HRM Chapter 5

Chapter
5 PAYMENT SYSTEMS
AND WORKING HOURS
Wage System
 Wages are defined under the Employment Act 1955 as

“basic wages and all other payments in cash payable to
an employee for work done in respect of his contract of
service”. Certain exclusions are applicable like wages
do not include value of any house accommodation,
travelling allowance, incentives, gratuity, annual bonus,
etc.
 The laws allow employers to pay 7 days after the last
day of the wage period and any wages for work done on
rest day, public holiday and overtime may be payable
not later than the last day of the next wage period.
HRM Principles and Practices Third Edition All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 3
Purpose of Wage System
 The wage system in an organization is usually

designed to achieve the following goals:
(i) It must attract employees to work in the
organization
(ii) It must aid in retaining efficient employees
(iii) It must motivate employees to perform
effectively, and
(iv) It must be simple, which will minimize
administration costs.

Pay factors
 Main factors which affect the employer to pay

are :
(i) Relevant legislation;
(ii) Government policy on wages;
(iii) Employment or labour market conditions;
(iv) Wages paid by other employers;
(v) Unionization of the workforce;
(vi) Recruitment and selection policy, and
(vii) Profitability/availability of funds.
Pay factors
 Factors affecting pay of individual workers

(i) Seniority of the worker;
(ii) Increase in the cost of living;
(iii) Performance, and
(iv) Degree of skill or position held by the worker.

Reduction in Wages
 Any employer who fails to pay an employee’s wages

has breached the contract of employment.
 A unilateral reduction in wages is also a breach of
contract.
 Therefore, employers are not allowed to reduce or
deduct the wages of employees for no reasons.
 Poor performance of employee may not considered as a
valid reason for employer to deduct wages. However,
employer allows retrenchment, demotion, transfer
workers, deduction of bonus permissible only on bona
vide reasons.

Employees Benefits
 Employees are eligible for benefits which is

protected under the employment Law
 Employees can enjoy benefits such as :
 Wages
 Leave
 Holidays
 Equal employment and benefits for women given
 Contribution to EPF and SOSCO
 Retirement benefits, social security, Insurance protection
 Family benefits
 Others given in the Law

Employment Law 1955
 Employment law in Malaysia is generally governed by

the Employment Act 1955
 (The Employment Act 1955 protects employees (workers with a
contract of service), working in Peninsular Malaysia in the private
sector who earn RM4,000 per month or less)
 Sabah and Sarawak is governed by Sabah Labour
Ordinance 1949 & Sarawak Labour Ordinance 1952
 (Employees working in either Sabah or Sarawak are protected
under the relevant Labour Ordinance which has similar contents to
the Employment Act. However, the wage ceiling for these two laws
is RM2,500 per month)

Employment Law 1955
 Protecting all the workers earning below

RM4000
 Apply to manual workers only
 (Workers earning below RM2500 in Sabah and
Sarawak are protected under Sabah and
Sarawak Labour Ordinance)

Employment Law 1955
 Who are manual workers ? They are workers

comprised of the following categories :
 Manual workers (e.g. factory, construction
and plantation workers) regardless of salary
 Supervisors of manual workers
 Drivers and vehicle mechanics
 Operation or maintenance of mechanically
propelled vehicles, and
 Domestic servants
Employment Law 1955
 Non Manual Employees” will be governed by

the terms of their contract of employment,
subject to any other applicable statutory
requirements (eg: minimum retirement age,
SOCSO and EPF, etc)
 In other words, employers are mostly free to set
any benefits for Non manual Employees, on the
assumption that those employees agree to
those benefits by accepting and signing the
employment agreement
Minimum Wages Order 2020
 Malaysian law on minimum wage for all workers was

introduced in 2013 and fully enforced in 2014.
 Under the Minimum Wages Order 2016, effective 1 July
2016, the minimum wage is RM1,000 a month
(Peninsular Malaysia) and RM920 a month (East
Malaysia and Labuan).
 National Wages Consultative Council Act 2011[Act 732],
Minimum Wages Order 2020.
 Increase to RM1200 and applies to all workers
(foreigner) throughout the country in 2020.
 Effective 1 May 2022, minimum wages increase to
RM1500
Working Hours
 Law prohibit contracts of employment which require

employees to work:
(i) More than 8 hours per day;
(ii) More than 48 hours per week; (Max 45 hours in the new
EA amendment 2022)
(iii) More than 10 hours per day when a spread-over period
is involved, and
(iv) More than 5 consecutive hours without a 30-minute
break.
 Rest days
 Public holidays
Working Hours
 Working hours’ systems include:

(i) Normal working hours plus overtime work
(ii) Shift work two or more groups
of workers who take turns to carry out the work
(iii) Alternative working hours such as flexitime,
part-time working and teleworking or
homeworking.

Alternative Working System
 Shift working system

 Example : off shore oil and gas industry
 Flexitime working system (Provided in the new EA
amendment 2022.)
 Example : University and higher institutions
 Job sharing and rotation
 Example : Manufacturing and essential business
 Overtime
 Working at home

Overtime Work
 Employers require workers to work overtime hours for a variety of

reasons including:
(i) A temporary shortage of manpower;
(ii) A temporary increase in workload;
(iii) Low productivity of the workers, and
(iv) Difficulty in recruiting additional workers, especially in a tight labour
market.
Note : Only workers who are earning less than RM2000 can claim
overtime given in Employment law 1955
(All employees with wages up to RM4,000 will be entitled to claim
overtime in the new EA amendment 2022 )

Calculation of overtime pay
 Overtime work is paid at premium rates as

follows:
(i) Overtime worked on an ordinary working day =
1½ times the normal hourly rate;
(ii) Overtime worked on a rest day = 2 times the
normal hourly rate, and
(iii) Overtime worked on a public holiday = 3 times
the normal hourly rate.

Overtime for non manual
worker
 Workers who are earning more than RM4000 not
covered under EA, employers can choose on
how to compensate their hard work or not
compensating at all (which will demoralize your
employee).
 Option 1 - 0 Compensation
 Option 2 - Compensate with OT payment /
allowances
 Option 3 - Compensate with additional Annual
Leave

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Chapter

 Wages are defined under the Employment Act 1955 as

HRM Principles and Practices Third Edition All Rights Reserved

 The wage system in an organization is usually

HRM Principles and Practices Third Edition All Rights Reserved

 Main factors which affect the employer to pay

 Factors affecting pay of individual workers

HRM Principles and Practices Third Edition All Rights Reserved

 Any employer who fails to pay an employee’s wages

HRM Principles and Practices Third Edition All Rights Reserved

 Employees are eligible for benefits which is

HRM Principles and Practices Third Edition All Rights Reserved

 Employment law in Malaysia is generally governed by

HRM Principles and Practices Third Edition All Rights Reserved

 Protecting all the workers earning below

HRM Principles and Practices Third Edition All Rights Reserved

 Who are manual workers ? They are workers

 Non Manual Employees” will be governed by

 Malaysian law on minimum wage for all workers was

 Law prohibit contracts of employment which require

 Working hours’ systems include:

HRM Principles and Practices Third Edition All Rights Reserved

 Shift working system

HRM Principles and Practices Third Edition All Rights Reserved

 Employers require workers to work overtime hours for a variety of

HRM Principles and Practices Third Edition All Rights Reserved

 Overtime work is paid at premium rates as

HRM Principles and Practices Third Edition All Rights Reserved

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