By: Eugenia Lotova
Since first implementing a minimum wage in January of 2013, the Malaysian government further increased minimum wage payments to workers as of July 1, 2016. This is part of the government’s New Economic Model, which aims to make Malaysia a high-income economy by 2020. Officials believe that the extra cost to employers will encourage a shift towards increase in productivity and investment in technology, thereby reducing reliance on labor-intensive manufacturing practices.
In addition, a rise in the minimum wage may inspire Malaysians to take jobs with increased salaries and decrease the Malaysian economy’s reliance on foreign workers. Understanding this policy will likely be of great importance for wage sensitive industries as well as companies seeking to supply consumer goods to the Malaysia market.
Understanding Malaysia’s Minimum Wage Adjustments
With the passing of the new wage law, adjustments will be dependent on the location where workers are employed:
- In Peninsular Malaysia, the monthly minimum wage will increase from US$ 223 (RM 900) to US$ 248 (RM 1000), which is an 11 percent increase in the monthly minimum wage.
- In Sabah, Sarawak, and Labuan, the minimum wage will increase by 15 percent from US$ 198 (RM 800) to US$ 228 (RM 920).
Exceptions to the minimum wage increase will, however, be applied in the case of apprentices and domestic servants. Failure to comply with the new law will result in a fine of up to US$ 2,544 (RM 10,000) and possible jail time. Fines will be increased for repeat offenders.
Regarding its impact on regional competition, the wage hike will not substantially change the current dynamics in the ASEAN fold. Malaysia will simply continue to have higher labor costs within the region – well above Laos, Myanmar, Cambodia, and Vietnam. The increase in Malaysian wages means that the country’s minimum labor costs are now comparable to Thailand and within the higher range in Indonesia.
Implication for Investment
More important than regional dynamics are the implications of the new law for the Malaysian economy. When Malaysia’s initial minimum wage came into effect in 2013, nearly 2 million workers immediately benefited. However, even in the current financial climate, with rising costs of living and the relatively new Goods and Services Tax (GST) in place, Malaysia’s main industries will not get substantially affected. As it is, producers within the manufacturing industry pay wages that are above the new minimum wage, and increasingly rely on capital intensive manufacturing methods.
Yet, protection from rising wages will not be uniform across the country. The automotive industry, for example, may see more significant ramifications as a substantial portion of its workers are compensated at a rate that will now be below the new minimum wage.
Despite the negative outlook for the auto industry and other sectors utilizing labor intensive production, some companies may actually benefit from expansions to Malaysia’s consumer base that will likely result from increased wages. Malaysia’s population of nearly 30 million is an appealing target for producers of consumer goods. Household consumption has been on the rise—more than doubling in the past 10 years and reaching a record high in the 3rd quarter of 2015. For those looking to expand into a growing ASEAN market, Malaysian minimum wage adjustments may be just the catalyst needed to tip the balance in its favor.
Support from Dezan Shira & Associates
With the implementation of this wage law, it is important to consider the possible impact on your business operations in Malaysia. The professionals at Dezan Shira & Associates have the knowledge to help you successfully adapt your organization to Malaysia and ASEAN’s fast changing climate. For further support, please don’t hesitate to contact a specialist at email@example.com.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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