Important changes to Malaysian law for employers and employees

Important changes to Malaysian law for employers and employees

June and July 2016 will see two changes to Malaysian law which will have an impact on many employers and employees.

(1) Mandatory SOCSO contributions for all employees

The Social Security Organisation (“SOCSO”) — also known as PERKESO (Pertubuhan Keselamatan Sosial) — provides social security protection to employees and their dependants through social security schemes, and increases awareness on occupational safety and health.

The Employees’ Social Security Act 1969 was amended to include new SOCSO contribution rates effective 1 June 2016.

Pursuant to the Employees’ Social Security (Amendment) Act 2016, SOCSO contributions are mandatory for all employees regardless of salary. Prior to this, SOCSO was only mandatory for employees earning under RM3,000 a month.

However, contributions will be capped at the monthly remuneration of RM4,000, which means that if an employee’s monthly salary exceeds RM4,000, his salary for the purposes of calculating the SOCSO contributions will be deemed to only be RM4,000 a month.

Contributions are based on scheduled rates, with the employee’s contributions ranging from RM0.10 to RM19.75 — the full rate schedule is available here.

Employers and employees who have not previously registered with SOCSO will need to register immediately by submitting the relevant forms and supporting documents to the nearest SOCSO office.

If you are using a payroll software, you should ensure that the relevant updates have been downloaded or installed to reflect the new SOCSO contribution requirements. If you are using an external payroll service provider, it is worth confirming with them that the necessary changes have been implemented.

(2) Increase of minimum wage

It has been announced that the Minimum Wages Order 2016 (replacing the Minimum Wages Order 2012) will come into effect on 1 July 2016 and would involve all private sector employees, except domestic helpers. The minimum wage under the Order are as follows:

  • RM1,000 per month or RM4.81 per hour for Peninsular Malaysia, and RM920 per month or RM4.42 per hour for Sabah, Sarawak and Labuan.
  • In Peninsular Malaysia, for a six-day working week, the daily minimum wage rate is RM38.46, five days/week at RM46.15, and four days/week at RM57.69.
  • In Sabah, Sarawak and Labuan, for a six-day working week the daily minimum wage rate is RM35.38, five days/week at RM42.46, and four days/week at RM53.08.

Since minimum wage was introduced in Malaysia in 2014, 190 employers have been charged in court for non-compliance. Failure to comply with the Minimum Wages Order is punishable under the National Wages Consultative Council Act 2011, which provides the following penalties:

  • An employer who fails to pay the basic wages as specified in the minimum wages order to his employees commits an offence and shall, on conviction, be liable to a fine of not more than RM10,000 for each employee. The court can also order the employer to pay each employee the difference between the minimum wage rate and the employees’s basic wages.
  • Penalty in the case of a continuing offence: Any person convicted of an offence under this Act shall, in the case of a continuing offence, be liable, in addition to any other penalty to which he is liable under this Act in respect of such offence, to a daily fine not exceeding RM1,000 for each day the offence continues after conviction.
  • Penalty in the case of a repeated offence: Any person convicted of an offence under this Act shall, in the case of a repeated offence, be liable to a fine not exceeding RM20,000 or to imprisonment for a term not exceeding 5 years.
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