Everything You Ever Wanted to Know About Wages
Wages, salary, moolah, cheddar, paper – whatever you call it, we all know what it means. As employees, wages are the much-awaited oxygen at the end of the month to pay bills. As employers, wages are an expense, but a necessary one to keep the business running.
Hence, in simple English, wages are monetary payments earned for work or services. At a basic level, anyone who’s ever worked a basic part-time job would know what wages are.
However, when you really dig into the details, how wages are defined can really determine payroll decisions for HR. In Malaysia, what constitutes ‘wages’ will affect employee remuneration, statutory deductions, taxes etc.
With that, let’s dive into what Malaysian wages are all about from an HR perspective.
Wages as Defined by the Employment Act 1955
Wages are defined in section 2 of 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 but does not include:
- the value of any house accommodation or the supply of any food, fuel, light or water or medical attendance, or of any approved amenity or approved service;
- any contribution paid by the employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme established for the benefit or welfare of the employee;
- any travelling allowance or the value of any travelling concession;
- any sum payable to the employee to defray special expenses entailed on him by the nature of his employment;
- any gratuity payable on discharge or retirement; or
- any annual bonus or any part of any annual bonus.
Essentially, the Employment Act holds that only an employee’s basic pay will count as wages. This is critical for determining if an employee’s pay meets the minimum wage required by Malaysian law (which is RM1,500 per month).
In addition, it also means that whatever is not included in the Employment Act’s exclusion in the definition of wages, it will count towards wages. These include any fixed allowances (housing allowance, meal allowance, phone allowance etc). Notably, the Employment Act excludes travel allowances from wages.
A recent Federal Court decision has also included a major exclusion to the definition of wages, in that the service charge in a hotel, bar, restaurant etc is not part of basic wages and cannot be counted towards the minimum wage. This is because the service charge is borne by the customer instead of the employer and is automatically due to the employee anyway.
Another use for this definition of wages is to calculate an employee’s daily or hourly wage. From there, you can use it to calculate the prorated salary of an employee.
Wages as Defined by the Employees’ Provident Fund
The definition of wages by the Employees’ Provident Fund (EPF) is different from that of the Employment Act, as it is used to determine what payments to the employee will attract EPF statutory contributions.
Wages are defined in section 2 of the Employees’ Provident Fund Act 1991 as:
All remuneration in money, due to an employee under his contract of service or apprenticeship whether agreed to be paid monthly, weekly, daily or otherwise and includes any bonus, commission or allowance payable by the employer to the employee whether such bonus, commission or allowance is payable under his contract of service, apprenticeship or otherwise, but does not include:
- service charge;
- overtime payment;
- gratuity;
- retirement benefit;
- retrenchment, lay-off or termination benefits;
- any travelling allowance or the value of any travelling concession; or
- any other remuneration or payment as may be exempted by the Minister.
In practical terms, it means that nearly all wages or employee remuneration will be subject to EPF contributions. The two notable exceptions are:
- Overtime payments
- Any travelling allowance or the value of any travel concession.*
*HR practitioners should note that if the employee is paid a fixed allowance relating to ‘travel’ such as petrol allowance, mileage allowance etc, they are subject to EPF contribution. If such allowances are paid as part of a reimbursable expense claim, it is not subject to EPF contribution. In general, if a payment to the employee is made to reimburse them, it will not be subject to EPF contribution.
Wages as Defined by PERKESO
Like the EPF, Social Security Organisation, or PERKESO uses their definition of wages to see what types of remuneration attract PERKESO statutory deductions.
Wages are defined in section 2 of the Employees’ Social Security Act 1969 as:
All remuneration payable in money by an employer to an employee including any payment in respect of leave, holidays, overtime, and extra work on holidays but does not include:
- any contribution payable by the principal employer or the immediate employer to any pension fund or provident fund, or under this Act;
- any travelling allowance or the value of any travelling concession;
- any sum paid to an employee to defray special expenses incurred as a result of his employment;
- any gratuity payable on discharge or retirement;
- annual bonus;
- any other remuneration as may be prescribed.
Just like EPF, almost all types of remuneration will be subject to PERKESO contributions. Unlike EPF, it also includes overtime payments.
In addition, PERKESO also expressly excludes reimbursable expense claims as wages, as “any sum paid to an employee to defray special expenses incurred as a result of his employment.”
What About Allowances?
Allowances or perquisites are considered additional pay on top of an employee’s regular salary. They add up to the gross pay amount and can either be paid on a recurring or non-recurring basis.
In general, allowances do count towards an employee’s wages. All three Acts mentioned above (Employment Act, EPF Act, SOCSO Act) do not exclude allowances or perquisites from their definition of ‘wages’. However, all three Acts expressly exclude travelling allowances from counting towards the definition of ‘wages’.
Do Non-monetary Benefits/Benefits-in-Kind Count Towards Wages?
Non-monetary benefits or benefits-in-kind aren’t included in an employee’s salary or wages. Instead, such benefits or perks are provided for the employee’s comfort, e.g. health insurance or provision of a company car.
Since these benefits are not convertible into cash, they do not count towards an employee’s wages. Thus, it is important to distinguish between such benefits and allowances for this purpose. Essentially, it means that when the benefits are provided to the employee, they are not easily sold, assigned, transferred, or convertible into cash.
Get Wages and Payroll Right with brioHR
Wages may look simple at first glance, but it gets more complicated the more you look into it. But with brioHR, you can use the payroll module to calculate everything quickly and accurately. brioHR is also LHDN-approved so you know that all the calculations are compliant with all regulations.
With a secure, scalable, user-friendly platform, brioHR covers the entire employee journey from recruitment to onboarding, payroll and claims, to performance and analytics, and more.
This enables business owners and HR teams to truly focus on what matters most – people.
Visit briohr.com and get a free demo now.
