IMPLEMENTATION MINIMUM WAGES IN MALAYSIA

If an army encamps close to water and grass with adequate supplies, it will be free

from countless disease and this will spell victory. – Sun Tzu

The saying implies the army as a country, while the general as a country’s

government. This means that if we want our country to grow in the economy sector,

governmental intervention is unavoidable to provide a suitable environment where it can

reduce poverty and provide social protection to vulnerable employees and eventually boost

up a nation economy.

There are three major mechanisms that will determine the wages of workers in the

private sector, which are Wages Council Act 1974, Collective Bargaining and market forces.

Actually the Wages Councils Act 1974 and Collective Bargaining do not provide a decent

standard of living and cover only a small number of employees in Malaysia. But in reality,

wages in Malaysia mostly are determines by market forces.

Minimum wages concept had been introduced to this world over a century. This

concept was originated in New Zealand back in 1984 and then it spread out to various

countries subsequently. Then, this concept was followed by Australia in 1899 and later by

United Kingdom in 1909. Until now, there are more than 90% of the countries in the world

implementing minimum wages in various modal.

In Malaysia, according to Section 2 of National Wages Consultative Act 2011 (Act

732), minimum wages means basic wages and all other payments in respect of his contract of

service but does not include the value of any house accommodation, employer’s contribution

to any retirement scheme, any travelling concession, any sum payable to the employee to

defrays special expenses entailed on him by the nature of his employment, any gratuity

payable on discharge or retirement, or any annual bonus or any part any annual bones.

Whereas, the International Labour Organisation (ILO) refer to minimum wages as a

form of ‘safety net’ meant to secure employees a reasonable basic standard of living. Besides,

minimum wages is also meant to protect the low-skilled employees against exploitation and

possibly as one of the many tools by the government to reduce poverty and inequality in the

labour market in respect of wage distribution. Income gap is also a kind of social problem

that should be eliminated from the society.

Prime Minister of Malaysia – Datuk Seri Najib Tun Razak announced the minimum

wages initiative in his Budget Speech on Oct 15, 2010. After 3 years, Malaysia had joined

League of Nation implementing minimum wages in 2013. The policy is meant to make sure

employees can meet their basic needs and create the necessary environment for industries to

move-up their value chain by increasing the productivity of their employees through the use

of technology and other innovations.

Within these 3 years of preparation to implement minimum wage, Human Resources

Ministry (MoHR) had endeavour to implement this policy with full conviction by having

discussions and consultations with various stakeholders, evaluate the implementation of

minimum wages in several countries, and thoroughly perused and studied all the feedback

and input by the Minimum Wages Technical Committee and also afterwards deliberated at

great length by the National Wages Consultative Council before being determined

conclusively by the Government.

Wages Council Act 1947 (Act 195) is the first legislation related to minimum wages,

although the implementation of the act more on a sub-sectorial and occupational basis but the

function of the act is also established to fix legal minimum wages for sub-sectors which had

identified as vulnerable and with low-paying salary.

The underlying principle of Act 195 was the tripartite arrangement where

Commissions of Inquiry (COI) are represented by an equal number of employees and

employers. Several wages regulation orders were gazetted for selected occupations only.

Since Act 195 had its fault where mechanism provided to establish minimum wages was

long, tedious and generally ad hoc in nature. As a consequence, the Act found its demise in

2011 when it was substituted by a more comprehensive legislation known as the National

Wages Consultative Council Act 2011 (Act 732).

The Government realised that minimum wages should only be implemented after

consultations with social partners. Act 732 mandates the formation of National Wages

Consultative Council (NWCC) which is a tripartite council consisting of representatives of

employees, employers, government and other independent experts to undertake research on

all matters relating to minimum wages and to make recommendations on minimum wages to

the Government. Once approved by the Government, the Human Resources Minister makes

the Minimum Wages Order.

It is not easy to get consensus on minimum wages from employers’ and employees’

organisations in the NWCC. So, the Government have to immediately find out a ‘win-win’

solution for them. By the way, the Government had to ensure that the minimum wages set at

a proper level to avoid backfire of the employers and the national economy.

The Technical Committee on Minimum Wages in charge of do all the background

work and studies and providing invaluable information to the council to make an ‘informed

decision’. It is important to note that the statistical indicators only represented a reference

point for deliberations in NWCC, what was more evident in the council was the extensive

‘spirit of tripartism’ amongst the employers’ and employees’ representatives. After numerous

meetings and deliberations, both parties had came up with a significant compromises and

adjustments.

After all these years, only now Malaysia decided to adopt a national level statutory

minimum wages policy. The real push to implement minimum wages was due to the nation’s

leadership resolve that by year 2020, Malaysia is to become a high-income economy as stated

in Vision 2020. To achieve this vision, wages at the bottom have to be lifted up, businesses

have to transform by moving up by investing in higher technology to increase labour

productivity and reduce the nation’s dependence on unskilled foreign labour.

