Start taking notes: these key changes will affect your bottom line and could affect the way you run your business

Start taking notes: these key changes will affect your bottom line and could affect the way you run your business

Malaysian employment law is undergoing two important changes. Malaysian employers should be aware of these changes due to the possible impact on  their bottom line and payroll.

Social Security (SOCSO) contributions are now mandatory

Previously, SOCSO was only mandatory for employees who were earning less than RM3,000 a month. Employees who were earning more than RM3,000 a month could “opt in” to SOCSO.

Under the new Employees’ Social Security (Amendment) Act 2016, effective 1 June 2016, SOCSO contributions are now mandatory for all employees regardless of their salary. However, if the employee’s salary exceeds RM4,000 a month, his salary for the purposes of calculation SOCSO contributions will be deemed to be only RM4,000 a month.

These are the new contribution rates for employees earning more than RM3,000 a month:

New SOCSO contribution rates for employees earning above RM3,000 a month, effective 1 June 2016

New SOCSO contribution rates for employees earning above RM3,000 a month, effective 1 June 2016

How this affects employers:  You will need to start making SOCSO contributions for all employee regardless of their salary. The employer’s contribution is capped at a maximum of only RM69.05 per month per employee so you should start factoring this into your payroll budget. Employees who are not currently registered with SOCSO will have to be registered using Form 2.

How this affects employees: If you have never been a member of SOCSO before, you are now required to register with SOCSO.  You may see a change in your nett take home salary as a certain amount (capped at a maximum of RM19.75 a month) will be deducted as your SOCSO contribution. Your employer will also have to pay the employer’s SOCSO contribution as set out in the above contribution table.  You will thereafter enjoy all the associated benefits as a SOCSO member such as their employment injury scheme and invalidity scheme.

Increase to minimum wage

Previously, the minimum wage for employees paid on a monthly basis was RM900 a month (Peninsular Malaysia) and RM800 a month (East Malaysia and Labuan).

Under the Minimum Wages Order 2016, effective 1 July 2016, the minimum wage will be RM1,000 a month (Peninsular Malaysia) and RM920 a month (East Malaysia and Labuan).  Details of the new minimum wages rates are set out below.

Minimum Wages in Malaysia, effective 1 July 2016

Minimum Wages in Malaysia, effective 1 July 2016

The previous Minimum Wages Order 2012 allowed employers to reduce the salary of a probationer up to 30% of the minimum wages rate for the first six months of probation.  However, the Minimum Wages Order 2012 has been revoked by the Minimum Wages Order 2016. The Minimum Wages Order 2016 is silent about the reduction of wages for probationer so it may be assumed that this is reduction is no longer applicable.

How this affects employers: You must adjust the salaries of employees who are currently earning less than the minimum wage and this must take effect in the July 2016 payroll onwards.  Be mindful that you may no longer be able to reduce the salary of employees during their probationary period below the minimum wages rate.

How this affects employees: If you are earning less than the minimum wage stated above, you can expect to see a pay raise effective 1 July 2016. If you are already earning above the minimum wage, then you are not affected by the Minimum Wages Order 2016.

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Note: This information is current as of the date of publication of this article.  

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