Effective today, 1 February 2025, Malaysia’s minimum wage has increased from RM1,500 to RM1,700 per month for companies with five or more employees. Companies with fewer than five employees have until 1 August 2025 to implement this change.
Meanwhile, here are some clarifications I’ve confirmed with JTK:
Scenario One:
Current Situation: An employee’s basic salary is RM1,500, with a fixed allowance of RM200, as per the employment contract. With the adjustment of the minimum wage, can the employer change the contract terms to a basic salary of RM1,700 with no fixed allowance?
Response: No, the fixed allowances are already stipulated in the employment contract and are considered part of wages under Section 2 of the Employment Act 1955. The fixed allowances must remain, and the employer has to add RM200 to the employee’s basic salary to comply with the new minimum wage adjustment.
Scenario Two:
Current Situation: An employee’s basic salary is RM1,500, with variable allowances totaling RM300. These variable allowances are not stated in the employment contract. With the minimum wage adjustment, can the employer reduce the variable allowance to RM100 but increase the basic salary to RM1,700 to comply with the minimum wage?
Response: Employers must understand the definition of a “contract of service” as outlined in Section 2 of the Employment Act 1955, which includes any agreement, whether oral or in writing, express or implied. If the employer consistently provides variable allowances every month without fail, it becomes part of the contract of service and cannot be removed without the employee’s consent.
Hope this clarifies.
xoxoxo, AuntyHR
