Basic Salary, Gross Pay and Net Pay
Basic salary: The base income of any individual, the fixed part of the overall compensation package. The basic salary depends not only on the employee’s designation but also on the industry in which the employee is currently working. Basic salary is the amount agreed upon by an employer and employee excluding overtime or any other extra compensation.
Gross pay: The amount computed by adding the basic salary and allowances, but without the taxes and other deductions such as EPF and Socso. Gross includes bonuses, overtime pay, holiday pay, etc. For example, when an employer pays an employee a monthly salary of RM4,000, this means the employee has earned RM4,000 in gross salary.
Net pay: It is the amount of money that will finally be available to the employee. Using our last example, if an employee earned RM4,000 in gross pay, their net pay will be the amount that ends up in their bank account after taxes and other fees have been taken out.
In most cases, the net pay appears in larger font on your paycheck or pay statement and is often bolded to appear darker so that it is easily distinguishable from gross salary.
Basic salary and wage law in Malaysia
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 the value of any house accommodation, travelling allowance, gratuity, annual bonus, etc.
Wages have different scope under different sections of the Employment Act 1955 where basically it means basic wages and all other payments in cash payable to an employee for work done in respect of their contract of service.
The Minimum Wages Order 2020 (‘2020 Order’) was gazetted on 10 January 2020 and came into operation on 1 February 2020. As it came into force, two different sets of minimum wage rates have been applied in Malaysia.
Employers should take note that the new minimum wage only applies to the following 16 City Council and 40 Municipal Council areas:
City Council Areas: Johor Bahru, Iskandar Puteri, Alor Setar, Melaka Bersejarah, Pulau Pinang, Seberang Perai, Ipoh, Shah Alam, Petaling Jaya, Kuala Terengganu, Kuching Utara, Kuching Selatan, Miri, Kota Kinabalu, Kuala Lumpur, and Seremban.
Municipal Council Areas: Batu Pahat, Kluang, Kulai, Muar, Segamat, Pasir Gudang, Kulim, Sungai Petani, Langkawi, Kubang Pasu, Kota Bharu, Alor Gajah, Jasin, Hang Tuah Jaya, Port Dickson, Jempol, Kuantan, Temerloh, Bentong, Manjung, Kuala Kangsar, Taiping, Teluk Intan, Kangar, Ampang Jaya, Kajang, Klang, Selayang, Subang Jaya, Sepang, Kemaman, Dungun, Padawan, Sibu, Kota Samarahan, Bintulu, Sandakan, Tawau, Labuan, and Putrajaya.
Alor Setar is one of the 16 City Council areas specified in the Schedule to the 2020 Order.
For an employee whose place of employment is in any of the 16 City Council areas or the 40 Municipal Council areas specified in the Schedule to the 2020 Order, the minimum wage rates are as follows:
For an employee whose place of employment in Malaysia is in any area other than the City Council areas or Municipal Council areas specified in the Schedule to the 2020 Order, the minimum wage rates are as follows :
The increase in the minimum monthly wage under the 2020 Order to RM1,200 per month in major cities in Malaysia was announced during the 2020 Malaysian Budget. In addition, the 2020 Order increases the minimum monthly wage for the other parts of the country by RM50 to RM1,100.
Basic salary rates in Malaysia
Basic salary across sectors
According to the report Statistik Pekerja dan Gaji & Upah 2018 by the Department of Statistics Malaysia, the average salary and wage for workers in 2017 is RM2,804. In 2015, the average salary was RM2,594. There was a 4.0% growth between those two years.
The mining and quarrying sector recorded the highest average salary and wage of RM10,146 in 2017, followed by the Services and Manufacturing sectors with RM2,917 and RM2,870, respectively. The Construction sector recorded an average wage of RM2,499 while the Agriculture sector recorded RM1,519.
Basic salary rates based on full-time jobs
Managers, Professionals and Researchers earn the highest average of monthly salary with RM7,238 in 2017, followed by Technicians and Associate Professionals with RM3,808. Meanwhile, Clerical Support category averaged a monthly salary of RM 1,976 and Elementary Occupations recorded RM1,499.
Basic salary rates for fresh graduates
According to a report in 2019, Malaysian fresh graduates are earning an average of RM2,635 a month. There is a 6% increase from 2018, which was RM2,482, keeping up with inflation while helping companies attract the most qualified candidates.
With the new minimum wage order in effect, Malaysians should be able to support the rising cost of living especially in the 56 regions. However, many businesses have argued that because of the slow economy, increasing the mini wage will tighten profit margins and encourage layoffs.
Moreover, the area-based wage increase could cause possible discrepancies between workers from the 56 regions and those in rural areas.
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Sources: PeopleHum, Federal Government Gazette, Department of Statistics Malaysia, Human Resources Online
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