What is minimum wage?

Malaysia introduced its first national minimum wage policy in 2013. Before this, market forces largely determined wage levels, resulting in disparities and exploitation in specific sectors. Introducing a minimum wage was crucial to creating a fairer and more equitable society in Malaysia.

Definition of minimum wage

Minimum wage refers to the lowest amount of remuneration that employers are legally required to pay their employees for their work. Section 2 of the Employment Act refers to the basic salary and all other cash payments to employees for their work under their employment contract.

However, certain types of payments are excluded from the definition of wages, such as:

  • Value of housing accommodation, provision of food, fuel, electricity, water, or medical attendance, as well as any approved amenity or service provided by the employer.
  • Any contributions made by the employer to pension funds (SOCS0), provident funds (EPF), and superannuation schemes.
  • Any travel allowances or the value of travel concessions provided to the employee
  • Any extraordinary expenses incurred by the employee due to the nature of their employment, such as expenses related to equipment or tools required for the job.

Law on minimum wage

The primary legislation relating to minimum wages in Malaysia is the National Wages Consultative Council Act 2011 (Act 732) (NWCCA) and the Minimum Wages Order 2020 (Wages Order).

NWCCA established a statutory body known as the National Wages Consultative Council (NWCC), which recommends the minimum wage rate to the government. This council conducts thorough research and analysis to make recommendations to the government regarding minimum wages. Its main objective is to ensure fair and reasonable wages for workers across various industries and regions in Malaysia.

Once the government approves the recommended minimum wage rate, the Minister of Human Resources issues the minimum wage and amends the Wages Order accordingly.

How minimum wage is determined by NWCC?

Now, you may wonder how this minimum wage is determined. Fair question! The process involves several factors and key stakeholders. By law, Malaysia’s minimum wage rates are reviewed at least once every two years by NWCC.

(1) Cost of living

When setting the minimum wage, the NWCC considers various factors. One of the critical factors is the cost of living. Decisions made on minimum wage must ensure that the minimum wage is sufficient to cover basic needs and maintain a decent standard of living for workers in different parts of the country.

(2) Productivity of the workforce

Another factor that is considered is the productivity of the workforce.  The minimum wage should be set at a level that is fair and reasonable, taking into account the productivity levels of workers. This means that the minimum wage should not be set too high to the point where it becomes unaffordable for businesses, but it should also not be set too low to the point where it fails to provide a decent income for workers.

(3) Current economy

The minimum wage should be set to promote economic growth and stability, and its potential impact on businesses and workers must be carefully considered when determining the minimum wage.

(4) Needs of industries

The needs of different industries and sectors are also taken into account. Some industries may have higher operating costs or require specialised skills, which can influence the minimum wage.

(5) Inputs and recommendations from stakeholders

Lastly, the views and input from various stakeholders, including employers, employees, trade unions, and government agencies, are considered during the discussion to fix a minimum wage. Engaging in a dialogue with these stakeholders helps to ensure that the minimum wage decision is well-informed and the diverse interests and concerns of different parties involved. They provide valuable insights and perspectives on the potential impact of the minimum wage on businesses and the economy.

Importance of setting a minimum wage

(1) Ensure that workers are paid a fair and decent wage for their work

Without the minimum wage, there is a risk that some employers may exploit their workers by paying them meagre wages, leading to unfair working conditions and poverty.

(2) Minimum wage helps to reduce income inequality

Many countries have a significant gap between the highest and lowest earners. A national minimum wage can help narrow this gap and promote a more equitable distribution of wealth. This can contribute to a more harmonious society and reduce social tensions.

(3) To stimulate economic growth

When workers earn higher wages, they have more purchasing power, which can boost consumer spending. Increased consumer spending, in turn, can drive demand for goods and services, leading to increased production and job creation.

(4) To improve the overall quality of the workforce.

By setting a minimum wage, the government encourages employers to invest in their employees and provide training and development opportunities. This can lead to a more skilled and productive workforce. A higher minimum wage can also attract more workers to specific industries, addressing labour shortages and ensuring the availability of a skilled workforce.

Evolution of the Minimum Wage in Malaysia

Since its introduction, the minimum wage in Malaysia has undergone several revisions and adjustments. In 2013, the initial minimum wage rate was RM900 per month for Peninsular Malaysia and RM800 per month for Sabah, Sarawak and Labuan.

