Legal basis and policy
- Republic Act No. 6657 mandates a Production Sharing Plan to be executed within ninety (90) days from the effectivity of the Act under guidelines prescribed by the appropriate government agency (Section 13).
- Republic Act No. 6657 mandates Production Sharing pending final land transfer, requiring distribution of defined percentages of gross sales and additional distribution from net profit after tax (Section 32).
- The law directs production and profit sharing to be implemented through an orderly and effective set of guidelines and procedures.
Core definitions and coverage
- Agriculture, Agricultural Enterprise or Agricultural Activity means the cultivation of the soil, planting of crops, growing of fruit trees, raising of livestock/poultry/fish, including harvesting, and other farm activities and practices performed by a farmer in conjunction with farming operations.
- Agricultural Land refers to land devoted to agricultural activity and not classified as mineral, forest, residential, commercial, industrial or national park.
- Farmworker means a natural person who renders service for value as an employee or laborer in an agricultural enterprise or farm, regardless of whether compensation is daily, weekly, monthly, or pakyaw; it includes a person whose work has ceased because of a pending agrarian dispute and who has not obtained substantially equivalent and regular farm employment.
- Regular Farm-worker is a natural person permanently employed by an agricultural enterprise or farm.
- Seasonal Farm-worker is a natural person employed recurrently/periodically/intermittently, including “dumaan,” “sacada,” and similar arrangements, whether permanent or non-permanent.
- Other Farmworker is a farmworker not falling under the Regular and Seasonal categories.
- Managerial or Supervisory Farmworker is a natural person employed with powers or prerogatives to lay down and execute management policies; hire/transfer/suspend/lay-off/recall/discharge/assign or discipline employees and/or effectively recommend managerial actions.
- Technical Farmworker is a natural person highly educated and trained to perform scientific/engineering/medical/teaching and other fields without managerial or supervisory functions (e.g., chemists, agronomists, veterinarians, soil analysts).
- Gross Sales is total annual revenue from sale of all agricultural products in raw/original state derived from the land or farm owned/operated under lease/management/production venture/grower/service contract or similar arrangement by an agricultural enterprise; simple post-harvest operations within the farm to preserve or prepare products for market (e.g., drying, salting, smoking, stripping) are agricultural activities; when retention right is allowed under Section 6 of R.A. 6657, gross sales is reduced by an amount equivalent to the retained area’s proportion to total land area.
- Regular Annual Compensation includes all cash remuneration or earnings regularly paid within a year (salaries, wages, 13th month pay, bonus, allowances, commissions, paid leaves, and similar income), whether mandated by law or provided by collective bargaining agreement or company practice, but excludes payments arising from production/profit sharing provided herein.
Employers covered and gross-sales threshold
- Production and profit sharing under R.A. 6657 applies to employers with pending final land or corporate stock transfer who fall within the covered categories.
- Covered employers include any enterprise owning or operating agricultural lands under lease, management contract, production venture or other similar arrangement.
- Covered employers include multinational corporations engaged in agricultural activities.
- Covered employers include commercial farms devoted to commercial livestock/poultry/swine raising, aquaculture (including saltbeds, fishponds, prawn ponds), fruit farms, orchards, vegetable and cut-flower farms, and cacao, coffee and rubber plantations.
- Coverage applies provided that the employer realizes gross sales in excess of Five Million Pesos (P5M) per annum.
- When necessary, the Department of Agrarian Reform (DAR) may establish a ceiling lower than P5 million per annum.
- If an individual or entity has business operations other than agricultural, only the divisions, groups, or units involved in agricultural activities are included in the mandated production/profit sharing.
- Public lands classified as inalienable and reserved in favor of the Bureau of Prisons but utilized for agriculture by corporations or entities in cooperation with local entities under any land tenure/usage/cultivation/management system are covered.
- In that Bureau of Prisons scenario, production and profit shares accrue for the benefit of the Bureau of Prisons.
Farmworkers covered and exclusions
- All farmworkers of covered employers—whether classified as regular, seasonal, technical, or other—are included.
- Managerial and supervisory farmworkers are excluded from the farmworkers whose shares are covered under this system.
- Any farmworker who renders service, regardless of duration, within a covered period is entitled to the benefit.
- Where there is no Presidential Agrarian Reform Council (PARC) determination of a specific award limit, the farmer-beneficiary is not to own more than three (3) hectares of agricultural land.
Mandated production/profit plan features
- Covered employers must prepare and execute a Production/Profit Sharing Plan not later than sixty (60) days from the effectivity of these Guidelines and Procedures.
- The Plan’s effectivity date is June 15, 1988.
- Covered employers must pay production and profit shares over and above the farmworkers’ compensation they currently receive.
- Production share is three percent (3.0%) of annual gross sales from June 15, 1988 until final land or corporate stock transfer is effected.
- The production share obligation is limited so that the employer is not obligated to pay more than 100% of the regular annual compensation of the farmworker-beneficiaries.
