Topic Compensation Administration Legislation

INTRODUCTION

During your employment, has your employer ever neglected to pay or delayed paying your salary due to financial reasons? Have you ever received a bonus, incentives or pay increment that you were not satisfied with? If you have never been employed, have you heard of similar incidents? Even though an employer has the full right to determine the rate of pay to award the employee, the legislation aspects should not be ignored. The role of legislation in compensation remuneration is vital. Employers should make the employment related acts their guide in shaping their organisationÊs compensation administration.

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Compensation Administration Legislation

LEARNING OUTCOMES

By the end of this topic, you should be able to:

1. Describe the six elements of a salary reform system and the two models of a salary reform system;

2. Correlate the compensation administration system and the legislative frameworks;

3. Explain the importance of legislation in the determination of the rate of pay and wage; and

4. Assess the functions of legislative control over the rate of pay and wage.

TOPIC 2 COMPENSATION ADMINISTRATION LEGISLATION ! 39

In this topic, the functions of three main acts, namely the Employment Act 1955, the WorkmenÊs Compensation Act 1952 and the Industrial Relations Act 1967 will be discussed. Apart from that, this topic will also include discussion of the legislation process, which is the role of law, in determining an employeeÊs salary. The importance of legislation in the determination of rate of pay and wage, and legislative control over the rate of pay and wage will be elaborated on in this topic.

LEGISLATION PROCESS

The economic revival programme implemented by the government of late has spurred rapid economic growth and generated employment. For the good of all parties, steps to increase efficiency and productivity have to be implemented. This will guarantee the countryÊs high competitive edge in the future apart from contributing to employeesÊ overall growth and quality of life. Realising the importance of this matter, the National Labour Advisory Council (NLAC) has agreed to formulate the Guidelines on the Salary Reform System. The guidelines will be beneficial to union employees, non-union employees, employers and the country, both in the short run and long run. The guidelines can assist the employers and employees to formulate the salary reform systems that are most appropriate to the needs and environment of their company. The guidelines aim to:

(a) Create a closer relation between salary and productivity to enhance competitiveness and foster employee stability;

(b) Allow employers to create a broader and more orderly approach to increase employee productivity and salary through more active involvement and cooperation among the employees; and

(c) Allow the employees to enjoy their share of the organisationÊs earnings. Adherence to the guidelines can foster fairness and social solidarity and enhance the employeesÊ quality of living apart from developing opportunities for career advancement and increased work satisfaction.

2.1

SELF-CHECK 2.1

Should your employer fail to pay or delay paying your salary or other compensation as stated in your contract of employment, are you in a legal position to sue your employer?

TOPIC 2 COMPENSATION ADMINISTRATION LEGISLATION

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MAIN ELEMENTS IN A SALARY REFORM SYSTEM

Do you know that there are a few main components in a monthly pay slip? Can you name one of the components? There are six main elements that need to be taken into account in order to determine the salary reform system. The elements are as follows:

(a) Salary has to cover the combination of monthly salary or other frequent payments, annual salary increment, annual bonus or other non-frequent bonus;

(b) Salary has to have fixed components, which include basic pay, and additional components in the form of variable payments;

(c) Fixed and variable components;

(i) Fixed Components Basic pay, annual salary increment and contractual bonus (whichever

is relevant).

(ii) Variable Components Annual salary increment is based on the growth in productivity or

profit distribution formula.

(d) Change in basic pay needs to take into account factors such as cost of living;

(e) Fixed salary components should portray work values and the payment of salary increment is the recognition of an employeeÊs period of service and performance; and

(f) Variable salary components can be determined by correlating productivity and an individualÊs performance, work force or organisation.The indicators used should be transparent and can be measured.

2.2


Figure 2.1 shows a conflict between a manager and a staff due to the staffÊs dissatisfaction with his salary.

