Background
In Malaysia, the National Minimum Wages initiative (the Policy) was first introduced and announced by the Malaysian Prime Minister Dato’ Seri Najib Tun Razak in his budget speech on October 15, 2010. The Policy is one of the government’s policy instruments vide the New Economic Model which looks to rectify the wage-setting mechanism for low-income workers.
The Policy raised the basic wages of all employees to a minimum of MYR900 in Peninsular Malaysia and MYR800 in East Malaysia (comprising the states of Sabah, Sarawak and the Federal Territory of Labuan), and was extended to foreign workers beginning January 1, 2014. Minimum wages is basic wages without any allowances or other payments.
The Minimum Wages Order 2012 (the previous Order) commenced on January 1, 2013 for employers with more than five employees, and July 1, 2013 for employers with five or fewer employees. At the same time, guidelines were issued by the National Wages Consultative Council in September 2012 to facilitate the enforcement of the previous Order.
Recent developments
In October 2015, the Malaysian Prime Minister (who is also the Finance Minister), in his Budget 2016 (the Budget) speech, revised and announced a higher rate of minimum wages for employees in Peninsular Malaysia and East Malaysia. The changes are aimed at increasing the participation of local workers and thus reducing the dependence on foreign labour in Malaysia.
Following the passage of the Budget in November 2015, the Minimum Wages Order 2016 (the current Order) was promulgated and will come into operation on July 1, 2016. Under the current Order, the monthly minimum wages rate payable to an employee in Peninsular Malaysia has been increased from MYR900 to MYR1000, while the monthly rate of minimum wages enjoyed by employees in East Malaysia is now MYR920, from the previous MYR800. Once the current Order takes effect, the previous Order and its guidelines will be repealed.
Application
The application of the current Order is extended to employees who are paid on the basis of piece rate, tonnage, task, trip, or commission. The minimum rate of monthly wages for such employees is set at a minimum amount of MYR1000 for those in Peninsular Malaysia, and MYR920 for employees in East Malaysia. However, it shall be noted that the current Order does not apply to a ‘domestic servant’ as defined under section 2 of the Employment Act 1955, section 2 of the Sabah Labour Ordinance and section 2 of the Sarawak Labour Ordinance.
A domestic servant, as defined, is a person employed in connection with the work of a private dwelling house and not in connection with any trade, business, or profession carried on by the employer in such dwelling house and includes a cook, house servant, butler, child’s nurse, valet, footman, gardener, washerwoman, watchman, groom and driver or cleaner of any vehicle licensed for private use.
Concerns
The raise of minimum wages has caused divergent views amongst the market players. The Malaysian Employers Federation (MEF), citing grounds like economic slowdown, increased operation cost, and high retrenchment rate, urged the government of Malaysia to postpone the implementation of the current Order. The Malaysian Trades Union Congress (MTUC), on the other hand, refuted such claims and viewed that the enforcement of the current Order will not contribute to retrenchment and closure of businesses. In fact, they argue that the increment would help employees cope with the cost of living and also serve as an incentive for employees to be more productive.
Conclusion
Despite disagreements over the introduction of a higher rate of minimum wages, optimists say that the current Order will boost the income of Malaysians and improve the economy of the nation.
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Zul Rafique & Partners
Dato’ Zulkifly Rafique
