How to Navigate Malaysia's Expansion of the Progressive Wage Model

On 30 November 2023, Malaysia's Minister of Economy, Rafizi Ramli, announced that the country would begin its Progressive Wage Policy (PWP) in June 2024. This initiative aims to reduce wage disparities in the private sector by increasing employee salaries and enhancing productivity.

For companies looking to improve employee satisfaction through fair compensation, Malaysia PWP is highly beneficial. But implementing the Progressive Wage Model Malaysia poses a crucial challenge for HR managers—how do you align it with salary budget constraints and improve employees’ quality of life?

We provide the much-needed answer in this article, where we cover everything on how to implement the Malaysia PWP in your organization. But before going into the details, let’s quickly examine what this progressive wage policy entails.

What is Malaysia’s Progressive Wage Policy?

The Progressive Wage Model Malaysia is a government initiative that encourages employers to increase the salaries, skills, and productivity of low-income employees. Inspired by Singapore’s Progressive Wage Policy, this program targets micro, small, and medium enterprises (MSMEs). It offers various training programs for workers to ensure wage growth based on their skills and performance.

The Malaysia PWP adopts a pay-per-performance method with a win-win strategy where employees grow their income and the company increases its output. Its pilot program ran from June 2024 to December 2024 with 1,000 companies within five sectors: construction, manufacturing, wholesale and retail, cars and motorcycle repairs, information and communication, and professional, scientific and technical activities.

Though the Progressive Wage Model Malaysia isn’t mandatory, interested businesses can voluntarily register via the online portal. Furthermore, since the program is incentive-based, participating companies will receive monthly government support for 12 months—up to RM200 for entry-level employees and RM300 for higher positions. Incentives for entry-level employees will be calculated from their employment start date, while incentives for non-entry-level employees begin from the date their salary increase is confirmed and implemented.

To be eligible for the incentive, participating companies must:

• Be registered with the Companies Commission of Malaysia (SSM), Department of Registration of Malaysian Organizations (ROS), Parties Local Authority (PBT), or other organizations.
• Provide documentation proving their employees have completed at least 21 hours of skill improvement courses (over three days).
• Not be government-related companies or multinational companies.
• Claim incentive only for local employees.
• Ensure employees have a full-time position or a service contract of more than three years.
• Pay employees a monthly salary within the limit the Implementation Executive Committee sets before joining.
• Report salary details of employees under this policy online. The Malaysia PWP covers full-time MSME workers earning between RM1,500 and RM4,999 per month.

What is included in the PWP expansion in 2025?

The Malaysian government has extended the progressive wage policy to 2025 with a budget of RM200 million, benefiting 50,000 workers. This move aims to tackle Malaysia’s cost-of-living challenges and build a high-income economy. The government will also offer incentives to help employers align entry-level salaries with occupation-based guidelines and provide a minimum of 6% annual raise to eligible non-entry-level employees.

This decision was inspired by the positive results of the pilot program. The wage policy Malaysia saw entry-level employees rise from a median monthly salary of RM1,950 to RM2,200. Likewise, experienced employees grew from RM2,200 to RM2,400 monthly. 

With the progressive wage model Malaysia expanding in 2025, the government is on track to reach its RM2,700 monthly median wage goal and achieve 3.7% annual productivity growth from 2021 to 2025, as outlined in the Twelfth Malaysian Plan (RMK-12).

What does this mean for employers?

The progressive wage model Malaysia impacts businesses in multiple ways. For one, registered companies will receive financial support for entry-level and skilled workers. This incentive helps reduce the burden of salary adjustments, especially for MSMEs. It also encourages fair pay practices, fostering financial stability among employees. However, multinational companies are not eligible for incentives, as they can afford competitive salaries. Government-related entities are also excluded since they already receive government funding.

Furthermore, employers now have new wage guidelines to raise entry-level salaries and successfully reduce pay disparities across the workforce. The increase depends on several factors, including: 

• Level of labour intensity
• Industry wage trends
• Inflation rates
• Current policies
• Impact on the economy

While Malaysia PWP helps businesses retain employees by increasing efficiency, some may struggle to adapt. For example, MSME employers may find it difficult to increase wages and upskill employees to meet the eligibility requirements for incentives. Also, balancing salary raises with training costs can affect overall business profits. That's why government support for the progressive wage model Malaysia is crucial to ease the financial burden on these companies.