Figure 2.1: Salary dissatisfaction

SALARY REFORM SYSTEM MODELS

The salary reform system is made up of the profitability model and the productivity model. An organisation can also combine both models by taking into account the factors of company profit and employee productivity. For the salary reform system to be successfully implemented, it must involve cooperation between the employer and the employee and contain the following characteristics:

(a) Sufficient flow of information and appropriate timing between the employer and employee; the fostering of employee confidence in this system and the continuous observation and evaluation between the employer and employee. Sensitive corporate information supplied should be handled appropriately;

(b) Effective method of employee consultation and employeesÊ involvement in decisions that concern them;

(c) Training for managers and employees in the incorporation, consultation and implementation of the system;

(d) Representatives of the employer and employees should strive to come to a consensus according to the consultationÊs objectives; and

2.3


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(e) Both parties should create a framework for consultation including agreeing on a common consultation agenda.

We will now discuss the profit model and the productivity model. (a) Profit Model

In a profit model, fixed salary components consist of basic salary, annual salary increment and contractual bonus (whichever is relevant).

On the other hand, variable components consist of performance bonus determined according to the profit distribution formula and other correlated variables:

(i) The formula should be agreed on by the management and union, and clarified in joint agreements or through consultations for sectors that are not represented by unions; and

(ii) Salary increment will be paid when profit is greater than the determined level or value that is calculated based on the return of investments, return on assets or return on equity and the average profit acquired in the past few years.

(b) Productivity Model

In a productivity model, fixed salary components consist of basic salary, annual salary increment and contractual bonus (whichever is relevant).

Variable components consist of the payment of variable productivity, determined as follows:

(i) The management and union will negotiate the pay increase incentive based on the increase in productivity for the said year;

(ii) The pay incentive for a particular year should match the productivity increase;

(iii) The annual increment will be deducted from the agreed amount of pay increase, and the remainder given as a payment of variable productivity, made periodically;

(iv) The payment of variable productivity depends on an organisationÊs performance. If the performance clearly deteriorates, the variable payments might not be paid;

(v) At the outset, a formula or strategy of mutual understanding has to be created to make adjustments for the payment of variable productivity;

(vi) An organisation that does not have its own productivity indicators can use the industry indicator or the countryÊs productivity or growth indicator as a guide to determine the salary adjustments for that particular year; and


(vii) The productivity indicators used should be based on the added values of every employee or other methods.

CONNECTION BETWEEN ACTS AND COMPENSATION ADMINISTRATION

When we outline an organisationÊs compensation programme, we need to scrutinise the laws of the country. This is because the laws of the country give employers guidelines regarding types of compulsory compensation and the types of compensation which, although optional, are necessary. There are three main acts related to the compensation programme, namely:

(a) Employment Act 1955

(b) WorkmenÊs Compensation Act 1952

(c) Industrial Relations Act 1967

2.4.1 Employment Act 1955

The following make up the categories of employees who are subject to the Act:

(a) Those who work in the private sector in Peninsular Malaysia; and

(b) Those who earn not more than RM1,500 per month or those, without taking into account their total earnings, who:

2.4

The Employment Act 1955 is provisioned to control the rights and obligations of employers and employees in the private sector. This Act spells out the minimum standards for the employeesÊ payment of wage conditions and protects the employees from being exploited by the employers.

ACTIVITY 2.1

Based on the given information, what is the difference between a profit model and a productivity model of salary reform? What model is used by your organisation? State why the human resource department of your organisation uses the model. If you have never been employed, try listing the differences between the profit model and productivity model based on what you have learned.


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(i) Work as unskilled labourers;

(ii) Supervise unskilled labourers;

(iii) Use or maintain transportation equipment that operates mechanically; and

(iv) Are foreign workers with a legal payment of wage in Malaysia.

