Malaysia's Minimum Wage Order

As part of a drive to become a high income country by 2020, Malaysia has implemented a nationwide minimum wage policy. HRM finds out how employers are coping with the increased costs of labour and compliance

All employers in Malaysia are now required to pay minimum wages to their staff, with Minimum Wages Order 2012 taking effect from January 1 this year.

The new legislation has raised basic wages of all employees to a minimum of RM900 a month in Peninsular Malaysia and RM800 a month in Sabah, Sarawak and Labuan. Failure to do so will result in a RM10,000 (US$3,009) fine.

According to the International Labour Organisation’s (ILO’s) Global Wage Report 2012/13, minimum wages have been implemented in various forms in more than 90% of world’s labour markets.

Malaysia’s neighbour, Singapore, does not implement minimum wage but has rolled out a progressive wage model for occupations in ‘traditional’ industries, such as those employing carpenters, electricians, plumbers and cleaners (see boxout). The idea is to ensure that these skills are not lost when the current generation of workers retires.
Impact on employers
While the Malaysian government believes the minimum wages policy represents a step in the right direction, it recognises that some employers will face challenges as they adjust to the new regime, Datuk Seri Zainal Rahim Seman, Secretary-General of Malaysia’s HR Ministry says.

Employers can no doubt expect higher labour costs. According to Bank Negara Malaysia, on average, affected workers in Peninsular Malaysia are expected to receive a 33% increase in wages, while those in East Malaysia would be given a 38% increment.

Datuk Shamsuddin Bardan, Executive Director of the Malaysian Employers Federation (MEF) says that small and medium enterprises (SMEs) are facing up to a 60% increase in labour costs because of the minimum wage. He notes that this is in addition to the increase in the retirement age from 55 to 60 on 1 July last year.

In the short run, the minimum wage policy may subject firms to higher costs, especially those that have been highly dependent on low-wage workers, says Sashikala Devi, Senior Marketing Manager of Kelly Services Malaysia. “This could result in adjustments through several possible means, including by absorbing the increased cost through a reduction in margins, increasing productivity, reducing the overall costs through improved efficiency, and reducing the total amount of labour used,” she explains.

Firms may also pass on some of the increase in costs to consumers, although this may not be feasible in markets where firms face strong competition. “For the more labour-intensive and financially-constrained firms, immediate adjustment to the policy may result in cost-cutting or, where applicable, cost-passing measures,” says Devi.

However, any adjustment to employment as a result of the minimum wage policy in Malaysia will likely be temporary. With a relatively tight labour market already in place, dislocated workers are expected to be quickly reabsorbed into the workforce.

“Indeed, job vacancies have been on an increasing trend in Malaysia since 2004, while our unemployment rate has remained consistently low, with a historical average of 3.3% over the recent two decades,” says Devi.
Not all employers have been impacted by the new Minimum Wage order.

For instance, out of Maybank’s over 26,000 staff in Malaysia, only four non-clerical staff were earning below the now wage floor. “As at December 31, 2012, their salaries were adjusted to meet the minimum requirement,” says Nora Abdul Manaf, Group Chief Human Capital Officer, Maybank.

The minimum wage policy also had little impact on OCBC Bank (Malaysia), with all employees already earning above the minimum wage, Cheah Syn Yeam, Head – HR, OCBC Bank (Malaysia), said.
Time to implement changes
The Minimum Wages Order 2012 was gazetted on July 16 last year, to be effective from the start of 2013 for employers with six employees or more with smaller businesses receiving an extra six months for the law to take effect.

The Order also allowed employers to apply for deferments, and as of September 10 last year, a total of 1,044 deferments have been given to individual employers. For SME employers, deferments were also given in respect to their foreign employees.

The deferments were granted by a special tripartite committee, and aimed to give some breathing space for certain employers who needed some time to revisit their business model and wage structures. Most of the deferments expired at the end of last year, with the new laws now enforceable across the economy.

Still, some employers feel they have not been given enough time to implement the minimum wage.

“The time given to employers to implement wage changes was too short, especially for SMEs,” says Shamsuddin. “While the intention was to move up the value chain, employers have not been given enough time to rally resources and increase productivity.

“Employers suddenly face increased operating costs while employees get paid more for doing the same work without any increase in productivity,” he adds.

Shamsuddin says wages are a contentious labour issue. “For instance, a line manager may feel that their subordinate is earning very close to themselves after the Minimum Wage Order has kicked in. The manager might now want a raise and this can cascade upwards within the organisation,” he explains.

“Ultimately, the best way is to leave wages to market forces.”
Higher wages, higher productivity?
The minimum wage policy provides incentives to organisations undertaking productivity-enhancing measures. Companies may have to tweak how they measure the performance of employees and will also be encouraged to automate operations or acquire newer technologies that could enhance productive capacity.

“In view of the fact that the minimum wage policy is envisaged to be a positive step towards promoting higher-valued added economic activities and higher skills job (in addition to its aim to encourage a fairer-wage structure), the policy is further complemented by other productivity-enhancing measures, such as the provision of training to up-skill workers, improvements in the quality of education, and the facilitation of investment in automation and advanced technology,” says Devi.