Within these contexts, everyone must be questioning why the wages did not increase

in tandem with the increase in the inflation and cost of living. There is no exactly answer to

this question. The minimum wages policy is essential for employees as it assists to ensure

wage increases are in line with the cost of living, as a result of those enabling employees to

afford basic necessities. Whereas in the perspective of employers, this policy should stimulate

them to invest in higher technology by moving up their value chain and reduce dependency

on foreign labour in the long run. For the Government, this policy is expected to transform

the economy from a labour-intensive to a capital-intensive economy through mechanisation

and automation and help the nation to develop into a high-income economy by 2020.

The Minimum Wages Order 2012 had been effective from Jan 1, 2014 for employers

with 6 employees and above and for employers with 5 employees and fewer. However, this

order is not applicable to domestic servant.

Before this, the orders had allowed the employers to apply for deferments, while the

deferments were decided by the tripartite committee and should be seen as a measure to give

some breathing space for certain employers who needed some time to revisit their business

model and wages structure. After all, the deferments had expired on Dec 31, 2013.

There were some quarters are appealing to the Government to adopt and implement a

minimum wages packages to foreign employees in which non-wages components. However,

Government think that it is fair enough to have the same standard applies to all neither local

employees nor foreign employees. In addition, implementing a separate minimum wages

package to foreign employees would be against the existing provision in the labour

legislations as well as not conforming to international labour standards.

Since the first day of 2014, the Labour Department throughout the country has been

instructed to fully enforce the Minimum Wages Order 2012 and they will be visiting

employers’ premises to make sure full compliance of the Order. All employers are urged to

willingly accept this policy as part of the nation’s transformation agenda and carry out it

accordingly as the penalty for non-compliance is hefty and it includes custodial sentence for

repeated offences. Besides, the court can also order the employer to pay each employee the

difference between minimum wages rate and the employee’s basic wages.

Lately, the Government launched a dedicated portal on minimum wages in order to

effectively spread out information on minimum wages to enable all parties to get accurate

information by accessed at www.minimumwages.mohr.gov.my. The Minimum Wages

Secretariat and the Performance Management and Delivery Unit (Pemandu) are recently on a

nationwide engagement session to organise minimum wages clinics. The response has been

encouraging.

It must be true that the minimum wages policy will need employers to revisit their

existing business model and wages structure in their establishments. It has to be underlined

that the implementation of the policy is in the best interests of all stakeholders, and is one

behind another with the Government’s push to raise the income of the employees and to drive

productivity.

The Government acknowledge the existence that some Malaysian employers may

confront challenges as they adjust to new wages policy. In spite of the minimum wages

policy represents a step in the right direction of Malaysia as join the ranks of some 150

nations with minimum wages policies already in place.

Think globally, as Malaysia having the same status of country as China which is

developing country. We found out that in the implementation of minimum wages, both

countries had set different standard of minimum wages according to the standard of living of

local condition. In Malaysia, there are only two standards of minimum wages which are RM

900 minimum wages for Peninsular Malaysia and RM 800 minimum wages for Sabah,

Sarawak and Federal Territory of Labuan. Whereas in China, there is also has more than one

minimum wages standard. But in contrast, even in a same district but it can divide the district

into several categories from first class (most urbanized area) to forth class (least urbanized

area). For instance, in Guangdong the minimum wages are 1010 RMB, 1130 RMB, 1310

RMB and 1550 RMB respectively depends on the class of area, while in Macau there is no

minimum wages applied.

Furthermore, Malaysia had unified the implementation date for minimum wages all

over the nation on Jan 1, 2014. But as for China, different district has its own implementation

date which is not unified. For instance, the minimum wages effective of Guangdong was May

1, 2013 and Shenzhen was February 1, 2014. The effective date of implementation of

minimum wages can be have a difference of one year. In this case, we can understand that for

a large country like China is relatively more difficult to implement this policy.

In the way towards succeed, there must be a lot of obstacles that make you think

about what is the next step you have to choose. As a reference, in the implementation of

minimum wages of China, there were 7 areas hikes for increasing the rates of minimum

wages. These 7 areas are Beijing, Shanghai, Tianjin, Chongqing, Shaanxi, Shenzhen and

Shandong. Hikes bring no productivity in terms of products. We should appreciate that there

are no hikes incurred in Malaysia, because it only will reversely make the low or unskilled

worker towards unemployment.

As remind, minimum wages policy does not make vulnerable employees more

productive, more experienced, or more desirable. But minimum wages act as an instrument

that can force employers find a way out by taking the initiatives to develop its business

infrastructures where it can lead to the development of an area and employees will keep

improving themselves to keep marketable under this policy.

Finally, the implementation of Minimum Wages in Malaysia is part of the journey

towards becoming a high-incoming economy and we should work together to achieve our

Vision 2020 with dedication and integrity.