The employer's guide: Navigating Malaysia's Progressive Wage Policy

While productivity is at the heart of the PWP, its implementation brings significant cost and wage bill implications for employers. Amardeep Singh Toor, Partner, LHAG advises employers on how to navigate these challenges, and more, in a session at the Total Rewards Asia Summit 2024, Malaysia. Priya Sunil reports.

In December 2023, Malaysia announced that as part of efforts to overcome labour market structural issues through wage reforms, the Government will be kickstarting its Progressive Wage Policy (PWP) in 2024. This approach, as detailed in a whitepaper, is a voluntary, incentive-based initiative aimed at enhancing productivity and wage fairness.

According to Minister of Economy Rafizi Ramli, it aims to reform the wage structure of workers by increasing it systematically, while complementing the existing policies — namely, the Minimum Wage Policy and Productivity-Linked Wage System.

The PWP began its pilot stage in June and is expected to last till August, targeting 1,000 companies and expecting to cover 1.05mn workers.

In a fireside chat at the Total Rewards Asia Summit 2024, Malaysia, Amardeep Singh Toor, Partner, LHAG, shares with HRO's Aditi Sharma Kalra how employers can navigate the challenges, opportunities, and legal implications of the Policy, ahead of the pending national roll-out. Excerpts of the conversation are derived below.

Current practices and regulations that support the long-term success of the PWP

Before delving into the specifics of the PWP, it is essential to understand the trajectory of Malaysia's employment legislation and the broader goals the country is pursuing, Amardeep affirms, adding that Malaysia has been striving to elevate its labour standards to align with international benchmarks. This reflects a commitment to improving the working conditions and rights of its workforce.

Key legislative amendments

To support the goal of elevating labour standards, several key amendments have been made to Malaysia's employment laws:

• Employment Act: The scope of the Employment Act has been expanded to cover all employees, providing them with legal recourse for discrimination. This marks a significant step towards ensuring fair treatment for all workers in Malaysia.
• Industrial Relations Act: Amendments to this Act have made it easier and more cost-effective for employees to seek recourse for grievances, thereby strengthening workers' rights and access to justice.
• Minimum Wage Order: The introduction of a minimum wage sets a baseline for earnings in Malaysia, aiming to ensure a decent standard of living for all workers.
• Productivity Linked-Wage System (PLWS): Although voluntary, the PLWS has been in place since 1996, promoting a pay structure linked to productivity. This system encourages both employers and employees to focus on efficiency and skill enhancement.

The importance of training in making the most of the PWP

One of the many things that stand out in the PWP is how crucial training & development is. After all, training employees to take on new or additional tasks will only improve their productivity, thus allowing employers to fairly compensate them additionally for that. 

In that vein, changes made to the Human Resources Development Fund (HRDF) system under the HRD Corp mean it is now applicable to all sectors, ensuring a broader range of employers can tap into training opportunities. These include, where relevant, HRD Corp claimable courses, the On-the-Job Training Scheme, recognised internal training programmes, and more.

Preparing for increased cost and wage bill implications

While productivity is at the heart of the PWP, its implementation brings significant cost and wage bill implications for employers. To navigate these changes effectively, Amardeep highlights the need for employers to turn to legal advice where needed, and conduct regular reviews of their employment-related policies and practices. More on this:

Review of policies and contracts

One of the first steps in preparing for the PWP is to review existing policies to ensure they support proper performance management. This includes revising employment contracts and policies related to salary increments. After all, having in place clear and well-defined policies can help mitigate potential disputes and align employee expectations with the organisational goals.

Employee relations issues

Legal advice is essential in anticipating and preparing for potential employee relations issues that may arise from the implementation of the PWP. These issues include dealing with complaints and disputes, such as discrimination claims wherein employees may feel they are not being paid the way they are supposed to. By addressing these concerns proactively, employers can minimise disruptions and foster a positive work environment.

Union and collective bargaining challenges

Implementing the PWP may present challenges with unions as well as in collective bargaining processes. Collective agreements often include fixed salary increments, which could stall negotiations if not addressed adequately. In such instances, employers can seek legal advice to help them navigate these complexities and find solutions that bode well for both parties.

