Benefits and Rewards

7/31/2019 Benefits and Rewards

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GENIUS FUTURE EDUCATIONAL

CENTRE

BENEFITS AND REWARDS &

PAYMENT SYSTEMS AND

WORKING HOURS


PAYMENT SYSTEM AND WORKING HOURS

CONTENTS

CHAPTER PAGE

CHAPTER 1 Introduction 2-3

CHAPTER 2 Benefits Provided to Employees 4-22

CHAPTER 3 Reward Systems 23-29

CHAPTER 4 Wage and Payments System 30-37

CHAPTER 5 Legislation Relating to Payment of Wages 38-44

References

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CHAPTER 1 INTRODUCTION

Today, it is normal for workers to receive both wages and benefits as

compensation for their labor. Employers must decide whether to offer a



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remuneration package in which wages are high but benefits are low or high

value benefits and low wages, or alternatively, the value of the benefits

package may be approximately equivalent to the amount of wages received.

It is important to distinguish between wages, benefits and rewards.

Wages are cash payments paid to employee on a regular basis in return for

their labor. Other forms of compensation, not including wages, are known as

benefits. Benefits can be both financial and non-financial and they can be

statutorily required or optional. Most benefits given to employees by the

employer are specified in the contract of employment. This means that once a

benefit has been given, it cannot be removed without the consent of the

employee, even when the employer is facing financial constraints.

Over and above the benefits provided to employees, rewards may also

be given. Benefits are normally given to all employees, although different

benefits may be given to those in difference categories. Rewards, however,

are only given to individuals or small groups who are considered deserving.

Rewards are usually tied to a workers performance on the job and are used as

a motivational tool to encourage high levels of performance.



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CHAPTER 2 BENEFITS PROVIDED TO EMPLOYEES

Why do employers give benefits to employees rather than merely pay

an all-in-wage? Administratively, it would simplify the employers work to pay



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workers a lump sum in wages without the need to calculate allowances and

provide other benefits.

One reason for providing benefits is that certain benefits are statutorily

required. The legislation requiring these benefits includes the Employment

Act, the Sabah and Sarawak Labor Ordinance, the Employees Provident Fund

Act, the Employees Social Security Act and the Workmens Compensation Act.

The purpose of this legislation is to ensure the existence of a workforce which

is healthy and productive, and who have the means to support themselves

once they retire.

Employers provide benefits to their employees because benefits can:

Help attract staff to join the organization

Help retain existing employees, and

Increase morale of employees which will lead to higher productivity

Employees, especially those in managerial positions, may favor benefits

rather than higher wages because of the implications for their personal income

tax. Some benefits are tax-free and are therefore preferable to an increase in

wages, which may put the employee in a higher wage bracket with higher

levels of tax.

Benefits are categorized in many different ways. They may be statutory

or discretionary. They may be financial or non-financial. Joseph J. Martocchio

(2003) classifies as:



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Protection programmed which promote the health of employees and

guards against loss of income caused by illness, accident and

unemployment.

Paid time-of whereby an employee receives wages even though he

does not work.

Accommodation and enhancement benefits which relate to assisting

employees maintain a satisfying lifestyle.

Martocchio also outlines six factors which must be considered when designing

a benefits scheme. These are:

Eligibility and waiting periods: is the benefit only for the

employee or is it also to be extended to his family? Is the benefit only

for full-time employees or will part-timers receiving the benefit as well?

Will probationers be eligible for a benefit or will it be reserved for

confirmed staff? Will employees only eligible for a particular benefit

after serving a prescribed number of years? For example, companies

that offer a months paid leave to undertake a pilgrimage often require

employees to have served at least 5 years before they can avail

themselves of the benefit. By requiring employees to serve a minimum

number of years before they are entitled to a particular benefit, the

employer is rewarding employees for loyalty. In other words, the benefit

is used as a strategic tool to encourage retention of employees.

Kinds of benefits: which benefit will be offered to employees?

Level of the benefits: employer must decide whether a benefitwill be fully funded by the employer himself or whether the employee

should pay wholly or partially for the benefit (which may cheaper when

the employer negotiates the benefit with the supplier) or combination

of these.



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Fixed package or employee choice: traditionally, benefits were

offered as a fixed package, but flexi-benefit scheme are increasing in

popularity. These schemes are discussed later in the chapter.

Communication: how will employees learn about the benefit to

which they are entitled and the means of applying for them?

Handbooks were the most common method for explaining to employees

their eligibility for benefits and for telling them how to apply. Online

explanations are more common today.

STATUTORY BENEFIT

The Employment Act 1955 and the Sabah and Sarawak Labour

ordinance (amended as of 2005) require employers to give certain benefits to

employees who are covered by the Acts. While some groups are excluded

from coverage, most particularly those earning more than RM1,500 per month

in Peninsular Malaysia and those earning more than RM2,500 per month in

Sabah and Sarawak, the benefit laid down in the laws are commonly extended

to all employees.

Of course, some groups employees may receive more than is

provided for in the Acts, either because the employer wishes to give more so

as to attract and retain staff of because the workers concerned are unionized

and through their union, the workers have been able to negotiate a better

deal. The point is worth repeating-only employees within the scope of the

Employment Act or the Sabah Labour Ordinance or the Sarawak LabourOrdinance is entitled by laws to the benefits described in this section. For all

other employees, the benefit may be offered on a discretionary basis by their

employer.



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MATERNITY PROTECTION

The law provides that every female employee is entitled to maternity

leave for a period of not less than 60 days for every confinement. This leave

can begin any time within 30 days prior to the employee confinement. During

the maternity leave, maternity allowance is payable to the employee providing

she has no more than five surviving children and she has served the employer

for at least 90 days rate of pay, whichever is the higher amount. This

allowance is payable even if the employee resigns from her employment

within four months of her confinement providing she has informed her

employer of her impending confinement.

