The Malaysian Insight

A WAGE increase comes into effect in January but employers in 57 cities and towns across Malaysia have reservations as it would affect their businesses in the current slow economy, they told The Malaysian Insight.

Employers were prepared to bite the bullet, but the Human Resources Ministry’s recent release of a list of 57 areas where the higher wage limit is applicable has not helped to clarify how the new guideline will be implemented.

Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan said he does not understand how the list was compiled as there are officially only 15 cities in Malaysia. He questioned where the other 42 “cities” came from.

Malaysia Small and Medium Enterprises (SME) Association president Michael Kang also asked how the cities were identified, and how the new minimum wage would apply if the workplace lies just outside the borders of these areas.

“These 57 areas basically cover the whole country and this is very different from the announced policy of implementing it in urban areas only. 

“The primary cities should be at least Kuala Lumpur, Penang, Johor and Malacca, and a few others. Why are Semenyih and Kajang in there too? What if a company (located in one of the 57 areas) implement the RM1,200 minimum wage but opens a branch outside of these areas?” Kang told The Malaysian Insight.

Human Resources M. Kula Segaran on December 18 announced that effective January 1, a RM1,200 minimum wage would be effective in 57 cities.

These include Kuala Lumpur, Shah Alam, Petaling Jaya, Johor Baru, Batu Pahat, Malacca city, Alor Setar, Penang city, Ipoh, Kuala Terengganu, Bentong and Teluk Intan.

In East Malaysia, the areas include Kuching, Miri, Padawan, Sibu, Kota Samarahan, Kota Kinabalu, Sandakan and Tawau.

The move was made in line with the Pakatan Harapan government’s election manifesto to gradually increase the minimum wage to RM1,500 in stages, by the end of its five-year term.

However, the last minimum wage increase was in January, to a standard RM1,100 for both Peninsular Malaysia and Sabah and Sarawak. Prior to that the minimum wage had been RM1,000 in the peninsula and RM920 in the east Malaysian states.

MEF’s Shamsuddin pointed out that the government had yet to disburse a promised subsidy of RM250 per worker monthly to the private sector to facilitate the minimum wage increase.

The incentive was announced by Kula Segaran in July 2018, whereby the government would spend an estimated RM1 billion to subsidise the private sector. However, it now appears that the subsidy would only be paid when the minimum wage has been raised to RM1,500.

“Employers have not received a single sen, they have to bear the increased costs,” Shamsuddin said.

He added that the wage increase came at a time of economic pressure on employers and will only lead to enterprises cutting more costs.

Supermarket chains such as Giant and Cold Storage are restructuring operations and have closed several outlets, he said, and the media industry is also in crisis.

He expects the export business to be among those affected by the “drastic price increases in a short amount of time” caused by the wage hike. It could also lead to another round of price hikes for goods, when businesses restock their inventories.

Additionally, Shamsuddin said the increased minimum wage would largely benefit  foreign workers who mostly take up minimum wage jobs.

Malaysia SME Association’s Kang, meanwhile, also concurred the increase would largely benefit foreign workers. Other chain reactions he said, would be higher local unemployment and higher prices of goods.

Kang said the policy was “not grounded in reality” and only looked good on paper, predicting that many SMEs are likely to undergo restructuring exercises once they find they cannot bear the increased cost.

“These think-tanks (advising the ministry) are only dealing with the theoretical, and the government did not consult employers or industry players. 

“These policies are formulated by ‘geniuses’ but they do not understand the market conditions, especially in the past two years,” he said.

A minimum wage increase should only  once every two years and not as the cabinet pleases, he added.

Socio-Economic Research Centre executive director Lee Heng Guie also said the ministry’s definition is too vague.

The boundaries are not clear and there are no specific instructions on how employers should apply the the salary hike, as some enterprises are spread out geographically.

Lee questioned, for example, how a company which has transferred an employee from headquarters in the city to a rural branch, should observe the minimum wage increase.

However, Lee also said employers must have a larger perspective and make preparations now that the government has gone ahead with implementation of the increased wage.

“Of course the new minimum wage will bring additional pressure on employers, but keep in mind Bank Negara research shows the appropriate minimum wage for workers in the city is RM2,700.

“We hope that the US-China trade war stops next year, which will help boost the global economy, and Malaysia’s economy will stabilise as a result.” – December 22, 2019.