On 18th October 2024, the presented Malaysian 2025 Budget introduces a significant increase in the national minimum wage, raising from RM1,500 to RM1,700 per month, effective 1st February 2025. This brings joy to those affected whilst it does have wide implications with notable impacts on both businesses and employees.
This will potentially strain Small and Medium-sized enterprises (SMEs) with increased labor costs in an already high cost environment. Another impact is EPF will be mandatory for non-citizen workers where the impact will be significant, their wage cost will increase 28%.
The effects for Businesses especially SMEs, that rely on cost effective resources, will face tighter profit margins, potentially leading to outsourcing, reducing operational costs, investing in AI & Technology, or downsizing.
The effects for the impacted employees benefits from a boost of their disposable income, improving their ability to cope with the rising cost of living. Employees in retail, manufacturing and services are expected to experience the most significant benefits. Higher wages could lead to improved job satisfaction and motivation; however, some employees may face job cuts or reduced hours if businesses struggle to manage the increased wage costs.
Ultimately, while the wage increase aims to reduce poverty and support the workforce, businesses will need to adapt to minimize negative impacts on profitability and employment. Businesses can adopt several strategies to manage the minimum wage increase while maintaining employee satisfaction and fairness:
- Review and Adjust Salary Structures: Ensure Internal Equity to avoid disproportionate wage gaps by implementing salary structures that reflect performance, experience, job fit and complexity.
- Enhance Performance Management: Link wage increases to performance and reward high-performing employees via merit-based bonuses and specific career enhancing programs. This will also foster and inculcate a culture of performance, productivity and continuous advancement.
- Invest in Employee Well-being and Career Development: Offer non-monetary benefits to reduce dependency on wage budgets such as flexible hours, career development opportunities, specific training and wellness programs; which will also boost job and workplace satisfaction.
- Optimize Operational Efficiency: Increase focus on core business and revenue to offset higher labor costs and profit margin pressures by Outsourcing part of the operations to BPO organizations, invest in AI and Technology.
- Increase Employee Engagement and practice Open Communication: Prevent perceptions of unfairness among staff by providing One-to-One Employee engagement to understand specific personal needs and concerns; and give explanations on the rationale behind pay adjustments to ensure transparency.
Overall, Malaysia’s 2025 budget positions itself as a response to both local economic needs and global challenges, with the minimum wage increase as a central part of efforts to foster sustainable growth and protect vulnerable workers.
Henceforth, it is imperative that businesses start their readiness program now to ensure that come 1st February 2025, they have clearly communicated the wage increase program and how it will be operated. Ensure everyone in the company is clear about the implications, the positives, the negatives, and that all concerns have been put to rest. This ensures employee motivation and business continuity.