Many other countries do provide for much longer maternity leave than

the 60 days limit in Malaysia. However, in some of countries, the United

Kingdom for example, the employer is not required to pay the employee her

wags throughout the leave period. The state-run social security system, to

employees right to paid maternity leave was extended in 2004 from 8 week

to 12 week, with the government paying the employee for the period after 8

weeks.

TIME-OFF PAYMENT

Apart from maternity leave, other types of paid leave are provided for in theEmployment Act and the Sabah and Sarawak Labour Ordinance. These are:

A weekly rest day

Public holidays



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Annual leave

Sick leave

A weekly rest day

Section 59 of the Employment Act stipulates that all employees are entitled to

one rest day per week. An employee may not be required to work on this rest

day, except in circumstances stated in the law. When an employee works on a

rest day, he will be entitled to premium rates of pay.

Public holidays

Section 60 entitles all workers covered by the Employment Act to a minimum

of 10 paid gazette public holidays per year. Four of the holidays must include:

1. National Day

2. The Yang di Pertuan Agongs Birthday

3. The State Rulers Birthday

4. Labor Day

The other six holidays will be chosen by the employer. However,

under the Sabah Labour Ordinance, employees must be provided with 14

public holidays per year and the Sarawak Labour Ordinance makes it

compulsory for employers to grant workers 16 public holidays per year.

To prevent absenteeism at holiday time, the Act provide that if a

worker is absent without the employers consent on the day immediately

before or after a public holiday, he is not entitled to holiday pay. If an



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employee is required by his employer to work on a holiday, he is entitled to

two days extra wages.

Annual leave

To safeguard workers health, they are not only entitled to a weekly rest day

but also to annual leave during which time they can recuperate and reenergize

themselves. An employee earns the right to apply for annual leave after he or

she completed one year of service with an organization. The Employment Act

provides that paid annual leave shall be given as follows:

For service of less than two years 8 days leave per year

For two to five years service 12 days leave per year

For more than five years service 16 days ;leave per year

If the contract of employment is terminated by either the employer or

the employee for any reason except dismissal for misconduct and at that point

of time the annual leave entitlement due in the year has not been used up by

the employee, he shall be paid an amount equivalent to his ordinary rate of

pay for each day not taken.

The employee may forfeit his annual leave if he is absent without

permission or reasonable excuse for more than 10% of the working days in a

particular year. It is common practice for companies requiring annualmaintenance of plant to require all employees other than those directly

involved to take annual leave at this time.

Sick leave



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Employees are entitled to paid sick leave, where no hospitalization is

necessary, for 14 days per year if the worker has less than two year service,

18 days if his between two and five year and 22 days for those who have more

than five year service. When an employee needs to be hospitalized, he can

take up to 60 days sick leave per year.

The employee is only entitled to the above benefit if he is certified sick by

a registered medical practitioner appointed by the employer, commonly

known as a panel doctor, or if no panel doctor has been appointed or in an

emergency by any registered medical officer. The fees for the doctors

examination of the employee will be borne by the employer. The employer is

not legally required to pay for medical treatment and cost of medicine but as

doctor normally provide one bill inclusive of both examination and treatment

charges, the company will have to decide whether they wish to pay such bills

or whether they will only pay for treatment up to a certain ringgit level.

THE EMPLOYEES PROVIDENT FUND ACT

The purpose of the Employee Provident Fund Act, first introduce in 1951

and subsequently amended in 1991, is to ensure that every worker has

sufficient funds to sustain him once he has retired. Malaysia has no statutory

retirement age, but a common practice in the private sector is to require

employees to retire at 55 or56 years of age. This is because, at the age of 55

employees are permitted to withdraw their savings from the Fund. The

Employees Provident Fund was established as a form of compulsory savingsystem for workers so that they and their families would not be impoverished

and dependant on the state once they retire from the workforce.

Every employer is required to register with the Employees Provident Fund

(EPF) Board on setting up a business. Any employer who fails to so register is



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liable to imprisonment of up to three years or a fine of up to RM10, 000 or

both. The employer is future required to register of all payment to workers.

Inspectors of the EPF will periodically check this register to ensure the Act is

being complied with.

All employees are liable to pay monthly contributions to the Fund

currently at the rate of 11% of their wages. Employers are required to deduct

this amount from their employees wages and pay it on their behalf to the

Fund, along with the employers contribution of 12% of the workers monthly

wages. The only employees who are not required to become members of the

Fund are domestic servants, foreign workers and government servants on a

pension scheme. However, there is provision for self-employed person decide

to contribute, he or she must pay a minimum or RM 50.00 per month into the

Fund.

If after retirement, workers rely entirely upon their EPF savings and have no

other source of income, it is possible that poverty levels amongst the elderly

will rapidly increase. This is because:

Many workers do not have a large amount in their EPF account;

especially if they have withdrawn some of the money for various

purposes during their working years was relatively low.

People are living longer after retirement, but at the same time,medical costs are increasing.

Many employees withdraw their money from the Fund when they

reach 55 years of age and then spend most or all of the money

within one or two years.



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Family sizes are reducing and children may find it difficult to

support their parents financially.

The EPF is the cornerstone of the Malaysian social security system for

the elderly. For this reasons, the penalties for non-compliance are relatively

high compared to other employment-related transgressions. Yet, there are

employees who are unable to think long-term. They have been instances of

collusion between employers and employees whereby the two parties agree

not to pay any contributions to the Fund, irrespective that it is compulsory to

do so (The Star, 24 July 2006). The employer pays a little higher in wages to

the employee who receives more money to spend now but will suffer when he

is retired and has no money in his EPF account.

