Salary and Wages in Malaysia

Article excerpt

This paper discusses the compensation practices in Malaysia against the backdrop of the legal framework for wage and salary deterination. It also examines the Malaysian labour market situation and trends in salary and wage administration together with the role of unions in compensation determination.

INTRODUCTION

Malaysia is a country of more than 20 million located at the southernmost tip of mainland Asia. Besides being a leading exporter of commodities such as natural rubber, tin, palm oil, timber, petroleum, and natural gas, Malaysia is also one of the world's leading exporters of electronic semiconductors, room air-conditioners, and audiovisual equipment. Prior to July 1997, Asia was seen as a region exemplifying success in economic growth and development. Between 1991 to 1996, the Malaysian economy grew at an average rate of more than 8%. However, Malaysia could not shield itself from being negatively impacted by the 1997 Asian Financial Crisis where the nation suffered a 7.5% contraction in its Gross Domestic Product (GDP) in 1998.

In 2000, Malaysia had a workforce (defined as persons between 15-64 years old) of slightly above 9 million. About 60% of the workforce were below 35 years of age. Union members accounted for about 8.15% of the labour force. Unemployment was reported at 3% of the labor force, and foreign workers accounted for one out of every seven jobs (Malaysia 1996-1998, 1996).

This scenario shapes the Malaysian labour market condition. Until 1997, the salary and wage rate in the country had experienced a significant growth. This was a result of the rapid economic growth and near perfect employment. This paper will discuss the salary and wage practice in Malaysia. It will begin by describing the legal framework for wage and salary determination. It will then describe the Malaysian labour market and trends in salary and wage administration in the country. An examination of the role of unions is also included.

LEGAL PROVISIONS ON WAGE AND SALARY DETERMINATION

The legal framework for salary and wage payment in Malaysia is governed by the Employment Act 1955. The Act defines wages as basic pay and all other cash payments made to employees for their contract of service. The following payments, however, are not included as part of wages:

* The value of any house accommodation, the supply of any food, fuel, light or water, and medical attendance.

* Contributions paid by employers on their own account to any fund or scheme established for employees' benefit or welfare including pension fund, provident fund, superannuation scheme, retrenchment scheme, termination scheme, layoff scheme, retirement scheme, and thrift scheme.

* Traveling allowance or the value of any traveling concession.

* Any sum payable to employees to defray special expenses entailed on them by the nature of their employment.

Under the Act, payment of wages must be made no later than the 7th day after the last day of a wage period. A wage period must not exceed one month, and unless this period is specified in a contract of service, it is deemed to be one month. That is, employees are paid at least once a month. Employers, however, may pay wages at shorter intervals, say once a week or once every two weeks.

The Act specifies that when an employer terminates an employee without notice, the wages owing to the employee must be paid no later than the day the service is terminated. If it is the employee who terminates the service without notice, payment must be made within 3 days from the day of such termination. If termination is with notice by either the employer or employee, wages must be paid by the end of the notice period.

The Employment Act does not govern every aspect of wages. For example, wage rates or levels are not regulated by the Act but are determined through negotiations between an employer and an employee or, in the case of unionized companies, between the representatives of the company and the trade union. …