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Minimum Wage in Malaysia

As of 2023, the minimum wage in Malaysia was increased to RM1,500 per month for private sector companies employing at least five workers. This policy change represents a significant step towards enhancing the financial security of workers in the country, as well as promoting greater economic growth and development. It is worth noting, however, that employers with fewer than five workers have been allowed to defer the implementation of the new minimum wage rate until July 2023.

Minimum wage in Malaysia has evolved over the years, with the introduction of the Minimum Wage Order (MWO) in January 2013. This policy was aimed at improving the welfare of workers in the country, ensuring they receive fair compensation for their labor. The MWO has undergone several updates since its inception, with the latest change taking place in 2022.

Key Takeaways

  • Malaysia introduced the Minimum Wage Order in 2013 to ensure fair compensation for workers.
  • The current minimum wage in the country stands at RM1,500 per month for firms with at least five employees.
  • Smaller businesses with fewer than five workers are permitted to defer the new minimum wage implementation until July 2023.

The Concept of Minimum Wage

Definition and Purpose

Minimum wage can be defined as the lowest basic wage guaranteed by law, which aims to put a floor under the wages of a particular subgroup of the working population, specifically the working poor. The main objectives of a minimum wage policy include addressing efficiency issues in labour markets, promoting productivity growth, and reducing poverty or inequality. In the context of Malaysia, the minimum wage regulations have undergone significant changes in recent years, with the goal of striking a balance between improving the standard of living for workers and fostering sustainable economic growth.

Minimum Wages Order 2022

The Minimum Wages Order (MWO) in Malaysia was first introduced in January 2013, setting the minimum wage rates at RM900.00 per month (or RM4.33 per hour) for Peninsular Malaysia and RM800.00 per month (or RM3.85 per hour) for Sabah, Sarawak, and the federal territory of Labuan. In an effort to continuously improve the minimum wage policy, the Malaysian government periodically reviews and updates the Minimum Wages Order to accommodate the changing economic environment and labor market needs.

Mean monthly salaries and wages (2011-2020)

In recent years, the Malaysian government has continued to focus on adjusting the minimum wage policy to benefit workers and the economy. With the Minimum Wages Order 2022, Malaysia aims to provide a more comprehensive and efficient minimum wage system that covers a broader range of sectors and workers in the country. By doing so, Malaysia is taking active steps towards addressing the various challenges faced by its workforce and businesses while promoting fairness within the labor market.

Malaysia Mean monthly salary and wages across sectors and skills
Mean Monthly Salary and Wages Across Sectors and Skills - Department of Statistics, Malaysia

The concept of minimum wage in the Malaysian context is an essential policy tool that addresses various labor market challenges and seeks to strike the right balance between improving the standard of living for workers and fostering sustainable economic growth.

Historical Overview

Origination of the Minimum Wage

The concept of minimum wage in Malaysia was established with the implementation of the National Wages Consultative Council Act 2011. This led to the introduction of the first Minimum Wage Order (MWO) in January 2013, which enforced minimum wage rates of RM900.00 per month (or RM4.33 per hour) for Peninsular Malaysia and RM800.00 per month (or RM3.85 per hour) for Sabah, Sarawak, and the federal territory of Labuan. It is important to note that RM900 back in 2013 had a present-day value of RM1,037.68, according to the Malaysian inflation calculator.

Chronology of minimum wage malaysia
Chronology of Minimum Wage in Malaysia, National Human Resource Center Malaysia

Important Amendments Over the Years

The Malaysian government is committed to reviewing the national minimum wage every 2 years to ensure a fair and balanced approach for both employers and employees. In February 2020, the national minimum wage was adjusted to RM1,200 per month for urban districts and RM1,100 for rural districts.

As part of the ongoing efforts to provide an equitable income for the workforce, the government introduced another significant amendment in May 2022. The national minimum wage was increased by 25 percent to RM1,500 for businesses operating in the private sector with five or more employees. However, employers with less than five staff members also experienced a change in their minimum wages, which was set at RM1,500 per month starting from July 1st, 2023.

Over the years, the Malaysian government has demonstrated its steadfast commitment to ensuring a fair minimum wage system for its ever-growing workforce. These various amendments and reviews are geared towards creating a more balanced and inclusive environment for both employers and employees.

Current Minimum Wage Status

Current Rate

The current minimum wage in Malaysia varies by district. For urban districts, the minimum wage is set at RM1,200 per month, while for rural districts, it is RM1,100 per month. This wage rate translates to RM5.77 per hour for employees working in areas under city councils or municipal councils.