“These are and will continue to be executed with government and institutional support, as well as proper supervision and enforcement – ensuring that the minimum wage policy is well-positioned to realise its goals,” she adds.

Some employers will also outsource functions that are not the core business of their organisations, says Shamsuddin. “Others freeze hiring and consider not replacing those employees who are leaving the organisation naturally,” he adds. “Employers across the country are looking to become leaner.”

Maybank has always inculcated a performance-based culture in line with its 2009 transformation objective. The comprehensive approach, from target-setting based on internal and external benchmarking and dashboard tracking, through to individualised interventions like the internal Career Transition Programme, continues to be intensely monitored, and is becoming an institutionalised discipline in Maybank.

“We track amongst others, revenue per headcount, profit per staff cost, and of course, employee engagement and organisational climate,” says Nora. “Employees are then actively recognised for their good performance under the bank’s Total Rewards and Staff Engagement strategy.”

Maybank’s reward and recognition strategy is competitively benchmarked, and goes beyond simple cash incentives. “We have continuously made concerted efforts to ensure our staff productivity performance ratio is moving in the desired direction as we optimise our workforce by increasing the value of jobs and effectively deploy our staff with right capabilities and competence,” says Nora.

The bank’s comprehensive development programmes equip its people with the knowledge, confidence, and skills to excel. Staff are strongly encouraged to learn new skills for both professional and personal growth and Maybank invests considerable resources to strengthen employees’ competencies in areas that support the Group’s development plans.

Maybank’s productivity trends continue to improve and employee engagement indices continue to remain high. The Bank was recently recognised as the first and only Asian organisation in the top 25 list of Towers Watson Global High-Performing Organisations.

“Recognitions such as this continue to motivate and spur our 46,000 staff across the 20 countries we operate in,” says Nora.
Foreign workers not left out
The Minimum Wages Order applies equally to all employees, including foreign staff. According to the MEF, this will be a boon to some two million low-paid foreign workers in Malaysia.

However, some quarters are appealing to the government to adopt and implement a separate minimum wages package for foreign employees in which non-wage components, such as accommodation, are factored into the calculations of basic wages, says Devi.

“The government does not think it is a wise move to have a separate minimum wages package for foreign employees as we should not discount their (foreign employees) immense contribution to the Malaysian economy,” Devi counters.
“By doing so, not only would we end up doing an injustice to the foreign employees who are present on our shores, we would also be going against the existing provisions in the labour legislations (and) not conforming with international labour standards,” she adds.

Still, foreign worker levies have changed due to the implementation of minimum wages in Malaysia. Previously, the collection of levies for foreign workers (introduced in 1992) was fully borne by the workers. In 2009, the Malaysian government decided to shift the burden to their employers. The 2009 decision was to control a ballooning population of foreign workers in the country at the time.

“The additional cost to employers to implement the national minimum wages policy for foreign workers is around RM8.4 billion annually,” says Shamsuddin. To ease this burden, MEF proposed that foreign workers be required to pay the levy instead of their employers.

“Today, with the full force implementation of the minimum age policy, employers in Malaysia have welcomed the move, saying the burden of paying the levy should now rest with the employees,” says Devi.

She adds that the levy of between RM34.16 and RM154.16 per month is lower than the expected increase in salary for low-paid foreign workers as a result of the minimum wage. Those previously on the lowest wages can expect up to RM500 per month extra.

Comparative minimum wages in Asia
Country/CityUS$ per day
China (Shanghai)$4.00
Indonesia (Jakarta)$6.31
Hong Kong$28.87*
Malaysia (Kuala Lumpur)$9.81
South Korea$31.8
Philippines (Manila)$9.72
Vietnam$3.20 ($3.76 in Hanoi and Ho Chi Minh City)

*The minimum wage in Hong Kong is now HK$30 per hour, as per the Hong Kong Labour Department


Singapore sets basic wages for cleaners

Singapore’s Progressive Wage Model is considered an “evolved” wage model. It is more than just ensuring a minimum wage for each worker. Rather, the worker gets paid according to his or her level of skill and productivity, and has the opportunity to upgrade skills in order to climb the wage ladder.

From September 2014, all Singaporeans cleaners will receive a compulsory basic wage of S$1,000 per month, up from $850 per month. Skill upgrades, such as learning to use motorised equipment, will allow cleaners to command higher wages of about S$1,400 a month. Those who are promoted to supervisory roles can make even more, about S$1,600 per month.

A similar requirement for standard starting pay and the Progressive Wage Model is also being worked out for the security industry, as issues of low basic wages and long overtime hours are rife in that sector.

A voluntary Progressive Wage Model for carpenters in the furniture industry includes an apprenticeship scheme that will train 180 Singaporeans. The scheme hopes to attract and grow the pool of local skilled workers, which will comprise about 20% of the furniture industry as a whole. Trainees will be paid a salary of S$1,500 during the six-month period.
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