Malaysia raises minimum wage to boost productivity Malaysia raises minimum wage to boost productivity

Malaysia raises minimum wage to boost productivity
17 Nov 2017

After first implementing a minimum wage in January 2013, the Malaysian government further boosted payments as of 1 July, 2016. The move forms part of its “New Economic Model”, which aims to transform Malaysia from a middle- to a high-income economy by 2020. Officials believe that the extra costs involved for employers, particularly in the vitally important manufacturing sector, will encourage them to invest more in technology in order to increase productivity and reduce their reliance on labour-intensive practices.

It is also hoped that a minimum wage rise will inspire Malaysians to take better-paid jobs, decreasing the economy’s reliance on foreign workers in the process. Understanding this policy will be of great importance for companies in wage-sensitive industries and among firms seeking to supply consumer goods to the Malaysian market.

Understanding Malaysia’s minimum wage adjustments

Wage adjustments in line with the new law will depend on where workers are based, although there are exceptions in the case of apprentices and domestic servants. So:

• In Peninsular Malaysia, the monthly minimum wage will increase by 11% from US$223 (RM900) to US$248 (RM1,000)
• In Sabah, Sarawak and Labuan, the minimum wage will increase by 15% from US$198 (RM800) to US$228 (RM920).

Failure to comply with the new legislation will result in fines of up to US$2,544 (RM10,000) and possible jail time. These fines increase for repeat offenders.

But the minimum wage hike is not expected to substantially change current dynamics in the wider ASEAN region. Malaysia will simply continue to have higher labour costs than elsewhere – certainly well above Laos, Myanmar, Cambodia and Vietnam. The most recent increase in Malaysian wages means that its labour costs are now comparable to Thailand, and on a par with Indonesia’s higher salary ranges.

Malaysian Wages in Perspective

Country

Monthly Minimum Wage (US$)

Malaysia

228-248 (previously 198-223)

Myanmar

93

Laos

112

Cambodia

137

Vietnam

108-157

Indonesia

84-236

Thailand

225

Philippines

170-306

 

“Malaysia’s population of nearly 30 million is starting to grow in appeal to producers of consumer goods, for instance. Household consumption has more than doubled over the last 10 years.”

More important than regional dynamics, meanwhile, are the implications of the new law on the Malaysian economy. When Malaysia’s minimum wage first came into effect in 2013, nearly two million workers benefited immediately. But even in the current financial climate, with the cost of living rising and a relatively new Goods and Services Tax (GST) in place, Malaysia’s main industries will not be substantially affected. As it is, most manufacturers already pay above the new minimum wage, and are also increasingly reliant on capital-intensive production methods.

The effect of the wage hike will not be uniform across the country, however. Labour-intensive industries such as the automotive sector, for example, may experience a more significant impact as a substantial portion of their workers are paid below the new minimum.

Othe sectors on the other hand, may actually benefit from a potential rise in the number of consumers with more money in their pockets to spend. Malaysia’s population of nearly 30 million is starting to grow in appeal to producers of consumer goods, for instance. Household consumption has more than doubled over the last 10 years, hitting a record high in the 3rd quarter of 2015.

For those looking to expand into a growing ASEAN market, therefore, Malaysian minimum wage adjustments may be just the incentive they need.

-This article was first published on
ASEAN Briefing.

Since its establishment in 1992, Dezan Shira &Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.

After first implementing a minimum wage in January 2013, the Malaysian government further boosted payments as of 1 July, 2016. The move forms part of its “New Economic Model”, which aims to transform Malaysia from a middle- to a high-income economy by 2020. Officials believe that the extra costs involved for employers, particularly in the vitally important manufacturing sector, will encourage them to invest more in technology in order to increase productivity and reduce their reliance on labour-intensive practices.

It is also hoped that a minimum wage rise will inspire Malaysians to take better-paid jobs, decreasing the economy’s reliance on foreign workers in the process. Understanding this policy will be of great importance for companies in wage-sensitive industries and among firms seeking to supply consumer goods to the Malaysian market.

Understanding Malaysia’s minimum wage adjustments

Wage adjustments in line with the new law will depend on where workers are based, although there are exceptions in the case of apprentices and domestic servants. So:

• In Peninsular Malaysia, the monthly minimum wage will increase by 11% from US$223 (RM900) to US$248 (RM1,000)
• In Sabah, Sarawak and Labuan, the minimum wage will increase by 15% from US$198 (RM800) to US$228 (RM920).

Failure to comply with the new legislation will result in fines of up to US$2,544 (RM10,000) and possible jail time. These fines increase for repeat offenders.

But the minimum wage hike is not expected to substantially change current dynamics in the wider ASEAN region. Malaysia will simply continue to have higher labour costs than elsewhere – certainly well above Laos, Myanmar, Cambodia and Vietnam. The most recent increase in Malaysian wages means that its labour costs are now comparable to Thailand, and on a par with Indonesia’s higher salary ranges.

Malaysian Wages in Perspective

Country

Monthly Minimum Wage (US$)

Malaysia

228-248 (previously 198-223)

Myanmar

93

Laos

112

Cambodia

137

Vietnam

108-157

Indonesia

84-236

Thailand

225

Philippines

170-306

 

“Malaysia’s population of nearly 30 million is starting to grow in appeal to producers of consumer goods, for instance. Household consumption has more than doubled over the last 10 years.”

More important than regional dynamics, meanwhile, are the implications of the new law on the Malaysian economy. When Malaysia’s minimum wage first came into effect in 2013, nearly two million workers benefited immediately. But even in the current financial climate, with the cost of living rising and a relatively new Goods and Services Tax (GST) in place, Malaysia’s main industries will not be substantially affected. As it is, most manufacturers already pay above the new minimum wage, and are also increasingly reliant on capital-intensive production methods.

The effect of the wage hike will not be uniform across the country, however. Labour-intensive industries such as the automotive sector, for example, may experience a more significant impact as a substantial portion of their workers are paid below the new minimum.

Othe sectors on the other hand, may actually benefit from a potential rise in the number of consumers with more money in their pockets to spend. Malaysia’s population of nearly 30 million is starting to grow in appeal to producers of consumer goods, for instance. Household consumption has more than doubled over the last 10 years, hitting a record high in the 3rd quarter of 2015.

For those looking to expand into a growing ASEAN market, therefore, Malaysian minimum wage adjustments may be just the incentive they need.

-This article was first published on
ASEAN Briefing.

Since its establishment in 1992, Dezan Shira &Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.

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