THIRTEENTH CONGRESS OF THE REPUBLIC 
First Regular Session 
OF THE PHILIPPINES 
S E N A T E  
S. No. 17 
?M SEP -6 fl? :03 
Introduced by Senator S. R. Osmefia 111 
EXPLANATORYNOTE 
"Productivity" is a management concept that is attributed to employees' 
high performance, work ethic or attitude or practices that yield positive 
performance results on the part of the industry. These work attitude or practices 
include, among others, employee involvement, self-managing work teams, 
empowerment, information sharing and access, and training and development. It 
embraces a management philosophy that recognizes the value of human 
resources or the people as the key element in the success of any colective 
In 1990, Republic Act. No. 6971, otherwise known as .the "Prod ctivity 
Incentives Act was enacted It is one of the policy strategies adopted 1 
by the 
endeavor. 
government to create an environment conducive to productivity improvement. 
Over the years, it has been widely ignored by several sectors! because of its 
seemingly unrealistic provisions thereby negating its purpose to labor. Results 
of consultations with productivity experts from various organizations point 
towards the need for liberalizing certain provisions that tend to unduly limit or 
regulate the process of productivity improvement. This bill seeks to make RA 
6971 more attuned with the present economic and political realities in the labor 
and industrial sectors by incorporating the gainsharing program in the 
productivity incentives program. 
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While the enactment of this bill may result in a temporary reduction in 
government revenue, its long-term macro-economic impact can outweigh its 
short-term effect. It is expected then that continuous improvement in business 
performance would result in the broadening of the tax base. Continuous 
improvement in business performance through productivity would necessarily 
mean an improved competitive edge of business enterprises in both domestic 
and global markets and greater capacity to expand business operations. 
In view of the foregoing, approval of this bill is earnestly requested 
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S~RGIO 
O S M E ~ ~ ~ A  
111 
Senator 


THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
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'54 
SEP -6 fill :03 
OF THE PHILIPPINES 
First Regular Session 
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S E N A T E  
S. No. 
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Introduced by Senator S. R. Osmena 111 
AN ACT 
ESTABLISHING A PRODUCTIVITY AND PERFORMANCE INCENTIVE§ AND 
GAINSHARING PROGRAM, REPEALING FOR THE PURPOSE REPUBLIC 
ACT NO. 6971, OTHERWISE KNOWN AS THE PRODUCTIVITY INCENTIVE§ 
ACT OF 1990 
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Be it enacted by the House of Representatives and the Senate of the Republic of 
the Philippines in Congress assembled: 
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SECTION 1, Short Title. - This Act shall be known as the "Productivity 
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and Performance Incentives and Gainsharing Act of 2004." 
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SEC. 2. Declaration of Policy. - It is the declared policy of the State to 
encourage higher levels of productivity, recognizing the complex challe ges of 
globalization, in order that Philippine products and services can meet ,global 
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competition, maintain industrial peace and harmony and promote the principles 
of partnership and shared responsibility in the relations between workers and 
employers so as to strengthen the cooperation between labor and capital, and 
further recognizing the right of labor to its share in the fruits of production and,the 
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right of business enterprises to reasonable returns on investment and to 
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expansion and growth, and accordingly to provide corresponding incentives to 
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both labor and capital for undertaking voluntary programs that ensure workers 
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with a just share in the fruits of their labor in relation to the profit yielded to the 
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employer as a result of increased productivity and, thus, enhance the quality of 
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life of the workers and employees, 
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SEC. 3. Coverage. - This Act shall apply to all business enterpris s with 
or without existing and duly recognized collective bargaining represent 1 
tives, 
including government-owned and controlled corporations performing proprietary 
functions. It shall cover all employees and workers regardless of their position, 
designation or status and irrespective of the manner and mode by which their 
wages are paid. 
SEC. 4. Definition of Terms. -As used in this Act: 
(a) 
"Business enterprise" refer to industrial, agricultural or agro- 
industrial establishments engaged in the production, manufacturing, processing, 
repacking or assembly of goods, including service-oriented enterprises that are 
established and operated for profit or gain 
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"Labor-management committee" refers to a negotiating body in a 
business enterprise composed of the representatives of labor and management 
created to establish a productivity and performance incentives and gainsharing 
program, and to settle disputes arising therefrom in accordance with Section .9 
hereof. 