Who are the ones that should contribute to this fund?

All employees in Malaysia that have already reached the age of 16 and

they are employed under a contract of service whether it is implied or

expressed and whether it is through writing or orally must then register as a

member of the Employees Provident Fund. The employers will then contribute

12% of the employees wages while the employee themselves will contribute

11% of their monthly wages towards the employees account.

Expatriates and foreign workers were not required to contribute to the

EPF prior to the 1st of August 1998, but if they wish they could still elect to do

so. However, with effect of 1st of August 1995, with exception of certain

categories all foreign workers and expatriates that earns less than RM2, 500

per month will then be required to contribute to the EPF.



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The ones that do not have to contribute to this compulsory contribution

are for example, Thai workers who have entered Malaysia with a Territorial

Pass, foreign domestic maids, out-workers that do cleaning and alteration

repair works, pensioners, employees or workers that holds Employment Passes

or the expatriates that holds Visit Passes (Temporary Employment) where their

wages are less than RM2, 500 per month, seamen, people that are detained in

custody, in prison, Henry Gurney School and mental hospital.

Even so, if people that fall under this category wish to contribute

towards this fund, they can still do so. If a member continues their

employment after they have withdrew the contributions upon their retirement,

the particular member may choose to continue to contribute to the EPF by

submitting the KWSP 20/20A Form.

THE EMPLOYEE SOCIAL SECURITY ACT 1969

The Social Security Organization (SOCSO) provides two social security

schemes to protect the welfare of employees and their dependents under the

Employees Social Security Act 1969. The two social security schemes namely

are:

Employment Injury Insurance Scheme

Invalidity Pension Scheme

The Employment Injury Insurance Scheme provides employees with coverageby way of cash benefits and medical care in the event of any disablement or

death due to employment injury.

The Invalidity Pension Scheme provides 24-hour coverage to employees

against invalidity or death due to any cause not connected with his



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employment. However, the employee must fulfill the condition to be eligible

for invalidity pension.

Employer Eligibility

Any employer who hires one or more employees as defined under the Act is

required to register and make contributions to SOCSO.

Employees receiving a monthly salary of three thousand ringgit (RM3, 000) or

less are required to contribute to SOCSO, Employees with a monthly salary of

more than RM3, 000, who have not registered and contributed to SOCSO, have

the option of registering and contributing as long as both employer and

employee agree to contribute. However, when an employee is already

contributing under the said Act, he will still be eligible to contribute and be

covered regardless of his monthly salary thereafter.

The main benefits that the Organization provides are:

Medical benefit for those who suffer from an employment injury

Disablement benefit for those who suffer from an employment injury

Dependants benefits for the family of an employee who dies of an

employment injury

Invalidity pension

Constant attendance allowance

Survivors pension

Supply of prosthetic appliances

Facilities for rehabilitation



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It is to the advantage of the employer to ensure he registers his eligible

employees under the Social Security scheme because once a worker is insured

with SOCSO he loses the right to sue the employer for damages for any work-

related injury or disease that he may contract.

The SOCSO scheme has not been entirely free from criticism. There are

times when the Organization is very slow to pay out benefits, but this is

usually because either the documentation provided by the claimant is not

complete or because there is something suspicious about the claim which

warrants investigation. Unfortunately, there are person who claim benefit to

which they are not entitled. In order to safeguard SOCSO funds from such

unethical practices, investigation are necessary to ensure that only eligible

person receives benefits from the Organization. SOCSO has to be particularly

careful as the payment made to workers is increasing every year to the point

that contributions barely cover these payments and SOCSO administrative

expenses.

They have been suggestion that SOCSO could offer other benefits,

particularly if the monthly contributions by employers and employees were

increased. The scheme could become a comprehensive social security scheme

which offers compensation for all accidents, not only work-related accidents,

retrenchment benefits and even extended maternity leave payment.

NON-STATUTORY BENEFITS



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A wide range of optional benefits may be given to employees. A list of

some of the possibilities will be given here, with a few comments on each. It is

common practice for employers to provide different benefits to different levels

of workers. More benefits are usually offered to management and executive

level staff. However, as the labour market tightens, employers are finding it

essential to give better benefits to operators, technicians and indeed all their

employees in order to reduce turnover levels.

Time off Payment

Apart from the sick leave, maternity leave and annual leave guaranteed

under the Employment Act and the Sabah and Sarawak Labour Ordinances,

many companies offer other types of leave, especially to unionized workers

and management.

These include leave for the purpose of:

Marriage

Birth of child (paternity leave)

Personal emergencies

Pilgrimage

Studies

Death of relative

Health care

Health care is increasingly becoming a valuable benefit to employees in

tandem with the rising cost of medical care. Health care may be extended to

an employees dependants and may include payment of dental and optical



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bills. Subsidized or free exercise facilities are also provided with the intention

of ensuring the health of employees.

Insurance

Employers commonly buy life and accident insurance group policies,

usually combined with medical benefits, to protect their employees. This

benefit is most likely to be offered to executive and managerial level staff. In

Malaysia, it is rare for this benefit to be extended to the families and

dependants of employees, whereas in some countries this is the norm, but the

employee may be required to pay part or all of the cost of the insurance,

which is still cheaper than the employee buying the insurance individually

Financial services

Loans to buy houses, cars and other items such as computers may be

given to employees, usually with interest rates lower than those charged by

the banks. Alternatively, workers may have the interest rates on their banks

loans subsidized by the employees. Some large companies negotiate with

financial institutions to offered personal loans to their employees at

competitive

Subsidies and services

A range of services may be provided to employees either free or on a

subsidized basis. Canteens and transport to and from work are examples of

such services as are childcare facilities, club membership and accommodation



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at holiday resorts. Where housing is generally unavailable or expensive,

employers often build quarters for their staff. In the plantation industry,

workers have traditionally been provided with free housing, electricity and

water supply. Employers in towns and cities are building or renting hostel

accommodation for their workers especially if their workforce consists mostly

of young females or foreign labor.

