The current minimum wage of RM1500 per month dates back to May 2022. Recent news, especially on wage hikes in the public sector and an announcement by the Human Resources Minister, YB Steven Sim, has caught the attention of many employers. It is now clear to many employers that a new minimum wage would most likely be tabled in the next parliamentary sitting which is scheduled for September 2024.
While we understand that this is a highly anticipated announcement, we urge employers to pro-actively embrace this speculation rather than to adopt a ‘sit and wait’ approach. We’ve listed down some suggestions for your consideration:
Why now. The heavy stuff first – can a new minimum wage be announced? Under s.25 of the National Wages Consultative Council Act 2011 (Act 732), the Council shall review the Minimum Wages Order at least once in every two years. This period could be longer or shorter based on a directive from the Government. Historically, no minimum wage orders have been introduced before the end of the 2-year mark. Come September 2024, the current minimum wage rate of RM1500 (per month) would’ve been in force for 2 years and 4 months therefore it is highly likely that a new rate would be introduced soon.
Please also note that the Act does not specifically provide the quantum for increase. It merely provides that any increase shall be based on socioeconomic indicators, upon consultation with the public.
Budgets
While we are uncertain of what’s to come, (some sources are reporting RM1800 per month while others are saying it could be RM2000 per month) it is prudent for employers to re-budget or simulate cost impact based on the rumoured increase. In your simulation, please be advised to consider the following:
Increase to basic salary
Overtime
Any other payments based on the calculation of ordinary rate of pay (ORP), i.e. payment for work done on a rest day, public holiday
Any other benefit payments that is derived from base pay
Building blocks to the next couple of months While working with some of our clients, we’ve managed to identify that some sectors, predominantly labour-intensive ones, could experience a cost increase of up to 40%.
If you are required to consider contingency plans due to the cost impact of a new minimum wage rate, you should start building blocks with alternatives being considered without having to wait for the official announcement. Some examples, non-exhaustive, would include:
Freeze the re-hiring of leavers until the announcement is made, if operation permits
Re-design job grades and salary scales based on multiple simulation
Re-strategize your workforce based on the increased cost
Determine if a reorganisation is necessary, if so, you can start strategizing
Hold on to any increment or bonus announcements, if time permits
Implement other cost-cutting measures to cater for the unavoidable increase in minimum wages
For unionised companies currently undergoing final stages of collective bargaining, factor in the consideration of the wage increase and seek agreement with the trade union for holding on until the announcement is made
Impact of new minimum wage to other employees Minimum wage increase has brought about a snowballing set of challenges because a base rate increase is inevitably associated to an across-the-board increase.
In our experience, merely a base rate increase would bring about challenges especially for employees one (1) or two (2) ranks above the base rate. These employees have served the company for a longer period but will soon be receiving an equivalent amount to employees who have just joined the company. (or to someone of a lower rank)
In the previous years where the minimum wage rate was increased, companies usually project for an equivalent adjustment in percentage (%) to employees in different categories to ensure that this problem is attended to.
As such, we highly recommend for employers to study the dynamics of your respective workforce and if need be, adjustments should be lined-up accordingly.
Progressive Wage Policy (‘PWP’) Employers are also wondering if the progressive wage policy is the new minimum wage. The Ministry has made it clear that currently, these are two (2) separate programs, and the progressive wage policy is still undergoing a trial period, with a thousand (1000) employers on board.
In short, the progressive wage policy is currently a program where employers are required to comply to wage guidelines (based on positions listed in MASCO) and upon fulfilling the required conditions, the Government will provide an incentive to the employer for any adjustments rendered. The wage guideline is comprehensive, and we encourage employers to utilise this ready-made report to conduct a general benchmark against current internal practices. This guide can be accessed below. Please note that this is not an indication of the upcoming minimum wage announcement since the PWP is a currently a separate program. We are providing this link for general benchmarking purposes only.
We are compiling questions and challenges that you may face with the implementation of the new minimum wage. If you provide us with an input, we will be able to generate more insights which we will re-circulate to you in future. Access the link here.
All the above resources, including the printable version (PDF) of this post and the salary guide, are now available at our Download Center.
Form for questions and challenges here. Click here
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