All the information should also be given by the employers to the employees in a copy that contains the terms of employment. The employees should also receive a copy of the pay slip every time they receive their pay for a specified period. Besides this, the employees must abide by all terms and conditions of the service that have been mutually agreed upon with the employers. For example, if an employee wishes to cease employment, the employee has to give a resignation notice. The notice period depends on the time period that has been agreed upon by the employee and the employer, according to the contract of employment signed by both parties. If there is any action by the employer that conflicts with the labour laws or terms in the service contract, the employee can report the matter to the Labour Department for action to be taken. Figure 2.2 shows eight important regulations documented in the Employment Act 1955.

Section 61 of the Employment Act 1955 also compels employers to state in detail the information related to employees such as name, gender, age, identification card number, permanent address, job post, employment commencement and end date, terms and conditions of employment, along with the pay and allowances received by the employees for each employment period.


Figure 2.2: Eight Important Regulations in the Employment Act 1955

2.4.2 Workmen’s Compensation Act 1952

The WorkmenÊs Compensation Act 1952 was enforced in Peninsular Malaysia on 1 April 1953 and in Sabah and Sarawak on 1 June 1981. This Act was introduced with the purpose of giving compensation to employees who are involved in accidents, suffer injuries in the workplace or suffer illness caused by the employment. This Act also covers the payment of compensation to an employeeÊs dependants, if the employee dies as a result of a work-related accident. On 1 April 1993, this Act was amended; it deems that all local and foreign workers in the private sector should be protected according to the Social Security Act 1969. An amendment to employee protection was also made on 1 November 1996. Through this amendment, a non-manual employee with a wage of not more than RM400 per month in the private sector will be protected. A foreign worker with a wage of not more than RM500 or who works as an unskilled labour will be protected by the Foreign Workers Compensation Insurance Scheme (FWCIS) 1952. Under the WorkersÊ Compensation Act 1952, an employer must ensure that a legitimately hired foreign worked is insured with any one of the insurance companies appointed to the panel of the FWCIS. The insurance companies listed in the panel of the FWCIS as at 27th June 2007 are:

(a) Allianz General Insurance Malaysia Berhad

(b) Berjaya General Insurance Berhad

(c) Kurnia Insurance (Malaysia) Berhad

(d) Lompac Insurance Berhad

Employment Act 1955

(a) Employment Regulations 1957.

(b) Employment (Limitation of Powers of Officers) Regulation 1993.

(c) Employment (Reciprocal Provisions Procedure) Regulations 1957.

(d) Employment (Minimum Rate of Maternity Allowance) Regulations.

(e) Employment (Employment of Women Shift Workers) Regulations 1970.

(f) Employment (Limitation of Overtime Work) Regulations 1980.

(g) Employment (Termination and Lay-off Benefits) Regulations 1980.

(h) Employment (Employment of Women) (Female Conductors) Regulations.


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(e) Malaysian Assurance Alliance Berhad

(f) Mayban General Assurance Berhad

(g) Malaysia National Insurance Berhad

(h) Syarikat Takaful Malaysia Berhad

(i) Takaful Nasional Sdn Berhad

(j) Tahan Insurance Malaysia Berhad

(k) Jerneh Insurance Berhad

(l) Mayban Takaful Berhad

(m) Multi-purpose Insurance Berhad

(n) MUI Continental Insurance Berhad

(o) QBI Insurance (M) Berhad

(p) RHI Insurance Berhad

(q) Royal & Sun Alliance Insurance (M) Berhad

(r) Takaful Ikhlas Sdn Bhd

(s) The Pacific Insurance Berhad

(t) Tokio Marine Insurans (M) Berhad

(u) Uni Asia General Insurance Berhad

(v) Am Assurance Berhad

(w) AXA Affin Assurance Berhad

(x) Commerce Takaful Bhd

(y) Progressive Insurance Bhd The benefits entitled to by the employees based on the coverage of the Act are summarised in Figure 2.3.

