Malaysia Increases Minimum Wage from May 1, 2022: What are the Implications for Businesses?
Malaysia increased the national monthly minimum wage from May 1, 2022, by 25 percent from 1,200 ringgit (US$273) to 1,500 ringgit (US$341). The National Wage Consultative Council Act 2011 obligates the government to review the minimum wage every two years. The last time the minimum wage was reviewed and increased was on February 1, 2020.
A long-awaited increase
The wage increase will only apply to businesses in the private sector that have five employees or more.
Human Resources Minister Datuk Seri M. Saravanan has said that the government is prepared to give leeway to businesses that have less than five employees, for one year. This can be extended upon approval from the Prime Minister. As such, employers who have less than five employees will have to pay the 1,500 ringgit minimum wage from January 1, 2023.
However, an employer whose business activities is classified under the Malaysia Standard Classification of Occupations (MASCO) must also pay the 1,500 ringgit (US$341), regardless of the number of employees they have.
The new minimum wage equates to:
- 57.69 ringgit (US$13.13) per day for employees working six days per week;
- 69.23 ringgit (US$15.76) per day for employees working five days per week; and
- 86.54 ringgit (US$19.70) per day for employees working four days per week.
The minimum wage for city council or municipal council areas
For an employee whose place of employment is located in a city council or municipal council, their monthly minimum wage is 1,200 ringgit (US$273). This is applicable from May 1, 2022, to December 31, 2022.
This equates to:
- 46.15 ringgit (US$10.51) per day for employees working six days per week;
- 55.38 ringgit (US$12.61) per day for employees working five days per week; and
- 69.23 ringgit (US$15.76) per day for employees working four days per week.
Bad news for the economy or a timely increase?
Businesses, particularly manufacturers and small and medium-sized enterprises (SMEs), have argued that the increase in Malaysia’s minimum wage is too soon and steep and could dampen economic recovery as many companies have yet to fully recover from the pandemic to absorb the costs. However, the pandemic has hit different industries disproportionately, with some such as the digital economy thriving. As such, the consensus surrounding the minimum wage increase was mixed.Businesses have stated that given the rising external risks emanating from the lockdowns in China, the Russia-Ukraine crisis, labor shortages, and surging raw material and commodity prices, the wage increase is ill-timed. Further, many businesses, especially SMEs, are still dependent on government subsidies, and once these end, the additional burden of paying increased salaries could hamper economic recovery.
Meanwhile, workers’ wages took a hit during the pandemic, with the median wage falling by 13 percent to 1,894 ringgit (US$436) from 2,185 ringgit (US$503) in 2020. Thus, the government’s planned increase could restabilize the wages of workers at the bottom half of the pay scale. Moreover, Malaysia’s central bank has called for a progressive rollout of the minimum wage to prevent disruptions to the economy.
A possible political move?
Critics of the government say the planned minimum wage increases have political motives as the government of Prime Minister Ismail Sabri Yaakob is expected to hold general elections at the end of 2022.
Malaysia’s minimum wage became a topic in political campaigns in 2018, when the Pakatan Harapan coalition, headed by Mahathir Mohamad, pledged to increase the minimum wage to 1,500 ringgit (US$345) within its five-year administration term in a bid to attract working-class voters. However, the government only managed to raise the minimum wage once in 2020 to 1,200 ringgit (US$276), but only in 56 city and municipality councils. The minimum wage in non-city and town areas was set at 1,100 ringgit (US$252). However, internal conflict between political parties resulted in the Mahathir-led government lasting only 22 months, after which Muhyiddin Yassin became Prime Minister in a new coalition. His government, lasted less than 18 months, making him Malaysia’s shortest-ruling leader.
- Incentives and Financing Schemes for Businesses Under Malaysia’s Budget 2022
- New Tax Measures Impacting Businesses and Individuals in Malaysia’s Budget 2022
- Tax Incentives for Pharmaceutical Manufacturers in Malaysia: How Can Businesses Qualify?
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, Munich, and Essen in Germany, Boston, and Salt Lake City in the United States, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at firstname.lastname@example.org or visit our website at www.dezshira.com.