About Malaysia’s Minimum Wages Policy
Background of Minimum Wages Policy in Malaysia
The National Minimum Wages initiative was announced by the Prime Minister in his Budget Speech on 15 October 2010. It is one of the Government’s policy instruments vide New Economic Model (NEM) to ensure inclusiveness and sustainability by the year 2020. The policy is meant to ensure employees can meet their basic needs and create the necessary environment for industries to move up their value chain.
Minimum wages according to Act 732 is basic wages, excluding any allowances or other payments.
A study conducted in 2009 showed that 33.8% of workers in the private sector earned less than RM700 per month, relative to the country’s Poverty Line Income (PLI) level of RM800. One of the objectives of the Minimum Wages Policy is to ensure that all employees in Malaysia earn more than the PLI, in line with the mission to become a high-income nation.
The implementation of the Minimum Wages Policy supports Malaysia’s ambition to become a high-income nation by setting a floor wage for all employees in Malaysia. Given the significant number of employees in the country who earn less than the minimum wages, the new initiative is expected to boost gross national income.
The Minimum Wages Policy would encourage employers to move up the value chain by increasing the productivity of their employees by using technology and other innovations.
The establishment of a floor wage for all employees in Malaysia would also ensure that all layers of the Malaysian society enjoy the fruits of development, which in turn will further spur the economic activity.For more information, please consult our FAQ.
The objectives of Minimum Wages Policy are as follows:
(i) ensuring the basic needs of workers and their families are met;
(ii) providing sufficient social protection to workers;
(iii) encouraging industry to move up the value chain by investing in higher technology and increase labour productivity; and
(iv) reducing the nation’s dependence on unskilled foreign labour.
The World Bank study concluded that a minimum wages rate of less than RM1,000 per month or RM4.81 per hour would not significantly affect firms, employment, foreign direct investment or migrant flow into the country. Extra money would boost private consumption.
According to Bank Negara Malaysia (BNM), the minimum wages policy “is expected to have a positive impact on the Malaysian economy”. BNM anticipates that the impact on cost of business will be minimal as it will be mitigated by improvements in productivity.
“Generally, the low-wages households tend to have a higher marginal propensity to consume, hence the increase in the income of the affected employees will result in higher consumer spending and generate economic activity.”
The Government recognises that Malaysian employers may face challenges as they adjust to the new wages policy. Despite this, the policy represents a step in the right direction for Malaysia as it joins the ranks of some 150 countries with minimum wages policies already in place.
The National Wages Consultative Council (NWCC) was established under National Wages Consultative Council Act 2011 [Act 732] on 28 September 2011. The role of the Council is to undertake research on all matters related to minimum wages and to make recommendations of minimum wages to the Government. The NWCC consists of:
- Deputy Chairman
- Employee members
- Employer members
- Public officers
- Other members