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(c) 
"Productivity and Performance Incentives Program" refers to a 
formal agreement voluntarily established by a joint labor-management committee 
or any existing labor management mechanism containing a productivity and 
performance improvement program that will promote gainful empl yment, 
improve working conditions, attain and maintain industrial peace and r .. sult . in . 
increased productivity and efficiency, including cost savings, as we1 as, ,a 
gainsharing program whereby the employer and the workers share in the positive 
results of business operation brought about by improvement in productivity. The 
'agreement shall be ratified by at least a majority of the employees who have 
rendered at least six (6) months of continuous service. In the case the joint labor- 
management committee makes fundamental changes in the program, the 
employees shall likewise ratify such changes. 
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(d) 
"Gainsharing" refers to a reward system formulated to complement, 
the productivity and performance incentives program designed to improve the 
productivity performance of the organization. The gainsharing system to be 
adopted by business enterprises may take the form of profit sharing or other 
forms of gainsharing mechanisms such as productivity bonus, perfor !, 
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bonus, production bonus, employee stock option plan, among others. 
SEC. 5. Labor-Management Commitfee. - (a) A business enterprises or 
its employees, through their authorized representative, may initiate the formation 
of a labor-management committee or any labor-management mechanism that 
shall be composed of representatives from the management and from the rank- 
and-file employees which shall establish and implement a productivity and 
performance incentives program and settle disputes arising therefrom in 
accordance with Section 9 hereof: Provided, That both management and labor 
shall have equal representation in said committee or mechanism; Provided, 
further, That at the request of any part to the negotiation, the National Wages 
and Productivity Commission and, the Regional Tripartite Wages and Productivity 
Boards of the Department of Labor and Employment shall provide the necessary 
studies, technical information and assistance, and expert advice to enable the 
parties to conclude productivity agreements. In case there is already an existing 
labor mechanism in the enterprise, such mechanism may suffice; Provided, That 
it includes as on of its objectives the development and implementation of a 
productivity and performance incentives and gainsharing program. 
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(b) In business enterprises with duly recognized collective bar aining 
representatives, the representatives of labor shall be those designated by the, 
collective bargaining agent(s) of the bargaining units(s). 
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(c) In business enterprises without duly recognized collective bargaining 
representatives, the representatives of labor shall be elected by at least a 
majority of all rank-and-file employees who have rendered at least six (6) months 
of continuous service 
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SEC. 6. Productivity and Performance Incentives and Gainsharing, 
Program. - (a) The productivity and performance incentives program shall 
contain provisions for measuring productivity, performance and efficiency 
improvements, the gainsharing or reward system adopted in sharing productivity 
bonuses, coverage, percentage sharing, and forms of bonus payment in 
accordance with the terms and conditions that may be agreed upon by th labor 
and management. Provided, That the productivity bonus shall be distrib ted at 
least once a year, or at such frequency as may be determined by the parti I .  
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(b) Productivity agreements voluntarily reached by the parties as provided 
in this Act may supplement existing collective bargaining agreements. 
SEC. 7. Benefits and Tax Incentives. - (a) Subject to the provisions of 
Section 6 hereof, a business enterprise which adopts a productivity and 
performance incentives and gainsharing program, duly and mutually agreed upon 
by parties to the labor-management committee, shall be granted a special 
deduction from the income equivalent to fifty percent (50%) of the 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, as amended. 
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(b) Grants for manpower training and special studies given to rank-and-file 
employees pursuant 
7- to a skills development, program prepared by the labor- 
management committee under the productivity and performance incentives 
program shall also entitle the business enterprise to a special deduction from 
gross income equivalent to fifty (50%) of the total grants over and abovethe 
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allowable ordinary and necessary business deduction for said grants under the 
National Internal Revenue Code, as amended. 
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(c) Bonuses provided for under the productivity and perfo mance 
incentives and gainsharing program shall be given to the employees in a 
anner' 
detet-mined by the parties from the start of such program over and above existing 
bonuses granted by the business enterprise and by law: Provided, That the said 
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bonuses shall not be deemed as salary increases due the employees and 
workers. 
