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Friday, 28 September 2012

Malaysia's minimum wage saga continues

AFTER all the debate between proponents and opposers and the accompanying fanfare which dragged on for years, the Human Resources Minister finally issued an order in July 2012, declaring that Minimum Wages need to be paid from January 2013.

While the intention was to ensure that all employees will be paid a certain minimum salary, RM900 in peninsular Malaysia, the way in which the order was worded has created problems and headaches for employers, not so much for those who are not paying the minimum wage of RM900 currently, but for employers whose current remuneration package for employees is far above that of RM900.

The blame for this rests squarely on the formulators of the law and the order.

This is further compounded by the recent issuance of so called “Guidelines – method of implementation of the Minimum Wages Order 2012”.

The National Wages Consultative Council Act, (the Act) under which the Minimum Wage Order has been promulgated, states that “wages” has the same meaning as that found in the Employment Act 1955.

“Wages” as defined in the Employment Act 1955 means basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but does not include the listed exclusions.

However, the Act has also provided a definition for “minimum wages”, to mean, the basic wages to be or as determined under the order made by the Minister under Section 23.

Section 24(2) of the Act goes further to state that where the basic wages in an employment contract is lower than the minimum wage rate as specified in the Minimum Wages Order the minimum wage rate (RM900) shall be substituted for the ‘basic wage’ in the employment contract.

There are many employers, who for a variety of reasons, provide a low basic wage but top up the remuneration package with a variety of other payments such as commissions, allowances, service charge, shift allowance and other payment in cash.

In many instances, the calculation of the additional payments are based on the current “basic wage”.

At the end of each month, these employees earn much more than the minimum RM900.

Often employers fix a low basic wage but pay high rates for other payments, the calculation of which, as mentioned earlier, is sometimes linked to the basic wage. They do so to encourage productivity.

They are not short paying their employees but that is how the wage payments are structured in the country with each industry having its own peculiar structure.

Many instances can be cited where employees paid as much as RM1,500 or even more per month.

The Minimum Wages Order requires that the “basic wage” be now moved up to RM900.

The introduction of minimum wages was never intended to affect these good employers but to compel the ones who pay below RM900 to raise the wages of their employees to a minimum level of RM900 per month.

The Minimum Wages Order in Para 6, however, goes on to suggest that employers and employees and where trade unions exist, could go about and re-negotiate a restructuring of wages before the coming into force of the order.

How on earth are employers, who do not have a union, going to go about this renegotiating with their employees? What if they disagree?

Would any employee or trade union in the right frame of mind agree to raise his current basic (which is lower than RM900) to the new figure of RM900 (thereby helping the employer to conform with the requirement of the Minimum Wages Order) and permit all the other benefits that he is receiving (which is related to the basic) to be lowered so that the end result is that he is placed at a position, (in terms of total remuneration received at the end of the month ) no different than the original amount that he is currently receiving?

The Minimum Wages Order has indeed created confusion in the labour market and that is putting it very mildly. Fortunately, the order comes into force only in January 2013, giving time for corrective measures.

In an attempt to provide some clarity and explanation to this confused state of affairs, the National Wages Consultative Council exercising the powers provided under Section 4(2) of the Act has decided that apart from the matters contained in the Minimum Wages Order 1212 it shall issue some guideline relating to the method of implementation of the order.

Nowhere in Section 4(1) (which refers to the functions of the council) are powers given to it to elaborate, explain, modify or issue guidelines relating to the method of implementing the Minimum Wages Order issued by the Minister under Section 23(1).

If at all the council wants to make any recommendations it could exercise the provision under Section 22(1)(e).

In such an instance it has to make its recommendations to the Government through the Minister.

The Minister, if he agrees with the recommendation, can then issue an order as provided for under Section 22(1). .

Clearly, the drafting of the Minimum Wages Order could have been done much more professionally bearing in mind the objective of the introduction of the minimum wage law.

It is still not too late to remedy the situation and help relieve the unnecessary turmoil the vast majority of employers are now facing.

Up till now so much management time has been lost trying to find answers to the hundreds of questions raised by law abiding employers in the different industries for which no one in the ministry has been able to provide clear-cut answers.

Needless to say, any law enacted must be simple, well drafted, easy to understand and achieve what it is set out to do.

If it creates problems, especially for those who ought not to be affected by it, then something is fundamentally wrong with it.


Related posts:

 Malaysia's minimum wage, and its implications
Malaysia's Minimum wage's benefits and effects
Are Malaysian Employment Laws Challenging?
What's minimum wage in Malaysia?

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