Retirement benefits

Although all employees contribute to the Employees Provident Fund, it

has been recognized that the present level of contributions may not guarantee

workers a reasonable standard of living when their retire. Therefore, some

employers are willing to pay a higher contribution into the Fund on behalf of

their employees. Alternatively, large organizations may establish special

retirement funds as an extra to the EPF. The benefit is usually calculated

based on the employees last drawn pay and his number of years service

Allowances

Wages may be supplemented by a number of allowances including:

Travel/transport allowance

Meal allowance

Housing allowance

Hand-phone allowance

Shift allowance

Standby allowance

Entertainment allowance



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Educational fee assistance

To encourage workers to develop themselves, companies may build up

libraries of reading materials and computer-readable files which are made

available to workers. If employees wish to attend any training course after

working hours which is related to the job, the company may pay the fee if the

worker successfully completes the course. This will motivate the worker to put

his best effort into learning the require material. Scholarships may also be

offered to promising employees to future their studies. Some companies

negotiate with local universities to offer customized postgraduate in-house

course to their executives and managers. The fees may be shared between

the employer and the employees.

TRENDS IN BENEFIT PACKAGES

Awareness and desirability of benefit

The cost of benefits offered to employees can be almost as high as the

wage bill itself. Therefore, employers should look carefully at the impact ofthese benefits. Two factors should be considered: awareness and desirability.

They need to be made aware of the saving they personally make by

receiving such benefits and the cost of the package to the company should be

communicated to them. This can be done through articles in in-house journals



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and annual reports, and through notes accompanying pay-slip. Each employee

could be given a well-designed booklet describing the benefits package is to

attract, retain and motivate workers.

Once a benefit has been introduced, it becomes difficult to take it away

later. Thus, before any anew benefit is offered, it might be wise to investigate

carefully whether the workers desire such a benefits package which will help

to achieve their objective.

Align benefits to strategic objectives

A benefit package should be designed that will help achieve

organizational objectives. If turnover is a problem, nay is offered which

increase with the seniority of the employee. If the increase is sufficiently

steep, employees may become reluctant to leave the organization, even if

offered a better salary elsewhere, because of the loss of the attractive

benefits. The only potential disadvantage of linking benefits to numbers of

years of service is that workers who do not perform very well will be as likely

to stay as the star performers.

Creative benefit of help employers in many ways. Where companies

expect their employees to work long hours, a concierge service may be

welcomed. This service, which could be outsourced or provided by the

organizations administration department, includes sending and picking upclothes from the drycleaner, purchasing gift and flowers for special occasion,

ordering or buying tickets for entertainment, if this cannot be done online and

so on.

Cafeteria benefit scheme



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A number of organizations have been experimenting with the cafeteria

concept or flexi-benefit system. Under such a scheme, employees are offered

benefit from a menu. This concept is based on the belief that different groups

of employees have different needs depending on their age, income and

lifestyle. For example a single worker would have no need of childcare

facilities and would not be interested should the employer offer this benefit.

Some workers get medical benefits from their spouses employer and

therefore end up with duplicate protection.

Issue related to benefits

Some controversial issues have arisen in relation to provision of

employee benefits. Large and profitable employers generally extend some

benefits to the family members of employees. Most commonly, medical

benefits are provided to the spouse and children of an employee. In country

like Malaysia, the definition of spouse is very clear. A spouse is the husband

or wife of the employee (the person to whom the employee is legally married).

Companies may require proof that the employee is legally married before they

will provide benefits to the spouse.

A major problem that employers face with benefit packages arises after

a merger of two companies. It is usual; soon after the legal formalities of the

merger are complete, to harmonize the two groups of employees terms andconditions of service, including their wages and their benefits. This is a difficult

exercise which often leads to employee discontent, at least for a short while,

when they realize that they are likely to lose certain benefits or have them

substantially reduced. Of course, some new benefits may be added into the

mix and some existing benefits may be increased.



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Expatriate benefit packages tend to be far more generous than those

provided to local workers and include a number of benefits not offered to local

staff. For examples, expatriates may be entitled to flight tickets to their home

country once every year. There are usually provided with accommodation

which may include the services of a maid and a car with a driver. Benefit does

not drive employees performance. They have no role in motivating employees

to perform their best on the job.



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CHAPTER 3 REWARD SYSTEM

The wage and benefit package offered to employees in return for their

services, if well-designed, can attract and help to retain good workers.However, to motivate workers to perform at the highest levels possible,

special schemes have to be devised. Benefits are provided to all employees

regardless of their individual contribution to the organization. As has been

seen above, certain benefits are more likely to be given to executive and



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managerial level employees. As all workers in a given group receive the same

benefits, the individual is not motivated to put forward extra effort. Thus,

rewards, both financial and non-financial, can serve this purpose by reinforcing

desirable behavior and spurring the employee on to higher levels of

productivity.

Rewards can be given to individuals or to groups of workers. Where it is

difficult to isolate the individuals contribution, group rewards would be more

appropriate. For example, a well-known British clothing store operating in

Kuala Lumpur has a sales incentive scheme whereby a fixed percentage of the

profits made on sale per department concerned. In this way, all the staff in the

department, no matter what their position, works towards pleasing the

customers and generating more sales.