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The special deductions from the gross income provided for herein 
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shall bealiowed starting the next taxable year after the effectivity of this Act. 
SEC. 8. Notification. - A business enterprise which adopts a productivity 
and performance incentives and gainsharing program shall submit copies of the 
same to the appropriate Regional Tripartite Wages and Productivity Board for 
evaluation and certification. The Board shall then forward, the certifiable 
productivity incentives program(s) of business enterprises to the Bur au of 
Internal Revenue for record purposes. 
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SEC. 9. Disputes and Grievances. - Whenever disputes, grievances, or 
other matters arise from the interpretation or implementation of the productivity 
and performance incentives program, the labor-management committee shall 
meet to resolve the dispute within fifteen (15) days and shall suspend the 
effectivity of the program pending settlement of such dispute or grievance. 
Provided, however, That if within the period the dispute remains unresolved, the 
committee may seek the assistance of a third party such as the National 
Conciliation and Mediation Board of the Department of Labor and Employment, 
the Regional Tripartite Wages and Productivity Boards or a facilitator acceptable 
to both parties in resolving the conflict. The third party shall act only in an 
advisory capacity for purposes of rendering interpretation and clarification to 
facilitate the adoption of a final resolution by the parties: Provided, further, That 
the bushness enterprise shall not be deemed to have forfeited any tax incentives 
accrued prior to the date of occurrence of such dispute or grievance, and the 
workers shall not be required to reimburse the productivity bonuses already 
granted to them under the incentives program. Likewise, bonuses that have 
already accrued before the dispute or grievance shall be paid the workers within 
six (6) months from their accrual. Any dispute which remains unresolve within 
thirty (30) days from the time of its submission to the labor-mana ement 
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under existing laws. 
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SEC. 11. Non-Diminution of Benefits. - Nothing in this Act shall be 
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construed to diminish or reduce any benefits and other privileges enjoyed by the 
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workers under existing laws, decrees, executive orders, company policy or 
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SEC. 12. Rule Making Power. -The Secretary of Labor and Employment 
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and the Secretary of Finance, in consultation with the National Wages and 
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Productivity Commission, Bureau of Internal Revenue, Government Corporate 
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Monitoring and Coordinating Committee, Technical Education and Skills 
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Development Authority, and labor and employer sectors shall jointly promulgate 
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and issue within six (6) months from the effectivity of this Act such rules and 
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regulations as are7Wcessary to carry out the provisions hereof. 
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committee shalt be submitted for voluntary arbitration in line with the pertinent 
provisions of the Labor Code, as amended. 
The productivity and performance incentives and gainsharing program 
shall include the name(s) of the voluntary arbitrator or panel of voluntary 
arbitrators previously chosen and agreed upon by the parties. 
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SEC. 10. Penalfy. - Any person who shall make any fraudulent claim 
under this Act, regardless of whether or not a tax benefit has been granted, shall 
upon conviction be punished with imprisonment of not less than six (6) months 
but not more than one (1) year or a fine of not less than two thousand pesos 
(P2,OOO.OO) but not more than six thousand pesos (P6,000.00), or both, at the 
discretion of the Court, without prejudice to prosecution for any other puni hable 
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In case of partnerships or corporations, the penalty shall be impose .upon 
the officer(s) or ernployee(s) who knowingly approved, authorized or ratified the 
filing of the fraudulent claim, and other persons responsible therefor. 1 
practice, or any agreement or contract between the employer and employees. 
As part of its labor education program, the Department of Labor and 
Employment shall conduct an extensive public information campaign to promote 
the productivity and performance incentives and gainsharing program. 


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SEC. 13. Separability Clause. - If any provision of this Act is declared 
unconstitutional, the same shall not affect the validity and effectivity of the other 
provisions thereof. 
SEC. 14. Repealing Clause. - Republic Act No. 6971, otherwise known 
as the Productivity Incentives Act of 1990, is hereby repealed. All laws, executive 
orders, presidential decrees, presidential proclamations, rules and regulations or 
parts thereof inconsistent with the provisions of this Act are hereby repealed or 
modified accordingly. 
SEC. 15. Effectivity. 
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- This Act shall take effect fifteen (15) days after its 
publication in the Official Gazette or in at least two (2) newspapers of national 
circulation. 
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Approved, 
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