Changes in 2023

In May of 2022, the Malaysian government announced an increase of 25 percent in the national minimum wage, setting it at RM1,500 for businesses operating in the private sector. This new minimum wage came into effect on 1 May 2022. However, for employers with less than five employees, the implementation was initially delayed until 1 January 2023. Businesses and employees must be aware of this change and adapt accordingly in 2023.

Payment Structures

Hourly Rates

In Malaysia, the minimum wage for private sector employees was raised to RM1,500 (≈$347) per month, effective from January 1, 2023. The Minimum Wages Order 2022 also outlined minimum wage rates for employees paid on an hourly basis. These rates play a critical role in ensuring fair compensation for workers, enabling them to sustain themselves and their families.

For employers who pay their workers on an hourly basis, the minimum wage is calculated using the rate of RM7.21 per hour, according National Human Resource Centre. This rate is significant for part-time employees and casual workers, ensuring that they receive a just compensation for their labor.

Task-Based and Commission-Based Wages

In addition to hourly wages, Malaysian workers can also be compensated using task-based or commission-based wages. These payment structures vary as they are determined by the completion of specific tasks, trips, or projects, or by the amount of revenue generated.

For task-based wages, employees are often paid based on piece rate, tonnage, or the number of trips completed. This payment system is suitable for employees working in industries such as manufacturing, transportation, or delivery services. Their earnings will depend on their work output and productivity rather than the number of hours worked.

Commission-based payment structures are common in sectors like sales, real estate, and financial services. In this arrangement, employees earn a percentage of the revenue they generate for the company. The commission percentage can vary depending on the employee’s performance, experience, and the nature of the product or service being sold.

In both task-based and commission-based wage structures, it is crucial for employers to ensure the employees’ total earnings meet or exceed the minimum wage set by the Malaysian government. Compliance with the minimum wage regulations not only ensures just compensation for workers but also fosters a more equitable and inclusive workforce in Malaysia.

Classification of Occupations

The Malaysia Standard Classification of Occupations plays a significant role in the country’s labor policies, including the minimum wage guidelines. Occupations within the Malaysian workforce are classified by the Malaysia Standard Classification of Occupations (MASCO), which is officially published by the Ministry of Human Resources. This classification system helps to standardize and provide a better understanding of the different professions and job positions, ensuring fair salary allocations and benefits for employees.

Malaysia classification of occupations
Malaysia Classification of Occupations 2020 - MASCO

Professional activities are an essential part of the labor market, and the MASCO classification covers various fields. These activities include administrative, managerial, technical, and labor-intensive roles. Within each category, there are specific subcategories, making it easier to identify and differentiate between skilled workers and trainees or entry-level employees.

Malaysia Occupational classification per activity
Malaysia Classification of Occupations Titles 2020 - MASCO

MASCO is a critical tool for employers to ensure compliance with the minimum wage laws in Malaysia. This is especially true for employers carrying out professional activities under the MASCO classification, as the new RM 1,500 minimum wage applies to them regardless of the number of employees under their care. This aims to protect the rights of skilled employees and workers, ensuring that their wages are fair and competitive within the market.

The importance of the Malaysia Standard Classification of Occupations cannot be understated for both employers and employees. In addition to providing a better understanding of the workforce landscape, the classification system ensures a transparent and equal pay structure across various occupations. As a result, it is a crucial aspect of Malaysia’s labor policies and plays a vital role in maintaining the country’s economic growth and social stability.

Economic Impact

Inflation and Standard of Living

The implementation of a new minimum wage may influence the inflation rate in Malaysia. By increasing the minimum wage to RM1,500, the government aims to improve the standard of living for low-income workers. However, some argue that raising the minimum wage may lead to increased inflation as businesses adjust their prices to cover higher labor costs. As a result, the purchasing power of consumers might be affected, potentially negating any improvement in their standard of living.

Effects on Unemployment Rate

When it comes to unemployment, there are different opinions on how a higher minimum wage would affect the job market. On one hand, a higher minimum wage could potentially increase the unemployment rate, as employers may choose to hire fewer workers or replace them with automation to minimize labor costs. On the other hand, the higher wage might encourage more people to enter the workforce, potentially increasing the overall employment rate. As noted in the Minimum Wage Guide for 2023, it is crucial to analyze the balance between social welfare and the economic growth of Malaysia to determine the rates of unemployment.

Malaysia unemployment rate 2023
Malaysia Unemployment Rate, August 2023 - Department of Statistics Malaysia

Impact on Businesses

The new minimum wage in Malaysia has different effects on businesses, especially SMEs (small and medium-sized enterprises). Some businesses might struggle to absorb the higher labor costs and may have to make operational adjustments, like reducing employee benefits, cutting hours, or increasing prices. Others, however, might benefit from a more motivated and productive workforce, as higher wages can lead to improved employee satisfaction. For larger corporations, the impact may be less significant due to their ability to adopt automation and streamline processes.

