Kota Kinabalu: Any further increase to the current RM1,700 minimum wage must take into account the actual financial capacity of employers, particularly small and medium-sized enterprises (SMEs).
Liberal Democratic Party (LDP) Information Chief Nicholas Ban said the Federal Government’s intention to increase employees’ incomes was understandable, but it must not look at wages in isolation without considering the wider impact of higher employment costs on businesses, employment opportunities and, ultimately, consumers.
“Of course we want employees to earn better wages. But at the same time, we must ask a practical question: can our SMEs absorb another increase in labour costs without affecting their ability to hire, expand and remain in business?” he said in a statement.
According to data from Perkeso, Nicholas said Malaysia recorded 24,100 formal sector workers affected by retrenchment in the first quarter of 2026, an increase of almost 47 per cent compared with the same period last year.
He said the figure should not be interpreted as proof that minimum wage increases were causing retrenchments. However, he said it demonstrated that the labour market was already facing pressures that policymakers should consider when reviewing wage policy.
“When businesses are already dealing with rising operating costs, the Government needs to be very careful about introducing additional fixed costs. The cost of one employee goes beyond basic salary.
“An increase in basic salary does not only mean employers have to pay a higher monthly wage. It can also increase other employment-related costs, including EPF contributions and other statutory obligations that are linked to employees’ wages,” he said.
Nicholas said the Government should consider factors such as company size, profitability, industry, productivity and revenue when designing wage policies.
“Different businesses operate under different circumstances. A one-size-fits-all approach may unintentionally place disproportionate pressure on SMEs.”“A more sustainable approach would be to link wage growth with productivity improvement. Instead of simply increasing the statutory cost of employing workers, theGovernment could strengthen assistance for SMEs in areas such as digitalisation, automation, skills training and productivity enhancement.
“This allows businesses to become more productive and, in turn, gives them greater capacity to pay higher wages,” he said.
Nicholas also suggested that SMEs should be given a reasonable transition period if any further minimum wage adjustment was introduced.
“Businesses need time to plan their cash flow, review their operations and adjust their pricing and workforce structure. Sudden increases in fixed costs can be particularly difficult for smaller businesses,” he added.
He said Sabah needed a policy that reflected its economic reality.
As a Sabahan, Nicholas said the impact of any nationwide wage policy on Sabah’s business environment must be carefully considered, as not all approaches applicable elsewhere would necessarily be suitable for Sabah.
“Sabah has a different economic structure from major economic centres in the peninsula. Many of our local businesses are micro enterprises and SMEs, and their operating environment and profit margins can be very different from those of large corporations.”He said the Government should therefore ensure that wage policies did not unintentionally discourage businesses from hiring new workers or expanding their operations in Sabah.
“We want Sabah workers to earn better incomes. At the same time, we want more businesses to invest, more young people to find jobs and more SMEs to grow.
“If the cost of employment rises beyond what some businesses can sustain, employers may have to consider reducing hiring, cutting operating costs, increasing prices or delaying expansion.
“These are the wider consequences that policymakers need to examine. Workers and businesses must move forward and remain aligned,” he said.
Nicholas said his position was not against better wages for workers, but against a policy approach that did not sufficiently differentiate between employers with very different financial capacities.
“We should not frame this as workers versus employers. A healthy economy needs both.
“Workers need better incomes, but businesses need to remain viable. Without sustainable businesses, there will be fewer employment opportunities,” he said.
He called on the Government to conduct a comprehensive assessment of the impact of any proposed minimum wage increase on SMEs, employment, consumer prices and Sabah’s economic environment before implementation.
“If the problem is highly profitable companies not paying their workers fairly, target that problem. If the problem is low productivity, help businesses improve productivity.
If the problem is insufficient wages, develop a wage growth mechanism that businesses can realistically sustain.
“The objective should not simply be to increase the minimum wage. The objective should be to create a stronger economy where workers can earn more, businesses can continue to grow, and employment opportunities can expand,” Nicholas said.
For example, for eligible Malaysian employees earning RM5,000 and below, the employer EPF contribution rate is currently 13 per cent. Therefore, when wages increase, the employer’s corresponding statutory contribution also increases.
“For a large corporation, an additional few hundred ringgit per employee may be manageable. But for a small business with 10, 20 or 30 employees, the cumulative increase can become significant.
“The employer may then have to deal with higher EPF contributions, Socso, EIS, overtime, allowances and other operating expenses at the same time,” he said.
Nicholas said these additional costs could indirectly affect other areas of an SME’s business, including rental, utilities, transportation, raw materials, marketing, equipment investment and future hiring.
He said if the Government’s concern was that certain highly profitable companies were not sharing their growth sufficiently with employees, then the policy response should be more targeted.
“If a highly profitable company has the capacity to pay its employees better but chooses not to do so, the Government can look at mechanisms specifically targeting that category of employers.
“But a small local business operating on a narrow profit margin should not necessarily be treated in exactly the same way as a large corporation with significantly greater financial capacity,” he said.