- Fifty percent (50%) of the estimated production share (based on unaudited financial statements) must be distributed within 60 days of the end of the accounting year.
- The balance of the production share (based on audited financial statements) must be paid within not more than 60 days thereafter.
- Profit share is ten percent (10%) of net profit after tax, with the same 100% of regular annual compensation cap.
- Where retention right is allowed under Section 6 of R.A. 6657, the profit share amount is adjusted by the proportion that the retained area bears in relation to total land area.
- An illustrative formula for computing total profit share and net profit after tax is provided in Annex A, and formulas for computing each worker’s production and profit shares are provided in Annex B.
- The first year of implementation begins on the employer’s accounting year ending after June 15, 1988.
- During the first accounting year period, annual gross sales for a full year are considered to determine whether the employer realized annual gross sales of over FIVE MILLION (P5M) for coverage.
- Gross sales and net profit after tax used to compute workers’ production and profit shares for the first accounting year are computed using a pro-rata formula shown in illustrative examples under Annex C.
Managerial/supervisory transitory compensation
- A transitory period may be established to forestall disruption in the formal operation of lands to be turned over to farmworker-beneficiaries, with the length determined by DAR.
- During the transitory period, at least one percent (1%) of the gross sales of the entity must be distributed to the managerial and supervisory group in place at the time, as additional compensation for transitory managerial and supervisory functions performed.
- The managerial/supervisory group compensation is pursuant to an agreement concluded by farmworker-beneficiaries and the managerial/supervisory group, subject to DAR approval.
Payment mechanics and separate payrolls
- Production and profit shares must be paid in cash.
- The additional compensation must be shown in separate payrolls containing:
- the employer’s gross sales and net profit,
- the total amount for distribution as workers’ production/profit shares,
- each worker’s number of paid days for the year, and
- each worker’s individual production/profit share.
Treatment of undistributed or unclaimed shares
- Unless otherwise provided by existing law, agreement, or plan, undistributed or unclaimed production/profit shares must be deposited by the employer with the nearest Land Bank of the Philippines branch.
- The deposit must be made in the name of the Secretary of Agrarian Reform for payment to the workers due.
- The employer must immediately report the deposits to the nearest DAR office and send notices to the worker-beneficiaries.
- If money remains undistributed or unclaimed after two (2) years from the date of deposit, it is deemed forfeited and must be turned over to the Agrarian Reform Fund.
Effect on existing production/profit sharing plans
- Existing production/profit sharing granted by the employer before the promulgation of Executive Order 229 and R.A. 6657 is credited as compliance with the mandated plan, unless otherwise provided by agreement, subject to DAR prior approval.
- If the existing plan’s benefits are less than the applicable amounts required by the Guidelines and Procedures, the employer must pay the difference.
- No provision permits diminution of benefits such as salaries, bonuses, leaves, and working conditions granted under existing laws, decrees, issuances, executive orders, and/or under any contract or agreement between workers and employers.
- Employers and worker-beneficiaries remain able to enter into agreements with terms more favorable to the workers.
Enforcement powers and authority
- The Secretary of Agrarian Reform or authorized representatives may order and administer compliance with production/profit sharing provisions.
- Authorized representatives may require submission of reports, compel production of books and documents, compel answers to interrogatories, issue subpoena and subpoena duces tecum, and enforce writs through Sheriffs or other duly deputized officers.
- Any violation of the Guidelines and Procedures is subject to penalties under Section 12.
Dispute resolution procedure
- Issues involving production/profit sharing are treated as Agrarian Reform issues.
- Disputes must first be settled voluntarily between the parties.
- If there is a deadlock, the dispute must be submitted for conciliation to the appropriate DAR Regional Office.
- If unresolved at the regional level, the dispute must be forwarded for adjudication to the DAR Adjudication Board.
Reporting requirements and deadlines
- Covered employers must submit a report on production/profit shares distributed, including special payrolls, under oath signed by the employer or duly authorized representatives.
- The report must be submitted not later than 30 days after completion of distribution of workers’ shares.
- The report must be submitted in two (2) copies to the appropriate DAR Regional Office.
- The report must conform substantially to the following form fields:
- Name of Establishment/Employer
- Address
- Principal Commodity Produced
- Total Employment
- Total Gross Sales/Net Profit After Tax
- Amount of Production/Profit Shares Distributed
- Number of Workers Benefitted
- Average Amount Received per Worker
- Dates of Distribution of Production/Profit Shares
- Total Undistributed/Unclaimed Production/Profit Shares
- No. of Workers with Undistributed/Unclaimed Production/Profit Shares
Penalties and sanctions
- Violations are penalized under Sections 73 and 74 of R.A. 6657 on Prohibited Acts and Omissions, and Penalties, respectively.
Separability and final provisions
- If any section or provision is declared null and void, the remaining provisions remain in full force and effect under the separability clause.