The Malaysian Industrial, Commercial, Service Employers Association (MICSEA) has urged the government to carefully assess and phase in any further increase in the national minimum wage under Budget 2027, warning that a sharp adjustment could place disproportionate pressure on micro and small businesses.
MICSEA president YK Lai said employers recognise the need for wages to respond to higher living costs and improve workers’ purchasing power, but argued that the pace and scale of adjustments should take into account businesses’ ability to absorb additional costs.
“Employers are not against better wages. We want workers to earn more. What worries us is a rate that looks manageable for a large company but is very hard for a small business running on thin margins,” Lai said.
Malaysia’s RM1,700 monthly minimum wage only became fully applicable to all employers nationwide on Aug 1, 2025, after smaller employers had been given a six-month deferment.
MICSEA said many businesses were therefore still adjusting to the previous increase and called for an impact assessment before another substantial revision is implemented.
The association pointed to Malaysia’s improving productivity but said the pace needed to be considered alongside potential wage increases.
Labour productivity per hour worked grew 5.5% year-on-year in the second quarter of 2026, while productivity per employed person increased 4.9%. Manufacturing productivity per hour rose 7.1%, with productivity per employee up 7.3%.
MICSEA illustrated the potential impact by noting that raising the minimum wage from RM1,700 to RM1,900 would represent an 11.8% increase, while RM2,000 would amount to a 17.6% rise. These figures were presented as scenarios rather than announced government rates.
Lai said wages did not need to move in exact proportion with productivity, but a large gap between the two could force smaller employers to adjust through reduced hiring, overtime cuts or higher prices.
The association also cited the Federation of Malaysian Manufacturing’s first-half 2026 business survey, which found that 69% of respondents faced higher production costs. The survey covered 670 companies, of which 72% were SMEs.
Malaysia’s MSMEs contributed RM652.4 billion, or 39.5% of national GDP, in 2024, according to the Department of Statistics Malaysia.
MICSEA said the impact of a minimum wage adjustment extends beyond workers currently earning the statutory floor because employers may also need to adjust salaries further up the organisation.
For example, if an entry-level worker’s salary rises from RM1,700 to RM2,000 while a more experienced employee earns RM2,100, employers could face pressure to increase the latter’s pay to preserve appropriate salary differentials.
For a business employing 10 workers at RM1,700, MICSEA estimated that an increase to RM1,900 would add RM24,000 annually to basic payroll, while an increase to RM2,000 would add RM36,000, before statutory contributions and other wage-linked costs.
“An extra RM300 in basic salary is not RM300 more in total cost,” Lai said.
MICSEA warned that businesses unable to absorb rapid cost increases could respond through automation, outsourcing, reduced recruitment or overtime, while particularly vulnerable firms could face closure.
Rather than focusing solely on minimum wages, MICSEA called for a broader compensation framework linking pay progression to skills, certification, responsibility and measurable productivity improvements.
It also proposed greater support for SMEs through automation and digitalisation grants, co-funded training and apprenticeships, affordable financing for productivity-enhancing technology and targeted tax incentives.
The association called for tripartite consultation through the National Wages Consultative Council before any new rate is finalised, involving employers, trade unions, SMEs, industry groups, economists and regional business representatives.
“This should not be workers against employers,” Lai said. “The question is how we raise incomes while protecting jobs, small businesses and Malaysia’s competitiveness.”
