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Concurrent Implementation of Minimum Retirement Age and Minimum Wage would Impact Business Operations

Employers are severely pressured on wage costs with the concurrent implementation of the minimum wage and minimum retirement age. While the former increases wage costs and triggers knock on effects; the latter increases wage costs by delaying retirement. In aggravation, employers are not able to initiate the necessary adjustments since details of the composition of minimum wage have yet to be made known.

The Minimum Retirement Age Bill 2012, which was tabled in Parliament on June 13, 2012 had sent another shockwave to employers, who are still grappling in the dark on the implementation of the minimum wage. On the same date, the Ministry of Human Resources (MOHR) had announced that it would gazette the Minimum Wages Order by July 1, 2012, which means implementation is with effect from January 1, 2013.

Minimum Retirement Age Bill 2012

The Federation of Malaysian Manufacturers (FMM) is most disappointed that the Minimum Retirement Age Bill had not addressed employers’ concerns despite having submitted them to MOHR in early April 2012.

The Bill allows the Director-General of Labour to usurp the Industrial Court’s powers to direct reinstatement or compensation in lieu of reinstatement. Even more onerous, the Bill contradicts the Second Schedule of the Industrial Relations Act 1967 by including future wages in the compensation. The Second Schedule clearly stipulates that any relief given should not include any compensation for loss of future earnings. If there is unlawful retirement and reinstatement is not appropriate, an employer could be ordered to pay termination benefits under the Termination and Lay Off Regulations 1980, in conformity with the Industrial Relations Act.

Another draconian provision of great concern is if an employer fails to comply with the Director-General’s order, upon conviction, the Court could issue a warrant to levy the employer’s property and force a sale by way of distress for the amount. Such action, which is akin to bankruptcy proceedings, is harsh and most inequitable to employers without regard to the serious consequences and damages to a business.

The Bill is also inequitable as employers currently offering optional retirement in their contract of service or collective agreements are not allowed to increase the optional retirement age in tandem with the raising of the minimum retirement age. The Bill practices double standards as employers have to raise their retirement age to the minimum level and yet there is no automatic raising of the optional retirement age by the same quantum.

Minimum Wages Order

It is critical for employers to have the operational details of the composition and mechanism of implementing the minimum wage before the Order is gazetted. This is to allow employers to fully use the six month grace period to adjust their salary scales, which would be a massive exercise and include employees in higher pay scales because of the knock on effects.

In view of the need to mitigate rising cost pressures, FMM strongly recommends the following: 
  • There is need for an adequate transition period to implement the minimum retirement age i.e. 24 months from date of gazette and upon application to the MOHR Minister another 12 months extension;
  • The transition period is to facilitate a holistic review of employment laws to provide greater flexibility in hiring and firing. MOHR had earlier assured employers that it would carry out a concurrent review of employment laws. It is critical to package the review together with implementation of the minimum retirement age;
  • Fixed allowances defined as wages under Section 2 Employment Act 1955 should be incorporated as components and not absorbed as an aggregated lump sum into the minimum wage;
  • There must also be public consultation with employer stakeholders on the allowances and implementation mechanism; 
  • The minimum wage should be implemented by zones, i.e. starting in the Klang Valley and at much later dates spanning a year or more in other States to address differences in the current values of average wages in the different zones.



    Released by:
    Federation of Malaysian Manufacturers (FMM)
    Wisma FMM, No 3 Persiaran Dagang, PJU9 Bandar Sri Damanasara
    52200 Kuala Lumpur

    June 15, 2012

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Wisma FMM, No 3 Persiaran Dagang, PJU 9, Bandar Sri Damansara, 52200 Kuala Lumpur.