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NEW MINIMUM WAGES LAW...

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BACKGROUND The National Minimum Wages policy ("the Policy") is one of the Government’s initiatives vide the New Economic Model which seeks 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 1 January 2014.

The Minimum Wages Order 2012 ("the previous Order") commenced on 1 January 2013 for employers with more than five employees, and 1 July 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, 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 1 July 2016. Under the current Order, the monthly minimum wages rate payable to an employee in Peninsular Malaysia have 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 Once the current Order takes effect, the previous Order and its guidelines will be repealed.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 now fixed 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’2as defined in section 2 of the Employment Act 1955, section 2 of the Sabah Labour Ordinance, and section 2 of the Sarawak Labour Ordinance.

CONCERNS The increase in minimum wages has caused divergent views amongst market players. The Malaysian Employers Federation (MEF), citing grounds like economic slowdown, increased operation costs, and high retrenchment rate, has urged the Government of Malaysia to postpone the implementation of the current Order. The Malaysian Trades Union Congress (MTUC), on the other hand, refutes such claims, stating 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.
“The government has reviewed all recommendations submitted by the National Wages Consultative Council (NWCC), and has taken a balanced approach and considered the interests of both employers and employees (before issuing the order)” - Human Resources Minister Datuk Seri Richard Riot.

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.

For further insight in this area of law, please contact our Partners:
P Jayasingam
Wong Keat Ching
Thavaselvi Pararajasingam

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