Basics of minimum wage

IN late 2013, the Barisan Nasional government determined the minimum wage rates of RM900 for Peninsular Malaysia and RM800 for Sabah (Labuan) and Sarawak. These rates were then enforced as “basic” wage as per the definition of minimum wages in Section 2 of the National Wages Consultative Council Act (NWCC Act) and the requirement of Sections 24, 43 and 44.

There was a long debate over whether the amount of RM900/ RM800 should be construed and enforced as “basic” wage or as “total” wages.

Ultimately, the government went ahead to enforce RM900/RM800 and RM1,000/RM920 from 2017 as basic wage, disregarding Section 23 of the NWCC Act, which requires the National Wages Consultative Council (NWCC) to recommend to the government and for the government to determine minimum wage rates (and not minimum “basic” wage rates).

Against this backdrop, in November 2013 on the invitation of the Association of Hotel Employers of Peninsular Malaysia, I presented a talk titled “Implementing an Optimal Minimum Wage Policy in Malaysia – Pitfalls and Remedies” at their Labour Law Conference.

In my presentation, I submitted that the minimum wage rates of RM900/RM800 determined by the government in 2013 were “total” wages. I extended copies of my presentation to the World Bank which had advised the previous government on implementing an optimal minimum wage policy in Malaysia, the International Labour Organisation, Human Resources Ministry and the Malaysian Employers’ Federation to seek their views.

Within three days, Ximena V. Del Carpio, on behalf of the World Bank, responded, stating that the World Bank had recommended that the government of Malaysia remained within the range of RM700 and RM900 in total wages in order to prevent negative effects on the employment sector.

Del Carpio observed that the government opted to remain within the recommended range but applied the amount to basic pay rather than total pay, thereby making the total pay well above the recommended rate.

He advised that the RM900/ RM800 rates be construed as “total” pay in order to make the minimum wage rate policy enforceable.

According to a World Bank study on wage systems in Malaysia, “wages” in this country include a “basic” wage plus 11% to 19% cash benefits, which vary between regions. The current minimum wage rates of RM1,000/RM920 determined by the previous government for the three regions include the basic wage plus 11%– 19% of the total minimum wage rate (RM1,000/RM920) or about RM100 to RM200 per worker per month as cash benefits.

This means that minimum wage earners in Malaysia, who number over a million across the regions, would be receiving as minimum wages RM1,000/RM920 (total wages) plus a further amount of between RM100 and RM200 as cash benefits.

The overpayment of between RM100 and RM200 per worker per month for over one million workers will amount to no less than one billion ringgit per year. The aggregate amount for four years since 2014 would be between RM4bil and RM5bil.

Is this overpayment of billions of ringgit to minimum wage earners at the expense of consumers, society, the national economy and national development justified or necessary?

Definitely not. It will run counter to the new government’s economic policy of curtailing wasteful expenditure and saving the country from foreign debts, economic chaos and stagnation.

Hence, the Pakatan Harapan government needs to review the minimum wage legislation (the NWCC Act) and its implementation and adopt remedial measures.

In this context, I am happy to say that following my representations to the Human Resources Ministry and discussions with the relevant officers there, it was agreed that the minimum wage rates determined under Section 23 of the Act, as per the recommendations of the NWCC based on the following formula, are “total” wage rates and not “basic” wage rates:

Minimum wages = Average of (PL1/1.2 + median wages) where PLI represents the total wages or earnings of a family and median wages represents an average of the total wages or earnings of workers.

I have proposed that the Human Resources Ministry consider amending the definition of minimum wages in Section 2 of the Act and enforce minimum wage rates determined under Section 23 of the Act as “Total Wages”. The minister announced in Parliament recently that the Cabinet would be considering the revision of the minimum wage rates.

RAM THIAGARAJAH International Labour Consultant Kuala Lumpur