Landmark case on minimum wages in Malaysia… Does it include a service charge?

The judgment, reported as Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia v Crystal Crown Hotel & Resort Sdn Bhd [2014] 3 ILR 410, reminds us of the significance of the National Minimum Wages Policy (the Minimum Wages Policy) initiated in October 2010.
In this article, we analyse the judgment, with emphasis on whether minimum wages include a service charge.

The facts: A trade dispute arose between Crystal Crown Hotel & Resort Sdn Bhd (Crystal Crown Hotel Petaling Jaya) (the Hotel) and Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran (the Union) on the issue of the salary structure of the Hotel’s employees.

The issue: The dispute began when the hotel employees had insisted for their salaries to be aligned with the Minimum Wages Order 2012 and for such wages to be separated from the 10 percent service charge imposed on the billings of the hotel’s customers.

Rationale of service charge: In Malaysia, there is no compulsory ‘tipping’. Instead, a 10 percent service charge is imposed on all bills paid by customers for the services rendered. Out of the 10 percent, 1 percent is kept by the hotel for administrative charges and the remaining 9 percent is given to the employees of the hotel. Distribution of the service charge amongst the employees is highly dependent on the type of business the hotel runs as well as the number of employees, within the scope of the collective agreement. The rationale for the introduction of the service charge is to ensure a fairer distribution of cash-tips which would usually be given directly to ‘front-line’ employees.

Minimum wages in Malaysia: The Minimum Wages Policy was announced by the Malaysian Prime Minister, Dato’ Seri Najib Tun Razak, in his budget speech on October 15th, 2010. It is one of the Government’s policy instruments vide the New Economic Model which looks to rectify the wages-setting mechanism for low-income workers.

The Minimum Wages Policy raised the basic monthly wages of all employees to a minimum of MYR900 (US$280) in Peninsular Malaysia and MYR800 (US$249) in East Malaysia¹, and was extended to foreign workers with effect from January 1st, 2014. The Minimum Wages Policy was based on a study conducted in 2009 which showed that 33.8 percent of workers in the private sector earned less than RM700 (US$217) monthly, a figure lower that the country’s Poverty Line Income (PLI) level of RM800 (US$249). One of the key goals of the Minimum Wages Policy, therefore, is to ensure that all employees in Malaysia earn more than the PLI as the country transforms into a high-income nation.

The Minimum Wages Order 2012 took effect from January 1st, 2013 for employers with more than five employees, and July 1st, 2013 for employers with five or fewer employees.

The Minimum Wages Order 2012 does not apply to apprentices² or to domestic servants³ 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.

The decision: In the Industrial Court, it was held that an employee shall be paid the minimum wages, in accordance with the Minimum Wages Order 2012, over and above the service charge imposed, and that the hotel would retain 10 percent of the total service charge imposed on all its monthly bills, with the remaining 90 percent to be fully distributed to all employees covered in relation to the award.

The court also held that every employee, with effect from October 1st 2013, should be paid according to the new outlined salary structure with the exception of part-timers, temporary, casual as well as retired employees.

Endnotes
1. Sabah, Sarawak and Labuan
2. An “apprenticeship contract” means a written contract entered into by a person with an employer who undertakes to employ the person and train or have him trained systematically for a trade for a specified period which shall not be less than two years in the course of which the apprentice is bound to work in the employer’s service.
3. A “domestic servant” means 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, washer-man or washer-woman, watchman, groom and driver or cleaner of any vehicle licensed for private use.