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Budget 2020 has just been announced, with the theme of “Driving Growth and Equitable Outcomes Towards Shared Prosperity”. This article focuses on some of the key highlights of #Budget2020 in respect of employment and human resources. Here are some of the employment and HR issues to look out for if you are running a business:

Increase of Minimum Wage for Major Cities

The government has proposed to increase the minimum wage to RM 1,200.00 per month effective 2020 for “major cities”. The current minimum wage is RM 1,100.00 per month.

How does this affect you? Businesses in major cities which are currently paying their employees below the proposed RM 1,200.00 a month, may have to start performing financial projections to estimate the payroll impact on the proposed increase to minimum wage. Note that the increase in minimum wage will have a “knock on” effect on other payments such as statutory contributions like EPF, overtime rates, and even calculation for encashment of accrued but unused annual leave. So far there is no definition of what is a “major city” but it should be presumed that this will include Kuala Lumpur, Shah Alam and Penang at the least.

Increased Scope of the Employment Act 1955

The Employment Act 1955 is the main employment legislation in Malaysia that guarantees minimum benefits / entitlements to employees such as overtime, annual leave, sick leave, etc. However, it currently only applies to certain classes of workers, primarily those whose monthly wages do not exceed RM 2,000.00 and / or those involved in manual labour. The government is proposing to extend the eligibility of employees who are entitled to overtime to those whose monthly wages do not exceed RM 4,000.00.

How does this affect you? This is predicted to have a large cost impact on employers who currently have employees who are earning between RM 2,000.00 and RM 4,000.00 a month.  Currently, this band of employees will not be entitled to overtime. However, with the proposed increase in eligibility, employers may now have to pay overtime for a larger sector of their workforce. Employers should therefore first examine the number of employees who would fall within the increased eligibility, and examine their existing overtime policies so that cost-control and overtime control can be done.   Among other things, if you previously did not need to pay your employees overtime but now have employees within the increased eligibility for overtime, you may not have had a proper clock-in / clock-out system to monitor employees’ working hours. You now need to.

Increased Maternity Protection

The government has proposed to increase maternity leave from 60 days to 90 days effective 2021. No details have been given about the increased 90 day maternity leave, such as whether the entire 90 day period will be paid maternity leave. Previous announcements had indicated that the Ministry of Human Resources was also examining the possibility of having the 90 day maternity leave consist of both paid and unpaid leave.

How does this affect you? Under the Employment Act 1955, maternity protection applies to all female employees regardless of wages or type of work that they do.  Employers should start auditing their existing maternity leave policies in anticipation of these changes, so that the necessary updates can be done to comply with the law once it comes into effect.

Malaysians@Work Programme: Wage Incentives & Hiring Incentives

The new Malaysians@Work initiative aims to increase better employment opportunities for certain groups of employees, by providing wage incentives to workers and hiring incentives for employers who hire certain groups of individuals:

  • Graduates@Work: Employers who hire graduates who have been unemployed for more than 12 months will receive a hiring incentive of RM 300 per month for each new hire, for 2 years. The graduate who secures work will receive a wage incentive of RM 500 per month, for 2 years.
  • Women@Work: Employers who hire women (between 30-50 years old) who have returned to the work force after a minimum of 1 year, will be entitled to a hiring incentive up to RM 300 per month for 2 years. The returning women worker will receive a wage incentive of RM 500 per month for 2 years, and will receive an income tax exemption for another 4 years until 2023.
  • Locals@Work: Malaysian who are hired to replace foreign workers will receive either RM 350 or RM 500 wage incentive a month (depending on sector) for a duration of 2 years. There is a corresponding hiring incentive for employers up to RM 250 per month for 2 years.
  • Apprentice@Work: Trainees on apprenticeships will receive an additional RM 100 per month on their existing allowance. The government will also extend double tax deduction on expenses incurred by companies participating in certain schemes such as the Structured Internship Programme approved by TalentCorp and the Skim Latihan Dual Nasional (SLDN).

How does this affect you?  The new wage and hiring incentives provide a good opportunity for employers to increase diversity in their hiring; for example, the Women@Work initiative should encourage employers to tap into the “lost” talent pool of women who have taken career breaks.  The Malaysian@Work initiative also aims to reduce the dependence on foreign labour, so employers who have a large foreign worker workforce should examine whether there are opportunities to hire local workers to receive the incentive.

Increased coverage for EPF and SOCSO

The Employees Provident Fund (EPF) will have extended coverage to contract workers, for those under “contract for services” (i.e. independent contractors) and professionals. As a start, this will be a voluntary scheme for workers in the arts and entertainment industry, and will likely expand to other sectors. The Self-Employment Social Security Scheme will also be expanded to self-employed individuals in other key sectors such as fishermen and farmers.

How does this affect you?  It remains to be seen how the extended coverage will affect those who engage contract workers (e.g. independent contractors) since no details have been released. However, as it appears that the current proposal is for the expansion to be on a voluntary basis and for limited sectors, it is unlikely that there will be significant additional obligations on companies / businesses who engage contract workers. Those who are self-employed may want to look into whether they can participate in the self-employment social security scheme.

Improved Procedures for Handling Sexual Harassment

The government aims to improve the protection and procedures for handling sexual harassment complaints. No details have been released about what the improvements will be, although initial drafts of the proposed amendments to the Employment Act 1955 suggest that it will be mandatory for employers to have a written sexual harassment code / policy. Currently, there is no fixed procedure for employers to handle sexual harassment complaints, aside from a mandatory obligation to “investigate” the complaint.

How does this affect you? Sexual harassment at the workplace is a serious issue and employers owe a duty to create a safe environment for their workers.  Employers should examine whether they have a specific sexual harassment policy in place (a general policy about “misconduct” may not be sufficient), and whether they have a specific procedure in place to deal with sexual harassment complaints. If not, it’s time to get to work.

Anti-Discrimination

New provisions to the Employment Act 1955 will be legislated to prohibit discrimination of employees based on religion, ethnicity and gender, among other things.  Based on the draft proposed amendments to the Employment Act 1955 and recent announcements by the Ministry of Human Resources, it is likely that these provisions will be limited to those already in employment, and will not apply to job-seekers.

How does this affect you?  While it is likely that the new prohibitions will not apply to job-seekers, employers should still ensure that they do not have discriminatory hiring practices. At a minimum, employers should re-look at their job application and employee information forms, to ensure that only relevant information is requested. Likewise, private employment agencies / recruiters should also seek to educate their clients and discourage discriminatory hiring practices.

Most of the above proposals will still have to be legislated before they can take legal effect. For example, the increased maternity protection, anti-discrimination prohibitions, increased eligibility for overtime, and the sexual harassment provisions, all have to come through amendments to the Employment Act 1955. Once these amendments are tabled in Parliament, employers will get greater visibility on how #Budget2020 will affect their business.

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This article was written by Donovan Cheah. Donovan has been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific 2017, 2018 and 2019, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.

Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory.  Have a question? Please contact us.

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