Minimum wage deadline looms, can micro businesses keep up?

New Straits Times

6 days ago

KUALA LUMPUR: With barely 24 hours to go before the Minimum Wage Order takes full effect on Aug 1, pressure is mounting on micro businesses to adapt, or risk being penalised.
The latest wage floor extension, which now covers firms with fewer than five employees, comes amid a cost-sensitive climate.
Businesses are bracing for the expansion of the Sales and Service Tax (SST), ongoing United States tariff uncertainties and the looming fuel subsidy rationalisation.
Against this backdrop, economists contacted by Business Times agree that fair pay is essential, but remain divided on how effectively micro enterprises can adapt.
"It is always a tough balancing act," said Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.
"Employers need to manage rising costs while ensuring employees are paid fairly. But since the minimum wage is reviewed every two years, micro firms should anticipate and prepare accordingly."
Afzanizam believes survival hinges on long-term strategy and breaking away from models built on low-wage labour.
"Businesses need to constantly find ways to improve their cost structure and they really need to incur capital expenditure in order to scale up," he said.
"If they can do it well, they would have employees paid above the minimum wage, team players who are highly skilled and paid accordingly. That way, they do not have to worry about the changes in the minimum wage when it is due."
Putra Business School economist Prof Dr Ahmed Razman Abdul Latiff agreed the pressure is real but said the policy shift is manageable.
"These businesses had six months to prepare since the larger firms implemented the wage increase in February.
"SST expansion will have limited impact on micro businesses, and other cost drivers like tariff changes and fuel subsidy adjustments have not kicked in yet."
He added that recent monetary and fiscal measures, including the overnight policy rate cut, statutory reserve requirement easing and RM100 cash handouts, are expected to help small businesses weather the transition.
"This will increase liquidity in the market and help boost revenues. It is anticipated that such increase in revenues will help to cover the incremental cost due to minimum wage and fuel subsidy rationalisation."
But for economist Dr Geoffrey Williams, the debate boils down to fundamentals.
"If they cannot afford to pay even these low wages then they do not have a viable business model."
He argues that the moment calls for reinvention, from flexible contracts to profit-sharing and platform-based models.
"These micro businesses could move from fixed salary contracts to flexible working arrangements, trading less working hours for lower pay and releasing employees to run side hustles for themselves.
"They should adopt cooperative, sharing or joint incentive models. If they run a five-person company with old-fashioned business models, they won't be able to pay wages above the poverty line.
"So they need to run micro-enterprises as small, agile, competitive and innovative ventures with modern business models," he added.
In February, the national minimum wage was raised from RM1,500 to RM1,700, for firms with five or more employees. Smaller businesses were given until today to comply.
Starting tomorrow, the new wage rule will cover all employers, regardless of size, following the end of a six-month grace period.
Failure to comply is an offence under the National Wages Consultative Council Act 2011 and can result in fines of up to RM10,000 per employee, with a further RM1,000 for each day the offence continues after conviction.
Meanwhile, the Department of Statistics Malaysia on Monday reported that median monthly wages in the formal sector rose 5.5 per cent to RM3,000 in March, compared to RM2,844 a year earlier.
Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin attributed the increase to continued economic growth and the positive effects of the revised wage policy.
Geographically, the Federal Territory of Kuala Lumpur recorded the highest median monthly wage at RM4,445 in March, followed by Selangor at RM3,300.
At the other end of the spectrum, Sabah posted a median wage of RM2,000, while Kelantan and Perlis recorded the lowest at RM1,800.