While the new minimum wage policy in Malaysia offers various benefits to workers, the impact on inflation, unemployment, and businesses must be carefully considered and monitored. Further research and analysis will be necessary to fully understand the long-term effects and adjust policies accordingly.

Minimum Wage Comparison

Minimum Wage in Surrounding Countries

Malaysia’s minimum wage of RM1,500 (≈$347 per month) is slightly higher than many of the countries that surround it. In comparison, Vietnam has a minimum wage of VND4,680,000 per month (≈$200 per month). Meanwhile, Thailand’s minimum wage is THB354 per day (≈\$225 per month), and Indonesia stands at IDR4,900,000 per month (≈\$323 per month). Cambodia has a minimum wage of KHR823,111 per month (≈$200 per month).

Asia-Wide Perspective

Taking a broader perspective, Singapore does not have a mandatory minimum wage but does have sector-specific minimum wages for certain industries such as cleaning and security services. In contrast, countries like South Korea have a considerably higher minimum wage, with KRW8,720 per hour (≈$7.26 per hour) as of 2023.

On the lower end, countries such as Myanmar and Bangladesh have minimum wages much lower than Malaysia, with monthly wages of MMK4,800 per day (≈$2.68 per day) and BDT8,000 per month (≈$94 per month), respectively.

Comparison with Germany

When compared to European countries like Germany, Malaysia’s minimum wage appears considerably lower. Germany has a minimum wage of €9.60 per hour (≈$10.84 per hour). This stark difference highlights the varying economic conditions and wage policies between the two regions.

Taken together, it is clear that minimum wages vary greatly across the region and globally. Factors such as economic development, cost of living, and workforce composition all contribute to these differences.

Policies and Regulations

Empowering the Workforce

The Malaysian government aims to empower the workforce by implementing a fair and sustainable minimum wage policy. In 2022, they conducted a biennial review of the minimum wage, resulting in significant changes. The national minimum wage for private sector employees was raised to RM1,500 (≈$347) per month. This increase in compensation helps foster a more inclusive economy and encourages workers to participate in the labor market.

Another recent policy development is the Progressive Wage Model. Approved in 2022, this model promotes higher wages and career progression for employees in various sectors. It aims to address wage stagnation and ensure that workers receive fair compensation for their efforts, while contributing to overall productivity and economic growth.

Exemption Policies

Despite the minimum wage policies, there are some exemptions provided to specific establishments and individuals. For instance, city council and municipal council employees may be excluded from the mandatory minimum wage requirements. Furthermore, certain businesses and sectors can request temporary exemptions from compliance with the minimum wage regulations. These exemptions are granted on a case-by-case basis and upon consideration by the relevant authorities.

It’s essential to understand that these exemption policies are in place to facilitate the smooth implementation of minimum wage regulations across Malaysia. By allowing certain employers to apply for exemptions, the government can strike a balance between protecting workers’ rights and supporting businesses’ economic stability.

Challenges and Issues

Unresolved Issues

Despite the recent increase in the minimum wage in Malaysia, there remain several unresolved issues. One of the main challenges is the potential impact on businesses, especially small and medium-sized enterprises (SMEs). Some employers have expressed concerns that higher wages might lead to increased costs, which could be passed on to consumers and result in rising inflation.

Another issue is the debate surrounding the balance between social welfare and economic growth. Proponents of the minimum wage argue that it helps to alleviate poverty and provide a better standard of living for low-income workers. However, opponents argue that artificial wage increases may lead to higher unemployment rates, stagnating job creation, and a decline in GDP growth.

Poverty and Low-Income Workers

The minimum wage policy in Malaysia aims to address poverty and improve living standards for low-income workers. However, the policy’s effectiveness in achieving these goals has been questioned. For example, a study revealed that over 70 percent of working graduates in Malaysia earned below RM2,000 per month, indicating the presence of a significant underemployed population.

Some critics argue that minimum wage increases may not be sufficient to address the complex issues associated with poverty, such as unequal access to education, healthcare, and social services. Therefore, a comprehensive approach that incorporates various targeted policies and measures may be required to effectively address the needs of low-income workers and create a more equitable and inclusive economy.

Looking Forward

Future Policies and Adjustments

As Malaysia continues to progress economically, it’s important to closely monitor and anticipate changes in minimum wage policies. The Malaysian government has already made efforts to increase the minimum wage to RM1,500 per month, effective from May 1, 2022. Employers and employees must stay informed about any potential future adjustments, as these changes can affect living standards, business operations, and the overall economy.