These rates were revised in 2016, with the minimum wage increased to RM1,000 per month for Peninsular Malaysia and RM920 per month for Sabah, Sarawak and Labuan. This revision aimed to keep up with the rising cost of living and provide better income for workers.

In 2020, another revision took place. The rates were increased to RM1,200 per month for Peninsular Malaysia and RM1,100 per month for Sabah, Sarawak and Labuan. This adjustment ensured that workers’ wages remained competitive and sufficient to meet their basic needs.

National minimum wage in 2023

Under Order 2022, the minimum wage payable to an employee effective from 1 May 2022 was set at RM1,500 per month.

The new minimum wage rates apply to:

  1. An employer who employs five or more employees and
  2. Regardless of the number of employees employed, an employer who carries out a professional activity is classified under the Malaysia Standard Classification of Occupations (“MASCO”) as published by the Ministry of Human Resources.

However, starting from 1 July 2023, all employees are entitled to a minimum wage of RM1,500 ACROSS THE BOARD FOR ALL EMPLOYERS, regardless of sectors, regions and the number of employees. The Wages Order also set out the minimum wage rates for employees paid daily or hourly, with the hourly minimum wage being set at RM7.21 per hour.

Why does minimum wage no longer differ across industries and regions?

When minimum wage rates varied across industries, it created disparities and inequalities among workers. Some industries may have been paying significantly lower wages than others, leading to exploitation and unfair treatment of workers.

Different minimum wage rates for each industry would require complex calculations and monitoring systems. It would also create confusion and difficulties in enforcing compliance with the minimum wage law. Having a single minimum wage rate makes it easier for employers and employees to understand and comply with the law, reducing administrative burdens and ensuring effective enforcement.

Are interns entitled to be paid with minimum wage?

Interns in Malaysia are not entitled to the minimum wage. According to the order, the minimum wage rules only apply to employees who have entered into a contract of service with their employers.

Interns are considered trainees or learners undergoing practical training as part of their educational curriculum or vocational training program. As such, they are not covered under the Wages Order.

While interns may not be entitled to the minimum wage, they should still be protected from exploitation or unfair treatment. They should have a safe working environment, adhering to working hours and rest days and fair respect throughout the internship.

What if the employer fails to pay the minimum wage?

If an employer fails to pay the minimum wage in Malaysia, it is considered a violation of the law. Failing to pay the minimum wage goes against the principles of fairness and social justice and undermines the economic well-being of workers and their families.

Section 69(1) of the Employment Act 1955 empowers the Director General of Labour to investigate and decide on any issues relating to the payment of wages

If an employer fails to pay the minimum wage, several steps can be taken to report this violation.

  1. Gather the evidence. This can include payslips, bank statements, or other documentation proving the employer’s failure to comply with the minimum wage requirement.
  2. Complain to the Labour Department. The complaint can be submitted in person, by mail, or through the department’s online portal. The complaint form can be downloaded here.
  3. Once the complaint is lodged, the Department of Labour will investigate. They may request additional information or conduct interviews with the employer and the employee.
  4. After the investigation, the Department of Labour will determine whether the employer has failed to pay the minimum wage. If an employer is found to be in violation, they may be issued a warning, fined or required to pay outstanding wages.

Section 43 of the NWCCA, an employer who fails to pay the basic wages as specified in the minimum wages order to his employees commits an offence and shall, on conviction, be liable to a fine of not more than RM10,000 for each employee.

It is important to note that reporting employers who fail to pay minimum wages requires courage and determination. By taking action, employees can contribute to enforcing minimum wage laws and ensure fair treatment in the workplace.

Key takeaways

  • The minimum wage is the lowest legal wage that companies can pay their workers
  • The minimum wage in Malaysia is set at RM1,500 for all employers across all regions throughout Malaysia.
  • The minimum wage is typically reviewed and revised every 2 years to ensure that it remains relevant and reflects the economic situation.
  • Whether you are an employer or employee, it is essential to stay updated on the minimum wage rates to ensure compliance with the law and that the workers receive fair compensation for their work.
  • The government usually announces any changes to the minimum wage well in advance to allow businesses and employers to make necessary adjustments.
This content was written and reviewed by a lawyer but it does not constitute legal advice. We always recommend engaging a lawyer before taking any legal action.