KUALA LUMPUR: Malaysia's Progressive Wage Policy pilot project needs to be longer than the 12-month period for employers to benefit from the transition.
Economy Minister Rafizi Ramli said the preferred duration should be about 24 months to enable employers to adjust to the transition.
"It needs to be longer than 12 months for employers to start getting the benefit of higher productivity and better talents from the programme. Ideally, it should be about 24 months.
Rafizi said employers should not to look at the policy as an extra salary cost.
"It is meant to speed up the upskilling of small and medium enterprises (SMEs)," he said at a town hall on the pilot project here today.
The policy, Rafizi said, is line with the government's target to increase the rate of employee compensation to 45 per cent (or 45 sen for every RM1 generated from the country's gross domestic product) by 2033.
The rate was at 32 per cent in 2022.
"You cannot move away from the question of talent. The better talents you have and the longer you retain them, the more they are able to do complicated things that have a greater chance of creating value," he said.
Rafizi said the pilot project will allow the ministry to assess the outcome, based on the targeted 1,000 companies that the ministry aims to have enrolled.
"We do not want to offer more (longer duration) because the cost to the government will also be higher. However, we are aware we need to cross a certain number of months before employers can stick to a higher salary band," said Rafizi.
The voluntary pilot project targets 1,000 companies, with a focus on micro small and medium enterprises.
Under the policy, employers will gradually increase pay for their semi and skilled workers based on their skills, experience and performance.
The pilot project, which started in June, will focus on employees earning salaries between RM1,500 and RM4,999.
The ministry will also start disbursing the incentives to the participating companies in October.
Companies defined as "entry-level" that voluntarily opt in will be given up to RM200 per worker for the first 12 months, on the condition that they raise salaries yearly either by matching or paying more.
Companies at the "non-entry level" will receive RM300 per worker.
As at Aug 5, Rafizi said 1,094 accounts were opened, 443 applications were made and 144 applications met the wage requirements.
A total of 42 companies have made claims, involving 183 employees.
Rafizi also addressed concerns on inflation that is likely to take place with a higher salary.
He said to offset the expected rise in inflation, companies need to achieve productivity and salary growth that is higher than inflation.
"As long as the economy maintains an inflation rate of 2.0 per cent. That is how any country in the world grow. We cannot run away from inflation and do not make it an excuse to not raise wages," he said.
Commenting on a question raised regarding double tax deduction, Rafizi said a lot of SMEs will not receive the benefit if it was implemented with the policy as it is only applicable to those who have statutory income.
He added that the best mechanism that will benefit all SMEs is by providing cash flow.
"Most employers have cash flow issues. I know that salary is always a nightmare for employers so it is better to help them by providing cash," he added.