Malaysia introduces minimum wages framework

On 1 July 2011, the Malaysian Parliament passed new legislation to establish a framework for the implementation of minimum wages throughout Malaysia.

The National Wages Consultative Council Act 2011 (the Act) establishes the National Wages Consultative Council and a framework for the establishment of minimum wages in Malaysia. The Act extends to all employees covered by existing regional employment statutes but does not extend to apprentices.
The adoption and implementation of minimum wages under the new framework is subject to a lengthy process of public consultation, research, Ministerial and Council recommendations and Government approval. Once adopted, a minimum wage order need not apply universally to employees or employers in Malaysia. It may be limited in scope (eg by sector, employment type, region or class of person). It can also come into effect at different times for different employers.

Employers’ minimum wage obligations

Once a minimum wage order has been made:

• any lower wage rate specified in a contract of service to which the order applies will be substituted by the minimum wageset out in the order, and
• any employer who fails to pay the minimum wage to employees covered by the order may, on conviction, be fined up toRM10,000 per employee, in addition to compensating the employee for any difference in wages and other entitlements which are calculated by reference to the basic wage.

Criminal sanctions may also be imposed for repeat offenders.

Directors, senior managers and other corporate officers may be liable for offences under the Act committed by their company unless they can show, having regard to all the circumstances and the nature of their functions in the company that:

• the offence was committed without their knowledge, consent or connivance, and
• they took all reasonable precautions and exercised due diligence to prevent the commission of the offence.

Implications for employers

Given the complexity of the minimum wages process, it is likely to be some time before minimum wages come into effect for many low income employees in Malaysia. Employers of low income workers in Malaysia can take advantage of opportunities for participation in the public consultation regarding the minimum wage rates. Following the adoption of a minimum wage order, directors and senior management should be aware of the potential for personal liability for an employer’s breach and ensure that there are adequate procedures in place to ensure compliance.