Malaysia to kick off Progressive Wage Policy project in June 2024

The policy, applicable to eligible workers earning RM5,000 and below, aims to combat the existing economic structural challenges faced in the country.

As part of the Malaysian Government's efforts to overcome labour market structural problems through wage reform, Minister of Economy Rafizi Ramli has announced that the country will be kickstarting its Progressive Wage Policy next year.

Speaking in Parliament on Thursday (30 November 2023), Minister Rafizi said the policy is set to take effect from June 2024 and aims to achieve Malaysia’s goal of increasing the salary of employees whilst simultaneously increasing their productivity levels.

Minister Rafizi shared in a Facebook post that the Progressive Wage Policy proposal whitepaper has been presented to and passed unanimously by Members of Parliament.

The whitepaper includes six chapters that explain the salary issues faced in Malaysia, as well as a proposal for a progressive wage model, implementation strategy, expected impact and governance structure, and implementation timeline.

Excerpts of the whitepaper are as follow:

How Malaysia’s proposed Progressive Wage Policy will be:

Basic characteristics

Voluntary

The implementation of the Progressive Wage Policy is not mandatory and will not be part of any new Act. Companies interested in adopting the Policy can be voluntarily registered through the online application system. Only 'Progressive Wage Employers' will be considered for incentives and must meet the specified conditions.

Incentive-based

The Government will help to finance the cost of those participating in the Policy.

Productivity-related

Having a productivity-based system aims to ensure equality between employers and employees and address the anxiety of many employers, which is that salary increases must go hand in hand with the increase skill level and productivity of workers.

Companies participating in the Progressive Wage Policy need to provide documents confirming that the employee has attended and completed certain skill improvement courses and training that are recognised by the Government to increase productivity. The Progressive Wage Policy will also be able to encourage companies to continue to increase investments in technology and automation to boost productivity.

Progressive Wage Policy mechanism

The Progressive Wage Policy will have a mechanism which will cover three main criterias, namely participation conditions, recommendations annual salary increases and incentives according to the rate and group of employees. Companies participating in this policy must meet all requirements set to qualify for the receipt of cash incentives.

Conditions of Participation

Companies wishing to register as a 'Progressive Wage Employer' need to meet the following conditions:

1. Registered with the Companies Commission of Malaysia (SSM), Department of Registration of Malaysian Organizations (ROS), Parties Local Authority (PBT), or other organisations;
2. Not government-related companies and multinational companies;
3. Incentive claim only for local employees;
4. Employees must hold a full-time position service contract (contract of service) or contract for service (contract for service) for a period of more than three years;
5. Employees receive a monthly salary that does not exceed the salary limit will be determined by the Implementation Executive Committee on Progressive Wage Policy before joining, and
6. 'Progressive Wage Employers' are required to report the salary information of employees involved in this policy online. The implementation of this policy is focused on local companies, especially among micro, small and medium enterprises (PMKS) considering the majority of workers who receive low wages are PMKS workers.

Multinational companies are not included in the category of eligible companies receive incentives since the company can afford to pay wages on competitive level and can attract and retain talent compared to PMKS. Government-related companies are also not covered since most of the employees are paid a more competitive salary and some companies accept allocations from the Government.

Suggested annual salary increase guide

The salary limit for the Progressive Wage Policy will be determined by the Implementation Executive Committee on Progressive Wage Policy. In the first year of implementation, a proposed salary cap will be set for receiving employees wages below RM5,000 and not less than the minimum wage enforced. Suggested annual salary increase guidelines by economic sector and job category in MASCO will be provided in 2024 and updated every year. This guide will be based on the basic salary and salary increase for each job category. The annual salary increase proposal is based on the average salary according to the job category and added to the percentage appropriate, considering several factors such as:

• the level of labour intensity in an industry
• industry wage trends
• inflation rates
• current policies
• impact on the economy.

Giving incentives according to rates and employee groups

Incentives in the form of cash will be provided according to the rate and group of workers. The employee group should consist of:

Entry-level employee groups, eligible for a fixed incentive rate of up to a maximum of RM200 per month for 12 months, if the company pays wages at the rate that equal to or that exceeds the recommended annual salary increase guide that will be set.

Non-entry-level employee groups, where companies are eligible to receive the incentive rate at a fixed value up to the maximum RM300 per month for 12 months if the company gives a rate annual salary increase based on the limit determined by the committee.

Incentives for entry-level employees will be calculated from the date the employee starts work, while incentives to the group of non-entry-level employees will be counted from the date of salary increase and confirmation of salary increase implemented.

The incentives will be channelled to employers every quarter, in a period of six months from when the claim is submitted. Allocation of funds will be provided and distributed by the Government on a first-come-first-serve basis.

Additionally, incentives in the form of cash will be paid after the company submits the required documents, to ensure that the employees have received a salary increase and that the company has not abused the provision of incentives. Evidence and documents submitted by the company will be audited by the Government. Methods and systems to implement this policy will be simplified to ensure a smooth process.

Employer evaluation system

The purpose of the employer evaluation system is to enable companies to compete in terms of salary increase performance to create a better salary setting culture. Ratings will be handled by a credible agency and the results, determined by star ratings, can be referenced by all parties.

Expected impact and implementation strategy of progressive wage policy 

The increase in workers' wages will have a positive effect in terms of increasing productivity and reducing the unemployment rate in addition to improving workers' compensation, according to the whitepaper.

Although this policy will increase the inflation rate due to the increase in consumer demand and purchasing power, the positive effect of economic growth is seen to offset the increase in the inflation rate in the long run, it added.

Strategies to increase employer participation

Shared further, as the Progressive Wage Policy is not mandatory, the Government needs to ensure that the policy receives a favourable response from stakeholders to achieve their target. Therefore, effective strategies need to be devised to increase participation and benefit more employees.

Increasing cooperation between the government and industry representatives

The Government will work closely with employers' associations to encourage the participation of employers from all sectors by expanding the access to digital platform to obtain information related to the Progressive Wage Policy, including the participation procedure and its advantages.

Increasing stakeholder awareness

The Government will look to engage in face-to-face and online information sessions to raise awareness to employers and employees about the importance and advantages of the Progressive Wage Policy.

Recognising 'Progressive Wage Employers' as 'Champions'

The Government will recognise champions among 'Progressive Wage Employers' who try their best to increase the level of workers' wages to serve as role models. This recognition, it was noted, aims encourage the participation of more employers.

Strengthening skill improvement courses

These courses will enable employees to increase productivity in line with the increase in wages received. The Government will identify and recognise appropriate training programmes in place for this..

Improving the labour market database

The labour market database will be improved and strengthened to ensure that the planning, implementation, and monitoring of the Progressive Wage Policy can be made effectively.

Implementation timeline

Here is a detailed timeline of the implimentation of the Progressive Wage Policy: 

A performance review of the implementation of the pilot project will be made after four months to assess effectiveness and determine the direction of implementation this policy. A comprehensive implementation plan will be drawn up before the full implementation of the Progressive Wage Policy.

Minister Rafizi shared how the country is facing an uncertain global economic challenge where the International Monetary Fund projects the prospect of world economic growth to grow slowly by only 3% in 2023 and is expected to be lower in 2024, at 2.9%.

"Malaysia is also experiencing domestic economic structural challenges including development and income disparity, limited fiscal space, slow economic structural transition, and being stuck in the middle-income trap.

"The World Bank reports that Malaysia is one of the countries with the lowest household savings rate in the world. Almost half of the total number of workers in this country do not have financial resilience, especially youth workers," he added. 

Photo: Minister Rafizi Ramli's Facebook