Figure 2.3: Benefits that employees are entitled to according to the

WorkmenÊs Compensation Act 1952


Various employee benefits are also detailed in the Social Security Act 1969, which is administered by the Social Security Organisation (SOCSO). The SOCSO is responsible for managing matters relating to workersÊ compensation. Therefore, benefits offered under the WorkmenÊs Compensation Act 1952 are almost similar to the benefits available under the Social Security Act 1969. Figure 2.4 indicates the distribution of compensation paid due to industrial accidents in 2003-2007.

Figure 2.4: Distribution of compensation paid due to industrial accidents in 2003-2007

2.4.3 Industrial Relations Act 1967

Before the Industrial Relations Act 1967 was introduced, employers and employees were encouraged to resolve problems based on two ordinances, namely:

(a) Industrial Courts Ordinance 1948 (voluntary conciliation through third parties); and

(b) Trade Disputes Ordinance 1949 (voluntary arbitration by the Industrial Court)

The enforcement of the Industrial Relations Act 1967 has allowed the intervention of the government in industry conflicts. Harmonious relations between employees and employers will exist when the interests of both parties are protected.


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Section 1, Industrial Relations Act 1967 states that this Act:

In conclusion, this Act stipulates the principles and guidelines to the employers and employees in relation to the practice of industrial relations to achieve better industrial harmony. Part I of the Act defines the important terms, whereas Part II states the employee protection rights and their unions. Section 5 of the Industrial Relations Act 1967 affirms that employers should not:

(a) Prevent employees from participating in unions;

(b) Terminate employees who participate in unions;

(c) Reject applications of employees who participate in unions; or

(d) Compel employees to participate in unions. Other matters laid down in the Act are:

(a) Recognition and scope of union representation (Part III);

(b) Collective bargaining and collective agreement (Part IV);

(c) Conciliation (Part V);

(d) Representation towards dismissal (Part VI);

(e) Industrial court;

(f) Research and investigation (Part VIII);

(g) Trade conflicts, strikes and lock-outs and matters arising there from (Part IX); and

(h) Miscellaneous (Part X). Table 2.1 shows the number of unions in Malaysia in 2003 and 2004.

„Provides for the regulation of relations between employers and workers and their trade unions as well as the prevention and settlement of any differences or disputes arising from their relationship and generally deals with trade disputes and matters arising therefrom‰.


Table 2.1: Number of Unions in Malaysia in 2003 and 2004

No Item 2003 Jan May 2004

1. Trade Union

(a) Private 380 375

(b) Government 127 131

(c) Statutory Body/Local Authority 88 89

(d) Employer 14 15

Total 609 610

2. Trade Union Memberships

(a) Private 420,821 432,343

(b) Government 298,01 306,535

(c) Statutory Body/Local Authority 69,798 69,829

(d) Employer 543 475

Total 789,163 809,182

Source: http://www.mohr.gov.my/makluman/key.htm#13 This Act involves two main parties, which are the Malaysian Employers Federation, as a representative of employers in general and the Malaysian Trade Union Congress, as a representative of employees in general. Both parties should abide by their belief in the concept and principles contained in the National Pillars (Rukun Negara). Therefore, the relevant parties should be aware of their responsibilities towards those whom they represent and towards the community that they form an important part of. They should also acknowledge that industry peace is important for a stable economy, and especially during a period of stagflation. They should also acknowledge that a stable economy is very important towards achieving the aims of the countryÊs development plans. This is needed for a united Malaysia, righteous in the social aspect, and impartial and advanced in the economic aspect. As such, employers and employees in Malaysia are encouraged to adhere to the provisions related to the Industrial Relations Act 1967, namely:

(a) Avoid taking measures that are not appropriately related to any industry conflicts;

(b) Resolve all dissensions, complaints and conflicts, in line with the rules of conflict in joint agreements or by holding peace negotiations and equal weights, if there are no joint agreements;

(c) Determine that all matters in a conflict are managed by the appointed vehicle for that purpose throughout the period;


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(d) Encourage constructive and positive cooperation at all levels in an industry and hold tight to the spirit of the agreement that has been jointly agreed upon;

(e) Have regulations (if none exists) to determine a complete and quick investigation for joint settlements towards any complaints;

(f) Obey all steps in the regulations with regard to complaints settlements, and avoid taking any improper measures (that do not heed the said regulations);

(g) Avoid using force, fear, abuse and avoid „job tardiness‰, „job reluctance‰ and „strike at the workplace‰; and

(h) Complete the knowledge of the management and the employees about their obligations to one another.