A great deal of through needs to be put into a recognition programme to

ensure its success. Cindy Ventrice (2003) points out that recognition and

rewards must be delivered to employees by their managers, not by the Human

Resource specialists in the organization. She emphasizes that as managers are

responsible for the performance of their subordinates, so they are the ones to

provide recognition to deserving employees. According to Ventrice, the HR

managers job is to give support to managers and make certain that

recognition is given appropriately.

This can be done by:

Conducting a survey of employees and managers to determine

their attitudes towards recognition



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Training managers how to provide meaningful recognition

Help management provide a variety of recognition programmes

Track the results of recognition programmes

Non-financial Rewards

Performance awards

Employers recognize the value of performance awards which can be

given for a variety of special achievements. Worker of the Month, Most

Promising Executive and other such citations may be given. The awards can

be merely a certificate or they may also involve a cash prize, or a souvenir

item (of some value such as a gold bar). Publicity is given to the winners

through the in-house journal, photographs and a write-up on company notice

boards and a special prize-giving ceremony may be recognized at which top

company executives are present.

Letters of appreciation

Praise, whether given in writing, orally, in public or privately, is a potent

source of employee satisfaction. Obviously, the way the praise is given should

relate to the quality of the performance that is being praised. Exceptionally

good work may be rewarded with a letter of appreciation, preferably signed by

at least a Head of Department or higher ranking manager.

Sponsorship to seminars, conferences and overseas tours



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It can be beneficial to both the employee and the employer if high

achievers are sent to attend seminars, conference and possibly on an

overseas tour to visit a parent company, supplier or customer. The employee

benefits by the paid holiday and may bring back new ideas of use to the

company or he may make contact that may later be of use.

Rewards for long service

Gold watches, a gold bar, a trip overseas, a special dinner event or

combinations of these items were common. Today, however, increasing

numbers of employers are hiring people on flexible short-term contract and

workers themselves no longer have an expectation of a long stay with any

particular employer, so these types of reward is less common outside public

sector employment. There is also little available evidence to show that such

rewards actually encourage loyalty. Workers leave their employment for many

reasons and are not likely to be influenced to stay simply because they are

due for a long-service award.

Financial Rewards

Financial rewards may be given in a variety of forms, ranging from

salary increases, bonuses, profit-sharing plans and commissions.

Salary increases

In smaller companies where there is no fixed salary scale and grading

for employees, it is relatively easy for managers to rewards top performer with

an increase in salary at any appropriate time. Where scales exist with fixed

annual increments, the manager may have the discretion to give subordinate

two or more merit increments. If salary increases are to motivate employees



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they should be given frequently. When increments are given on an annual

basis, the time lag between the employees good performance and the reward

is too distant to have a string impact on the employees motivation.

A number of issues will have to be decided by employers wishing to

motivate workers with salary increases. The first issue will be how much

increase will be sufficient to motivate an employee to continue to work well or

to work harder. If insufficient increase is given, the increment will have no

motivational value. If too much is paid, the employer cost will increase without

any returns on the payment. A second problem applies to higher paid

employees who are in a higher tax bracket. If they are granted a merit

increase in pay, they may actually receive little extra at the end of the day

because of having to pay higher rates of income tax. In this case, again, the

increase will not be appreciated by the employee.

Bonus and profit sharing

A bonus is a lump sum of money awarded for outstanding performance

in any activity which the organization wants to encourage. Bonuses can be

given on a group or individual basis. A number of companies pay contractual

bonuses of one or more months salary to all employees at the end of the

year. These are payment agreed to the employees contract of employment,

or where a trade union has negotiated the employees terms, are included an

a collective agreement. Such payment should not, in fact, be called a bonus

because the quantum is agreed in advance and it is not tied to individual,group or organizational performance. A contractual bonus is a from of deferred

wages. In Singapore, this sum is known as an Annual Wage Supplement or

Thirteenth-month Payment. It has been the practice in Chinese businesses to

given an ang pow to workers prior to Chinese New Year. These bonuses are

not tied to performance of the individual or the business in any transparent



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way, but are given at the total discretion of the employer. An ang pow is

therefore more a form of recognition and thanks to workers rather than a

motivational tool.

In one example of a company using a flexi wage system described by

Tsuchiya et al. (1988) the amount of bonus to be distributed to employees was

calculated annual based on profitability and productivity. In this example,

profitability was defined as the ratio of operating profit to operating capital.

(Operating capital is the sum of fixed and current assets.) Productivity was

calcuted according to the ratio of value added to total labour cost. How was

the bonus distributed to the employees? Traditionally, bonuses have been

given equality to all, irrespective of individual performance. This means the

motivating effect of the payment is lost. To overcome this limitation, the

Singaporean model of flexi wage provides for distribution of the bonus to

individual according to their contribution to the organization as measured in

their annual performance appraisal. Thus, it is evident that the flexi wage

concept relies on fair, acceptable appraisal system.

Rewards for salespeople (commissions)

Traditionally, salespeople have rewards systems which are different to

that provided for other employees in the same organization. It is assumed that

salespeople, more than any other group of workers, are strongly motivated by

money. Therefore, their reward systems are usually based on a commission

system. A survey in the United Kingdom (Langley 1987) found that 30% of

sales representatives receive both salary and commission, 12% get a salaryand bonus but no commission.

The system used needs to be appropriate to the type of job. A

supermarket salesgirl, for instance, may have very little influence over

customers buying habits and therefore a commission would be inappropriate.



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A sales representative who is required to go out canvas for customers and

persuade them to buy an expensive product may need the incentive of a

commission to ensure he is motivated to put in the effort needed.