Staying abreast of government policies

Keeping up-to-date with the latest government policies and regulatory guidance is vital to avoid legal pitfalls. Employers must stay informed about changes in employment laws and regulations to ensure their practices remain compliant.

Ensuring overall organisational readiness

With the above in mind, our speaker was asked about how organisations can ensure their long-term planning and employment contracts align with the evolving legal landscape under the PWP. To do so, he responds, organisations need to be proactive in their readiness for the implementation.

Stay informed on regulatory changes

Regular monitoring: It is essential to stay updated on any changes or updates in PWP regulations. Subscribe to industry newsletters, legal updates, and government publications to keep abreast of the latest developments.

Engage with legal experts: Regular consultation with legal counsel can help organisations understand the implications of new regulations and ensure compliance. Legal experts can provide tailored advice and help navigate complex regulatory landscapes.

Integrate PWP requirements into employment contracts

Standard clauses: Employment contracts should include standard clauses that address PWP requirements, such as linking wage progression to productivity and skill development. This ensures clarity and sets expectations for both employers and employees.

Flexibility clauses: Incorporate flexibility clauses that allow for adjustments based on changes in the PWP or other relevant regulations. This provides the organisation with the ability to adapt to evolving legal requirements.

Contract termination

Termination clauses: Review the impact of the PWP on termination clauses, particularly regarding severance pay and final settlements. Contracts should specify how terminations will be handled concerning wage adjustments and performance-based criteria.

Fair dismissal: Ensure employment agreements specify that dismissals related to performance or skill levels are conducted fairly and in accordance with legal standards to avoid wrongful dismissal claims. Employers must report any terminations when claiming incentive payments.

Implement comprehensive training & development programmes

Skill development: Develop robust training programmes that meet PWP requirements for skill development and productivity improvement. These programmes should focus on enhancing employees' skills to align with the organisation's productivity goals.

Documentation: Maintain detailed records of all training activities and ensure employees receive certifications for completed courses. Proper documentation is crucial for compliance and verifying that employees have met the necessary skill development criteria.

Review and update policies regularly

Policy audits: Conduct regular audits of employment policies and contracts to ensure they remain compliant with the latest PWP regulations. This proactive approach helps identify and address potential compliance issues.

Feedback mechanisms: Establish feedback mechanisms to gather input from employees and managers on the effectiveness of current policies and identify areas for improvement. Employee feedback is invaluable for refining policies and practices.

Engage with unions

Union collaboration: Work collaboratively with labour unions to ensure mutual understanding and support for the PWP implementation. Engaging unions can help address concerns and foster a cooperative environment.

Employee involvement: Involve employees in discussions about the PWP and its impact on their roles and compensation. Transparent communication and employee involvement can enhance acceptance and smooth implementation.

Utilise technology for compliance and efficiency

HR management systems: Implement HR management systems that track employee performance, training, and wage progression in line with PWP requirements. These systems can streamline compliance processes and enhance operational efficiency.

Data analytics: Use data analytics to monitor productivity improvements and ensure wage increases are justified and compliant. Data-driven insights can help organisations make informed decisions and optimise their workforce management strategies.

Ultimately, the PWP is acknowledged as a significant step forward in enhancing productivity and wage fairness in Malaysia. However, its implementation brings various challenges, including increased costs, wage bill implications, and potential legal complexities. By staying informed, integrating PWP requirements into contracts, implementing comprehensive training programmes, and regularly reviewing policies, organisations can navigate these challenges effectively, we learn from Amardeep.

Collaboration with unions, employee involvement, and the use of technology will further support the smooth and successful implementation of the PWP, ensuring a productive and compliant workplace.

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These are some of the insights shared at our Total Rewards Asia Summit 2024, Malaysia.

Held at Le Méridien Petaling Jaya on 24 & 25 July 2024, the Summit saw more than 170 HR & rewards professionals gather to gain insights on how to stay ahead of the curve in the ever-evolving world of employee benefits, rewards, and compensation.

Human Resources Online would like to thank all speakers, moderators, panellists, facilitators, and attendees for being valuable contributors to this event.

We would also like to extend our gratitude to our sponsors & partners for making this conference possible:

Gold Sponsors

• Pacific Prime CXA
• Paywatch

Exhibitors

• AIA
• ThoughtFull