Malaysia’s Prime Minister Anwar Ibrahim presented Budget 2025, on 18 October 2024, with an aim to tackle living cost issues faced by lower to middle income households.
One of the highlights of the budget was the raising of Malaysia’s minimum wage by 13% to RM1,700 from RM1,500 from 1 February 2025. Employers with less than five employees, typically considered small businesses, will be given a grace period of an additional six months to comply with the new minimum wages, from 1 August 2025.
Low-wage workers’ salaries have always been a contentious issue in Malaysia. With the government implementing measures to increase workers’ salaries, we look at how it impacts both employees and employers?
Read Also: Malaysia Budget 2025: 5 Things That Will Financially Impact Malaysians The Most
Brief History Of Minimum Wages In Malaysia
In Malaysia, the minimum wages policy was first introduced in 2014 to protect the rights of low-skilled workers and increase the income of the labour force in the country.
The minimum wages policy was gazetted under Act 732, which states that minimum wages refer to basic salaries and that employees must be paid the minimum wages set by the government for their work or services, which cannot be reduced by an individual or through mutual agreement.
In 2020, the minimum wage was set at RM1,200 for major urban areas and RM1,100 in remaining areas. The minimum wage was then increased to RM1,500 in 2023 by Prime Minister Anwar Ibrahim’s government.
Notably, Malaysia does not apply statutory minimum wages to all or the large majority of employees and restricts minimum wages to specific groups as defined by sector or profession. For example, the public sector has its own wage policies. In May 2024, it was announced that civil workers are to receive a minimum wage of RM2,000.
Increased Income For Malaysian Workers
One of the positive outcomes of raising minimum wages is that Malaysian workers will have higher earnings and increased financial ability to cope with rising costs of living.
According to EPF’s expenditure guide , an individual who uses public transport needs more than RM1,700 a month to live in major cities such as Kuala Lumpur, Georgetown and Johor Bahru. Additionally, the expenses are not inclusive of vehicle maintenance. If the costs of owning a car are included, the expenses will be even higher.
Increasing the minimum wage to RM1,700 is a good step to ensuring workers in Malaysia have appropriate income levels and can afford daily living essentials.
Reduce Poverty
By raising the minimum wage, there’s the possibility that poverty will be reduced. As more households earn more and improve their living standards, the government may not have to spend as much on cash aid.
In Budget 2025, the government allocated RM13 billion to providing cash assistance to low-income households in Malaysia.
With higher income, workers are also able to spend more. As consumer spending increases, the country’s economy will experience a boost.
Fewer Job Opportunities
For employers, the increase in minimum wage can be seen as an added financial burden to their business. In cases where the increase in minimum wage outpaces the rate of revenue increases, employers could face losses and potentially shut operations – potentially leading to decrease in job opportunities.
Employers can also view the increase in minimum wages as a morale boost for their employees. There are various positive outcomes of increasing the motivation of your staff such as lesser job turnovers and higher employee productivity.
Higher minimum wages may also see employers potentially leveraging on automation and digital solutions to replace workers. This can be both a good and bad thing though. Low-wage workers may be made redundant in certain roles, with fewer high-wage workers implementing and maintaining digital infrastructure or automated machinery.
Increased Prices For Goods And Services
At the end of the day, higher business cost will have to be passed on to consumers. This may potentially offset salary hikes.
In turn, consumer spending may potentially slow down, leading to a sluggish economy.
Progressive Wage Policy Next?
Besides increasing the minimum wage, Budget 2025 also touched on introducing the Progressive Wage Policy in 2025. The policy aims to help Malaysian workers who are earning above the minimum salary, but experience a stagnant salary growth.
The Progressive Wage Policy is a form of wage subsidy that is already adopted by other countries like Singapore, which sets basic salaries and periodic salary increments for workers.
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