A number of questions have to be considered when a commission

system is being designed. Apart from the obvious issue of the amount of

commission per sale, companies must also decide whether commissions are

due once a sale has been made, or once payment has been received. A long

time lag between sale and commission tends to be de-motivating. An

employer may also need to think about whether there should be a cap or

maximum commission which may be earned per month or in any specified

time period.

Jack Keogh (2007) shares some ideas for motivating a sales team from the

writings of sales experts Tom Reilly and Dirk Beveridge. These experts suggest

that companies:

Share as much information as possible with the sales force. They should

be given economic and other information so that they can buy into the

planning and target setting process

Understand that every person is different and may need to be motivated

in a different way

Money is not the only motivator. People need to paid well, but the other

factors also influence salespeople



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Sales managers should travel with the salespeople as much as possible.

Constructive feedback should be given after each trip

The sales force must be challenged by giving them reachable, attainable

goals. The goals must not be too easy or too hard. Make them stretch

goals that can be benchmarked

Regular performance reviews need to be held so that people know

where they stand in relation to the other salespersons



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CHAPTER 4 WAGE AND PAYMENT SYSTEMS

In return for their work, employees are paid agreed amounts of

remuneration. Typically, employers also provide some payments to motivate

workers to maximize their output. Thus, a remuneration or compensation

package is made of several elements, usually a combination of basic pay,

incentives and benefits.

The variety of possible systems is wide. Employers not only have to

decide the quantum or total amount of wages to offer to each employee, but

they also have to determine whether to offer any incentives and if so, what

from they should take. Decisions also have to be made concerning the types

of benefit and quantum of benefit to offer. However, it is not always the

employer alone who decides on the compensation system and structure for his

company. Payment systems may be influenced by trade union negotiations

through government intervention.

All employers are required to make two major decisions which will affect

the success of their enterprise. They must choose a wage system for

implementation and they must decide on the wages levels or quantum of

wages they will offer to employees. Which systems are offered will depend on

the organizations objectives. Primarily, the goals of a wage system are two:



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Attract employees to work in the organization

Retain efficient employees

Motivate employees to perform effectively Establish a simple system that is easy to administer

The employer must keep in mind that certain factors are considered

important by potential workers. Employees want the highest financial

package possible, but they also want stability of income so that they can plan

their personal finances.

Wage system

There are two major systems of payment:

Time-related system

Piece-rated system

Time-related system

In a time-based system of payment, wages are paid for a set period of

work on an hourly, weekly or monthly basis. Thus, the pay varies with the

number of hours worked and not with the output. Time-related systems are

probably the most widely used because of the following advantages:

They are easy to understand and administer

The worker is assured of a steady income

A time-related system of payment is particularly suitable where there is

no direct relationship between productivity and an individuals performance.

White-collar, clerical and managerial jobs have traditionally used this system

as the mode of payment. Indeed, this system is used whenever the output of a



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job cannot be quantified easily. The time period used as a basis for payment

many range from hourly to annual. In plantations and manufacturing, it has

been a norm for many years to pay most workers based on a daily rate.

The chief disadvantage of time-related system is that there is no

relationship between effort and reward. There is no incentive for the employee

to work efficiently and effectively. A worker who puts maximum effort into his

work will receive exactly the same pay as the one who does as little as

possible. Therefore to ensure workers put in their best effort, control system

will be necessary.

Piece-rated systems or piece-work systems or payment by results

In a piece-work system workers are paid according to the number of

units produced in a given time. A straight piece-rate system pays a certain

amount for each items produced. In a differential rate system, to encourage

workers to produce at maximum levels, progressively higher rates may be

paid for higher levels of output. Most modern-day payment by results system

provides a base or minimum salary. On top of that, the worker receives an

agreed amount for every item produced or product sold. The commission

system is an example of payment by result. A salesman may be given a very

low salary which will serve merely to keep him alive.

On top of this salary, which is more than a living allowance, he will be paid

commission or a set amount for every item sold. Payment by results or piece-work is most successful when:

The job has a short learning cycle, (it is easy to learn)

The worker has control over the pace of the work and effort put in, (the

job is not machine controlled)



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There are no breaks or stoppages in production

When piece-work is used, the role of management is not to exhort

workers to greater effort or to exercise close control over their work. Under

such a system, it is assumed that workers will be self-motivated. Workers will

put in their best effort in order to increase their pay packet. Managements

role is to establish a working system where smooth output by the operators is

possible. Management must take steps to avoid stoppages, which will

negatively affect workers machines are well-maintained and if possible,

power supply is uninterrupted.

Piece-work does cause a number of problems, however. Firstly, it has

been well-established that workers do not necessarily attempt to maximize

their earnings. Social norms may intrude. While an individual may desire to

works as fast as possible in order to earn more money, he may find an output

restriction norm is being enforced by his co-workers. If he exceeds that limit,

he puts himself in danger of being ostracized or boycotted by his colleagues.

The second major disadvantage of piece-rated system is that the quality of

output may be affected. In their eagerness to increase output, workers may

sacrifice quality.

Factor affecting levels of pay

Deciding how much to pay employees is a key human resource decision.Glen Shepared (2005) says, Underpaying cause turnover to skyrocket while

overpaying result in little motivation to improve and advance. The dollar

figure is not as important as being competitive within the industry. These

include legislation, existence or otherwise of unions representing the workers



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concerned, selection policy of the employer, employment conditions and

company profitability.

Legislation and government policy

Governments everywhere are concerned about how much employers

pay their employees. They may wish to prevent exploitation of workers and

for this purpose will ensure a minimum wage is legislated. They may also

want to discourage employers from increasing wages too fast as this may

affect the competitiveness of the countrys economy. Wage control, is not

usually achieved through legislation, but more often by policy statements and

other means. Most countries find wage controls difficult to implement

effectively. Malaysia has no minimum wage required by statute, except for

those few industries covered by Wages Councils.