‍Relevant reading: Your Guide to Malaysia Payroll

What are the impacts of PWP expansion on employees?

Here’s how workers benefit from the progressive wage model Malaysia:

Financial Growth

Through the progressive wage model Malaysia, MSME employees will receive better pay aligned with their skills, job roles, and productivity. Furthermore, their income will grow as they upskill and take on higher-level roles. They’ll also receive higher entry-level salaries and a structured wage growth to ensure fair compensation.

Fair Wages

Malaysia’s Progressive Wage Policy reduces income inequality among low- and mid-income workers, ensuring that wages increase as they become more efficient and progress in their careers. The scheme improves their quality of life through higher salaries and bridges the pay gap between entry-level and experienced workers.

Increased Productivity and Retention

Nectar’s Employee Recognition report highlights that 93.5% of workers would remain with a company for five years if they received fair pay and the culture was positive. 

The impact of the wage policy Malaysia on employees is similar. By increasing wages and reducing pay disparity, Malaysia’s progressive wage policy motivates employees to become more productive and committed to their workplace. This motivation spurs job satisfaction and reduces attrition rates, as workers will be less inclined to leave your company for better-paying opportunities elsewhere.

Tips for Employers to Prepare for PWP Expansion

Below, we explore tips to help you implement the progressive wage model Malaysia:

Adjust wage structures

Review current salary levels to ensure they meet the minimum wage requirements for each employee’s skill level and role. Group employees into appropriate wage tiers based on their experience and training. Ensure the new salaries align with the skills requirement under the PWP. Then, communicate the changes to your employees and invest in training programs to support skill development. 

Review compensation packages

Assess your compensation packages, including basic salaries, allowances, and benefits, to ensure they’re competitive and comply with the progressive wage model Malaysia. A fair compensation package satisfies and retains existing employees and attracts top talent to your company. 

Furthermore, reviewing your compensation ensures your organization considers factors such as future wage increases, training costs, and government incentives while implementing the Malaysia PWP without exceeding budgets.

Preparing for potential government audits

Keep accurate, up-to-date records of employee wages, training hours, and any other vital documentation. Conduct internal audits to review your wage structures and procedures, then spot discrepancies and address them in time for regulatory audits. 

Accurate recordkeeping is essential to demonstrating adherence to the wage policy Malaysia. It encourages transparency and accountability between your organization and its employees. It also prevents compliance risks, including penalties and reputational damage, that can arise from defaulting on the progressive wage model in Malaysia.

Read next: Navigating HR Compliance in Malaysia

Consult with HR and legal experts

HR professionals provide valuable insight into the progressive wage model Malaysia and how to structure salary increases and training programs for adherence. They offer guidance for monitoring wage increases and documenting employee training progress for government audits. 

Similarly, legal experts help businesses meet the regulatory requirements by reviewing employment contracts, compensation packages, and records. They also ensure companies stay current with regulatory changes within the progressive wage model Malaysia and adapt where necessary. 

Consult with these professionals to avoid costly mistakes and legal penalties arising from non-compliance with the Malaysia PWP policy.

Navigating Malaysia’s Wage Policy Changes with Omni Payroll

Stay compliant with Malaysia’s progressive wage policy while streamlining your payroll process with Omni’s comprehensive solution. Built to handle the complexities of Malaysian payroll requirements, Omni helps you implement graduated pay scales and skill-based compensation with ease.

With product features like local currency support, automated tax calculations, and instant payroll reports, HR teams can simplify their payroll processes while ensuring adherence to regulatory standards. From managing basic statutory requirements to implementing performance-linked wage increments, our platform ensures your payroll practices fully align with the progressive wage model Malaysia.

Ready to modernize your payroll system? Book a demo today to see how Omni can help you navigate progressive wage policies while streamlining your operations.