, salary increases and compensation adjustments are dependent on various factors. This includes individual performance, prevailing market conditions, and opportunities for promotions or career advancement. COLAs, while important for addressing inflationary pressures, may not be as prevalent in private sector compensation as other forms of salary adjustments.
How do Cost-of-Living Adjustments (COLA) work?
COLAs counter inflation’s effects on workers and retirees. Private employers, businesses, and governments implement these adjustments. COLAs are often based on the Consumer Price Index (CPI), measuring living cost increases.
However, COLA eligibility depends on employer or government policies. Calculations use inflation rates from local or national data. The COLA is based on the percentage increase from the previous year to the current year’s third quarter, using the Consumer Price Index for Urban Wage Earners (CPI-W).
Economic conditions directly influence the COLA amount. The Bureau of Labor Statistics calculates the CPI-W, the official benchmark for Social Security Administration COLA determinations.
Why is Cost-of-Living Adjustment (COLA) important?
Consumer prices fluctuate over time. As such, the cost-of-living adjustments allow workers, pensioners, and others on fixed incomes to afford their basic needs. Certain cost-of-living adjustments, such as those for military personnel on transitory duties in higher-cost areas, are only temporary.
Moreover, governments often incorporate cost-of-living adjustments or allowances in their benefit plans to attract talented workers even though they typically pay less than companies for similar positions.
This benefit also offers to maintain their hiring process competitiveness and retain employees. Likewise, these changes may increase the likelihood that prospective employees may accept a job offer that entails relocation.
Who is eligible for COLA in the Philippines?
COLA, or cost-of-living adjustment, is applicable to everyone earning minimum wages in the private sector in the Philippines. This includes employees regardless of their job, position, or employment status. According to the Philippine Wage Order, it also does not matter how they receive their compensation.
However, COLA still has its limitations. For example, it does not cover domestic or household help. Additionally, individuals working in personal services, such as family drivers, are also exempt.
The principals or clients will pay the cost-of-living adjustment (COLA) of the construction or service contractors. This is in the case of contracts for projects involving construction as well as those involving janitorial, security, and similar services. Moreover, the agreement will also need an update as a result.
Private Educational Institutions
Private educational institutions should be regarded as complying with the cost-of-living adjustment (COLA) if they include covered workers and employees in the increase in School Year tuition rates.
Wages of Special Groups of Workers
Apprentice and learner salaries must always be at least 75% of the new wage rates that are in place.
Workers Paid By Result
All employees paid by the result, including those paid on a piecework or task basis, are entitled to compensation equal to or more than the region’s mandated COLA.
When calculating wage-related benefits like overtime, 13th-month pay, premium pay, SSS, night shift differential pay, Medicare, and others, the cost-of-living allowance specified in the region must be given for days worked and not considered part of the workers’ regular wage.
How is Cost-of-Living Index (COLA) calculated?
The calculation of cost-of-living adjustments (COLA) can vary between companies. In the private sector, COLA is often determined based on factors like merit raises, market value, and promotions.
Some companies may also consider the Consumer Price Index (CPI) increase from the previous year, which measures price inflation by tracking changes in the cost of a specific basket of consumer goods and services.
However, it’s important to note that in the Philippines, the regional Wage Order still plays a significant role in the computation of cost-of-living adjustments. For instance, if you work in the National Capital Region (NCR) and earn P426.00, you may receive a daily COLA of P22 as specified in the Wage Order.
Generally, the annual cost-of-living (COLA) adjustment can be calculated using the formula shown below:
(annual salary) x (annual % COLA increase) = amount of increase amount of increase + annual salary = COLA
Related: What is salary differential?
Is COLA part of the salary?
COLA is an integral part of the minimum wage and is separate from wage-related benefits like overtime pay, 13th-month pay, and night differential. It serves to adjust employees’ salaries or hourly rates to keep up with inflation and maintain their earning power. COLA raises are not based on merit but are implemented to address increases in the cost of living.
Easily manage COLA in payroll
Withholding tax deductions from employee salaries are the responsibility of the employer. As such, the company must determine each employee’s taxable revenue before paying out compensation.
It seems really easy up until you run into stuff like COLA and night shift differentials. At eezi, you don’t need to worry. Taxes and necessary benefits can be computed and managed using eezi Payroll System. Try it now!