Unions

Wages can be set either unilaterally, by the employer alone or

bilaterally. Where workers belong to a trade union, which has been granted

recognition. The union will activate the collective bargaining process. A strong

union with skill in negotiating may be able to push wage and benefit levels up

to a higher point than the employer would pay if the union were not involved.

At the same time, it is also true that some employers will pay higher than the

average wage with the objective of keeping their workers contented and not

interested in joining a union. Thus, the very existence of unions affects wage

levels whether or not the worker belongs to a union. As less than 10% of theMalaysian workforce belong to a trade union, the overall influence of unions

on pushing up wages is minimal, although in certain industries unions may

play a major role in determining how much employees are paid.

Selection policy



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High wages will attract better workers when the organization has job

vacancies. A company offering higher than the normal wages can hope to

attract more qualified workers. However, the relationship between

productivity and high wages is tenuous. High wages do not guarantee highly

motivated worker. Other factors come into operation once a worker has been

recruited.

Factors affecting individual levels of pay

The preceding discussion focuses on the wages levels in a particular

organization relative to other organizations. Within the organization there are

variations in wages between different groups of workers and different

individuals in the same group. Employees not only compare the wages they

receive with that given to workers in the organizations, they also compare

themselves with other employees in the same organization. Internal equity will

exist if the workers perceive their wages to be fair in relation to the wages of

their colleagues.

What factors affect individual levels of pay? The factors include:

Seniority

Increase in the cost living

Performance

Degree of skill

Seniority

To encourage workers to be loyal to the organization and to stay with

the same employer (who will have invested in the workers training), pay

structure may be organized so that the wage level rises with the number of



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years of service the worker has. The longer he stays with the company, the

more his pay packet increases until he reaches a predetermined ceiling or

maximum. Thus, workers are given an annual increment which partly

compensates them for any increase in the cost of living, but also rewards long

service. This common practice of giving annual increments has been criticized

as it leads to an increase in the organizations wage bill without any

corresponding increase in productivity. Malaysias productivity levels are

concern to everyone because of the countrys dependence on exports.

Increase in the cost of living

Employers will generally increase employees pay in line with any

increase in the cost of living. The consumer price index, issued by the

Department of Statistics, in the Prime Ministers Department, describe the

increase in the cost of basic goods and can be used as a guideline to

employers who wish to provide employees with increments when the cost of

living has risen. When the basic salary is increased, many other payments

which are calculated based on basic salary will also increase. For this reason,

when the cost of living rises rapidly, some employers do not increase wage but

they give their employee a cost of living allowance, sometimes called a

subsistence allowance.

Performance

An individuals pay packet is also affected by his competency or

performance levels. Workers who are identified as outstanding may receivespecial merit increments or bonuses. In some situations, it is more practical to

provide bonuses to a group of workers, especially where it is not possible to

distinguish the results of individual performance. Pay for performance scheme

require effective and fair performance appraisal systems.



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Degree skill

The biggest difference in individual wages is caused by the universally

held belief that workers should be paid according to the skill level required by

their job. The higher skills needed, the more the worker will be paid. To

differentiate between jobs, job evaluation is carried out. This is technique for

analyzing and ranking jobs. Rajkumar (1985) says,

The objective of job evaluation is to achieve a systematic basis for

relating pay to job content, complexity and difficulty. Essentially it aims to pay

the higher valued jobs more than the lower valued ones, in order to be

internally consistent.

An issue of concern to many governmental and non governmental

organizations is equality of pay for men and women, although this has never

been a major problem in Malaysia. Although there is no specific legislation

mandating equal pay for equal work, there is no strong evidence that suggests

women are paid less than men where they are hired for the same jobs.

Malaysia does, however, have a large gap between the incomes of men and

women when taken in the aggregate. Womens income in the year 2003 was

only half that of men (www.mier.org.my ). This is because a considerable

percentage of women work in unskilled jobs, which pay less than the job in

which men are employed.

http://www.mier.org.my/http://www.mier.org.my/


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CHAPTER 5 LEGISLATION RELATING TO PAYMENT OF

WAGES

The laws relevant to the payment of wages are:

The Employment Act

The Sabah Labor Ordinance



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The Sarawak Labour Ordinance

The Wages Council Act

These laws given certain rights and protection to employees who are

within their scope. Protection of wages is a major concern of these laws.

However, not all employees are within the scope of the three key laws that

regulated payment of wages (the Employment Act, the Sabah and Sarawak

Labor Ordinances).

The Employment Act and the Sabah and Sarawak Labor Ordinances

The Employment Act lays down a number of requirements concerning

the payment of wages. Similar sections are found in the Sabah and Sarawak

Labour Ordinance. The first point to note is the definition of wages. Different

labour laws provide different definitions as to what items should be considered

wages. The definition is significant because several allowances and pay rates

are calculated based on the quantum of wages.

Examples are:

An employer can terminate an employees contract of service without

notice providing he pays the worker a sum equal to the amount of

wages he would have receive during the notice period

Maximum monthly deductions from wages must not exceed 50%

Retrenchment benefits are based on an employees length of service

and his daily wages



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Maternity and overtime allowances, work on rest day and public holiday

are based on the ordinary rate of pay (ORP)

The ordinary rate of pay (ORP)

At this point, it may be helpful to examine the concept of one days

wages or the ordinary rate of pay (ORP). This is calculated by reference to the

mode of payment to the employee which can be hourly, daily, weekly, monthly

or on a piece rate basis.

