Increase to minimum wage effective 1 January 2019

Author: Donovan Cheah (Partner, Donovan & Ho)

www.dnh.com.my

The Prime Minister’s department has announced that the minimum wage will be increased and standardized throughout the country effective 1 January 2019. The new minimum wage will be RM1,050 per month, or RM5.05 per hour.

Currently, Peninsular Malaysia and East Malaysia have different minimum wage standards. For example, the minimum monthly wage in Peninsular Malaysia is RM1,000 whereas in Sabah, Sarawak and Labuan it is RM920, an 8% difference.  The minimum hourly wage in Peninsular Malaysia is RM4.81, compared to RM4.42 in Sabah, Sarawak and Labuan. Effective 1 January 2019, the entire Malaysia will have the same minimum wage.

As a result of this announcement, the Minimum Wages Order 2016 will have to be revoked and replaced.

The government had also previously suggested that the increase in minimum wage would be subsidized so as not to burden employers. However, in a statement issued by the Prime Minister’s department on 5 September 2018, the government has confirmed that no subsidies will be provided due to the current financial and economic situation.

What should businesses do?

As the new minimum wage will only take effect in 2019, businesses have time to adapt to the increase. The first step is for businesses to evaluate whether they have any employees who are currently earning below the new minimum wage, as changes will have to be made to their remuneration to comply with the increase.  As with the previous increase in minimum wage (which last took place in 2016), employers will generally be allowed to restructure wages of their employees before the new minimum wage comes into effect, provided:

·              the restructured basic wages shall be in accordance with the new minimum wages

·              the restructured wages shall not be less favourable than the employee’s existing wages

·         the restructured wages shall not be less than the amount of wages earned by the employee as  agreed in their current employment contract before the restructuring;

·           the restructuring only involves the payment of work done during the normal hours of work for the  employee; and

·            the employee does not end up losing any other remuneration which would normally fall under the  definition of “wages” under the relevant legislation, to which the employee would normally be entitled to.

While the increase in minimum wage may not look substantial (about 5% increase for Peninsular Malaysia), this effect could be multiplied for an employer with a large-scale work force whose wages are currently below the anticipated new minimum wage.  Businesses affected should also look into reviewing their business plans to increase revenue and productivity, and to reduce expenditure, to minimize the financial impact to their business.