What Does The New Minimum Wage Mean For You

Malaysia minimum wage

The government has postponed raising the minimum wage to RM1,500 for companies employing less than five workers.

Originally set to be implemented on 1 January 2023, companies who employ less than five workers can now defer the raise until July 2023.

Under the gazetted Minimum Wage Order (MWO) 2022, Malaysia officially increased the minimum wage to RM1,500 for all workers starting from 1 May 2022 onwards.

The implementation of the policy will only apply to private sectors with a minimum of five workers for now, and companies are already taking action to raise their staff salaries accordingly.

Which raises the question: how will this new minimum wage affect you?

minimum wage order 2022Source: MWO 2022

The reactions from Malaysians are mixed, depending on whether you’re a SME business owner or a fresh graduate who just started looking for work.

But before we look at how this will affect Malaysians, let’s understand why it happened in the first place and what are the pros and cons.

What is the deal with Minimum Wage Order?

Believe it or not, we’ve only started implementing a nation-wide and sector-wide minimum wage back in 2013. That’s less than a decade ago!

The MWO first came to being in 2012 and was enforced on 1 January 2013. This set the minimum wage rates for West Malaysians at RM900/month and RM4.33/hour while East Malaysians were given RM800/month and RM3.85.

Before the MWO, Malaysia had the Wages Council Act 1947 which helped set the standard of salaries for workers with low pay. Unfortunately, the act had numerous issues such as wage rate not being regularly revised and having long, tedious and ad-hoc processes, among other things.

Through the MWO and the National Wage Consultative Act, the government now reviews the minimum wage every two years to ensure that workers are paid adequately, relative to the economy.

What are the pros and cons?

Raising the minimum wage has its pros and cons and there are concerns from certain parties on how it will translate into benefitting the Malaysian economy and the Malaysian workers in general.

Malaysian Employers Federation’s (MEF) executive director Datuk Shamshuddin Bardan said that the increase will only benefit foreign workers as they would send back the surplus of their salaries to their home countries instead of spending it back into the Malaysian economy.

While Federation of Malaysian Manufacturers (FMM) president, Soh Thian Lai, released a statement indicating that the new market rate will negatively affect small and medium businesses as it will result in a “steep cost increase and reverse the otherwise optimistic recovery for 2022,”.

However, Malaysia has been in dire need of a salary hike as workers are barely able to keep up with the rising costs of living. A 2018 report by Bank Negara called “The Living Wage: Beyond Making Ends Meet” highlights that a living wage in 2016 in Kuala Lumpur would need at least RM2,700 for a single adult and RM6,500 for a couple with two children.

Given the fact that in 2020, 8.8% of Malaysians are still being paid below the minimum wage of RM1,200, the enforcement of a higher minimum wage will hopefully help those within the B40 brackets and allow them to raise their standard of living.

What does the increase mean to you?

For fresh graduates and workers in general, if your salary was below the new minimum wage, then your employer should increase it to RM1,500 effective immediately. And if you’re looking for a job, the market rate will be set at RM1,500 and above within the private sector.

If you’re a business owner, then you will need to increase the salary of any employee that is below the new minimum wage immediately. The penalty for not abiding by the MWO will result in a RM10,000 fine per employee for the first offence and a daily fine of RM1,000 for continuous offence after conviction, based on the MWO 2020.

However, if you employ less than five staff within your business, then the policy only takes effect on January 1, 2023, to allow you to make appropriate preparations.

Ultimately, you need to spend your salary wisely

It might be tempting to spend that extra money on a new phone or a pair of fancy shoes, it’d be wiser for you to consider looking into investing, or getting insurance, or any other ways to manage your money.

Bottom line, the increase in minimum wage means more disposable income for workers. How you use that extra disposable income will be key in strengthening your financial well-being.

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