This article first appeared in Forum, The Edge Malaysia Weekly on December 23, 2024 - December 29, 2024

The National Wages Consultative Council Act 2011 requires the government to review the minimum wage order at least every two years. With the gazette­ment of the Minimum Wage Order 2024, the Minimum Wage Order 2022 will be revoked.

The 2024 order introduces the revised minimum wage rate from RM1,500 to RM1,700 with general implementation from Feb 1 next year. For businesses with fewer than five employees, the government has allowed a six-month grace period, giving them until Aug 1, 2025, to comply with the order.

The order has excluded its applicability to domestic servants as defined under the Employment Act 1955 and related ordinances. However, it will apply to non-citizen workers in the private sector. According to the frequently asked questions on the Minimum Wage Order prepared by the National Wages Consultative Council secretariat, the policy cannot discriminate against any worker on the grounds of nationality, in line with Section 69F of the Employment Act 1955 and the International Labour Organization’s Equal Remuneration Convention (No 100), which has been ratified by Malaysia.

It is worth noting that employers are required to pay the minimum wage even if an employee agrees to be paid a lower basic wage. Any employer who fails to pay their employees the basic wage as specified in the order commits an offence and shall, on conviction, be liable to a fine of not more than RM10,000 for each employee in accordance with Section 43 of the National Wages Consultative Council Act 2011.

Employers should review their financial situation and adjust their budgets to accommodate higher labour costs. This may involve reallocating resources from other areas or seeking ways to optimise operational expenses. Companies should streamline processes and enhance productivity to counterbalance the increased wage costs. This could include investing in technology, improving training and reorganising workflow to ensure greater efficiency.

Many companies still rely on outdated manual processes that unnecessarily complicate daily operations. Employers can focus on training and upskilling their workforce to enhance overall productivity and justify the higher wage costs. A well-trained, efficient workforce can help companies stay competitive and reduce financial strain.

Employers must prepare to align with the new minimum wage requirements by reviewing and adjusting their payroll systems to ensure they reflect the updated rates. Employers should assess their current pay structures to ensure they comply with the new minimum wage requirements. For smaller businesses, planning for the August 2025 transition is crucial to ensure a smooth adjustment and compliance with the new regulations.

Lawmakers expect the implementation of the minimum wage to enhance local workers’ income. Increasing the minimum wage puts more money in the hands of low-wage workers, which can stimulate consumer spending and boost the economy towards achieving high-income nation status.

However, when the minimum wage increases, businesses may struggle to cover the higher wages and some might even close down if they cannot absorb the extra costs. For businesses that compete globally, particularly in industries with low profit margins, higher labour costs can erode their competitiveness, especially if their competitors in other countries benefit from lower wage standards. Businesses will likely increase their prices to maintain profit margins, which in turn will contribute to overall inflation. This could erode the purchasing power of both workers and consumers.

While increasing the minimum wage may be a well-intentioned measure, we must not overlook the potential negative impact it could have on the country’s overall economy.

Leonard Yeoh is a partner and Pua Jun Wen is a senior associate with law firm Tay & Partners

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