While it is expected that future policies will take into account various factors, such as inflation and regional disparities, it’s also crucial for the government to ensure that any adjustments are carefully considered, striking a balance between the interests of both workers and employers. This may involve engaging with stakeholders, such as trade unions and business associations, to take into account the diverse needs of different sectors of the economy.

Long-Term Implications

In the long-term, an appropriate minimum wage policy can contribute to reducing income inequality and improving the overall welfare of workers in Malaysia. By providing a decent living wage, Malaysia can attract and retain skilled workers, fostering economic growth and global competitiveness.

However, it’s essential to recognize that the minimum wage alone cannot address all the challenges faced by Malaysian workers. It should be accompanied by other policies aimed at enhancing workers’ skills, education, and overall employability. This would ensure that Malaysia’s workforce remains adaptable, innovative, and ready to embrace future opportunities.

Maintaining a sustainable and competitive economy also entails finding the right balance between the benefits of a higher minimum wage and the potential downsides, such as increased labor costs and reduced job opportunities. Integrating these considerations into long-term policymaking can set Malaysia on a path toward a more equitable and prosperous future for all of its citizens.

Conclusion

In Malaysia, the implementation of minimum wage policies has a significant impact on the workforce, businesses, and the national economy. This can be seen through the consistent efforts of the Malaysian government in adjusting minimum wage rates, such as the recent increase from RM1,200 to RM1,500 in March 2022. These regulations contribute to the promotion of social welfare and regional economic stability in the country.

The Minimum Wage Order (MWO) system has been in place since January 2013, with an initial rate of RM900.00 per month (or RM4.33 per hour) for Peninsular Malaysia and RM800.00 per month (or RM3.85 per hour) for Sabah, Sarawak, and the federal territories. Over the years, these wages have been adjusted periodically, reflecting the government’s commitment to addressing disparities and keeping up with the evolving economic landscape (National Human Resource Centre).

However, there are concerns regarding the potential consequences of wage increases on employment rates and foreign investments. Research indicates that a 10 percent increase in the minimum wage can lead to a decrease in employment, particularly within the younger demographic, by 1 to 3 percent (PDF source). Furthermore, raising the minimum wage might deter foreign investments, slowing down the country’s economic recovery (Lexology).

In summary, while the Malaysian government strives to implement minimum wage policies that benefit the nation, careful consideration must be given to the potential impacts on employment rates and foreign investment.

If you are a global company interested in hiring in Malaysia who needs to know the effect of minimum wage laws,  it is worth taking advice from a Professional Employer Organization or Employer of Record to ensure you are on the right track. 

 

Frequently Asked Questions

The current minimum wage rate for full-time workers in Malaysia is RM1,500 (≈$347) per month, following the adoption of the Minimum Wages Order 2022. This applies to private sector employees and represents a significant increase in compensation.

The Minimum Wages Act has led to the establishment of a standardized minimum wage across the nation, ensuring that workers receive a fair compensation for their labor. This has generally increased salary expectations, as employers are now required to meet at least the minimum wage level, thereby contributing to better living standards for the workers and their families.

Factors that influence minimum wage adjustments in Malaysia include addressing the basic needs of workers and their families, providing sufficient social protection for workers, encouraging industries to invest in higher technological equipment and increase labor productivity, and reducing the country's dependence on foreign labor. These factors are considered by the relevant authorities when reviewing and updating the minimum wage policy every two years, as seen in this National Human Resource Centre article.

Exemptions from the minimum wage legislation may be granted on a case-by-case basis. However, the general principle is that all employees are subject to the minimum wage requirements, regardless of their employment status or sector.

Previously, Malaysia's national minimum wage varied between urban and rural districts. In 2020, the rates were RM1,200 per month for urban districts and RM1,100 for rural districts, as mentioned in this joinhorizons.com article. However, with the introduction of the Minimum Wages Order 2022, the minimum wage has been standardized at RM1,500 for private sector employees across all Malaysian states.

The minimum wage for part-time workers in Malaysia is calculated on an hourly basis, based on the minimum wage for full-time employees. The exact figure may vary depending on the accepted or agreed-upon working hours for part-time employment in specific sectors or organizations.

Travis is a global business development advisor. He has spent the last 14 years supporting business establishment and development in North America, Southeast Asia, and throughout the world. With multiple degrees from the University of Oregon, Travis currently splits his time between the US, and Bali, Indonesia. At RemotePad, Travis writes about remote work, hiring internationally and PEO/EOR business models.

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