For a weekly rate employee, the ORP is:

Weekly rate of pay

6 days

For a monthly rated employee, the ORP is:

Monthly rate of pay

26 days

For hourly daily and piece rate employees, the ORP is:

Total wages earned in the preceding wage period

Actual number of days worked during that wage period

According to the employment Act, wage is defined as basic wages and

all other payments in cash payable to an employee for work done in respect ofhis contract of service, but does NOT include:

Travelling allowance

Reimbursement of expenditure related to the employees work



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Termination / Retirement gratuity

Annual bonus

Payment of wages

According to the relevant employment laws, a wage period may not be

longer than one month. Workers can, of course, be paid more frequently, for

instance, fortnightly, weekly and even daily. The majority of workers in

Malaysia are paid wage monthly. Yet, in other country in the Commonwealth,

wages are mostly paid on a weekly basis. Because some workers find it

difficult to budget for a full month, a few companies are now paying wages

twice a month. Wages must be paid no later than the seventh day after the

last days of the wage period and a written statement showing the total wages

earned and any deductions made must be given to the worker.

Failure to pay wages within the time limits set by the Employment Act

can be considered breach of contract by the employer. Deductions can only be

made in accordance with the Act. Deductions as follows are permitted:

On the written request of the employee, for the purpose of:

Payment to a trade union

Payment to a cooperative society

Payment to a cooperative shop

On the written request of the employee and with the written approval of

the Director General of Labour, for the purpose of:

Payment to a superannuation, welfare or thrift scheme

Payment to third parties

Repayment of advances on wages granted by the employer to the

employee where interest is levied



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Cost of accommodation, food or services supplied to the

employee by the employer

Any other payment which the Director General is satisfied is forthe benefit of the worker

Without request or consent of the employee, for the purpose of:

Deductions authorized by any law (Employee Provident Fund

contributions and Social Security Organization contributions)

Deduction of any payment of wages made by mistake to the

employee during the preceding three months

Deductions for any indemnity due to the employer by the

employee

Deductions of an advance on wages where no interest is levied

The employment law allows employers to given an advance of wages to

employees but the advance may not exceed one months pay, except where

the employer advance the employee money to buy a house, land, livestock,

vehicle or shares in the employers business, in which case there is no limit on

the amount which may be advance to the employee. The amount is at the

discretion of the employer. Other advances require the express permission of

the Director General of Labour.

While these clauses in the law were introduced to protect workers, they

may be considered rather dated in some ways. For example, today, very few

workers would request their employer for an advance on wages for the

purpose of buying livestock. In an increasingly urban society, workers do not

have a suitable place to keep any livestock! Clauses in the law such as these

date back to the 1950s when the majority of employees were looking in mines



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and on plantations where there was plenty of space available for the rearing of

livestock.

The wages council Act and minimum wages

Malaysia has no fixed minimum wages except in certain industries

where there exist Wages Councils. A wage council is a committee appointed

by the Minister of Human Resource to investigate the wage paid in a particular

sector of the economy and make recommendations concerning the minimum

quantum which should be paid to workers in the relevant sector.

The Minister is authorized to give the force of law to these

recommendations. In the 1950s and 1960s, these tripartite bodies

recommended to the Minister of Human Resource the appropriate minimum

wages for:

Shop workers

Hotel and catering industry workers

Cinema workers

Port of Penang stevedores and cargo handlers

The above groups were singled out because at the time the Wages

Councils were first established in the 1950s, it was intended to provide a

minimum wage for those workers who were not unionized. The governments

policy on minimum wage for other workers has been consistent throughout the



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last 40 years. The government has said many times that it has no intention to

introduce a minimum wage for all workers. Furthermore, the quantum of the

minimum wage for the four groups of workers mentioned above, which is

currently approximately RM300 per month has not been upgrade since the

1970s. The government policy is to allow market forces to determine how

much employers pay their employees.

Reduction in wages

Can an employer, if he is facing financial difficulties or of any other

reason, unilaterally reduce an employees wages? The industrial Court has

ruled on this issue in a number of case and the answer is no. Such an action

could be a considered by the employees as constructive dismissal. A reduction

in pay would be a breach of the contract of employment going to the root or

base of the contract. Of course, if there is mutual agreement to reduce the

wages, the new, reduced wages become the new terms of the contract.

REFERENCES



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1. http://www.ehow.com/facts_5048523_definition-parttime-

job.html#ixzz1OYdLwH4L

2. http://www.ehow.com/list_5981933_benefits-disadvantages-flexible-work

hours.html#ixzz1OYcETc42

3. Human Resource Management Principles and Practices by Maimunah

Aminuddin

4. Business Management Oxford Fajar Polytechnic Series by Ang Huat Bin

5. Pengurusan Sumber Manusia Siri Teks Politeknik by Sarimah Hanim

Aman Shah
http://www.ehow.com/facts_5048523_definition-parttime-job.html#ixzz1OYdLwH4Lhttp://www.ehow.com/facts_5048523_definition-parttime-job.html#ixzz1OYdLwH4Lhttp://www.ehow.com/list_5981933_benefits-disadvantages-flexible-work%20hours.html#ixzz1OYcETc42http://www.ehow.com/list_5981933_benefits-disadvantages-flexible-work%20hours.html#ixzz1OYcETc42http://www.ehow.com/facts_5048523_definition-parttime-job.html#ixzz1OYdLwH4Lhttp://www.ehow.com/facts_5048523_definition-parttime-job.html#ixzz1OYdLwH4Lhttp://www.ehow.com/list_5981933_benefits-disadvantages-flexible-work%20hours.html#ixzz1OYcETc42http://www.ehow.com/list_5981933_benefits-disadvantages-flexible-work%20hours.html#ixzz1OYcETc42

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