Table 2.2 shows the actions taken by employees in Malaysia who were dissatisfied with their employers in the years 2003 and 2004.

Table 2.2: Actions Taken by Employees in Malaysia who were Dissatisfied with their Employers in year 2003 and 2004

No Item 2003 Jan May 2004

1. Strike/Closed-door

(a) Incident 2 -

(b) Employees Involved 57 -

(c) Lost Man days 114 -

2. Picket: Incident 23 6

3. Trade Union Recognition Claims Under Section 9 (2) of the Industrial Relations Act 1967

110 28

Source: http://www.mohr.gov.my/makluman/key.htm#13 Both the employer and the employee should adhere to industrial relations practices and to what has been agreed upon from time to time between the Malaysian Employers Federation, as a representative for employers in general; and the Malaysian Trade Union Congress, as a representative for employees in general, and accepted by the Ministry of Human Resources.


The employers should also agree not to support or encourage any unfair labour practices such as:

(a) Disturbing the trade union affairs and employeesÊ rights to form a union;

(b) Discriminating against or restraining employees who perform legal trade union activities; and

(c) Abusing power in any instance. Trade unions should agree not to support or encourage unfair labour practices as shown in Figure 2.5.

Figure 2.5: Unfair employee practices The Industrial Relations Act also affirms that employers cannot stop their employees from participating in trade unions. An employer also cannot refuse the application of an employee only because the applicant has participated in a trade union. In addition, an employer cannot threaten to terminate an employee if the employee decides to participate in a trade union. Nevertheless, a trade union also cannot compel or influence any employee to participate. Before starting the discussion, test your understanding by doing the exercise below.


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Multiple Choice Questions 1. The Employment Act 1955 aims to protect these employees,

EXCEPT:

A. Unskilled labourers.

B. Supervisors of unskilled labourers.

C. Legal foreign workers.

D. Employees with a wage of not more than RM1,800 a month.

2. The following are things that should be obeyed by employers

according to Section 5 of the Industrial Relations Act, EXCEPT:

A. Prevent employees from participating in unions.

B. Terminate employees who participate in unions.

C. Reject applications of employees who participate in unions.

D. Avoid taking any appropriate measures in relation to any industry conflicts.

3. The following are important legal aspects in the formation of an organisationÊs compensation administration system, EXCEPT:

A. Achieve justice and equality.

B. Avoid oppression and discrimination among employees.

C. Avoid good relations between employers and employees within a harmonious job environment.

D. Adhere to the procedures and laws in the protection of employersÊ and employeesÊ rights.

Essay Question

State three acts that are used as the main guidelines by Malaysian employers in forming an administration system.

EXERCISE 2.1


2.4.4 Payment System

Even though a payment system might differ according to the type and arrangement of a job, the current situation and other factors, the following principles have to be adhered to, to ensure that the payment system being practised is founded upon employment ethics; and thus, can reduce conflicts accordingly. The said principles are as follows:

(a) The payment system must be prepared in the easiest manner possible;

(b) The rate differences must be related to the employment needs, and if required, the rates should be considered with methods that have been agreed upon or accepted;

(c) Overall work rate, encouragement bonus and other remuneration have to be determined according to definite methods; and

(d) The payment rate must be negotiated between employers and employees, or their representatives.

2.4.5 Employment Guarantee

Concerns that arise due to non-guaranteed employment, excess of workers in the job market and various problems related to retirement, have a major influence on the attitudes of the employees towards their jobs and towards strengthened industry relations. To ensure the efficiency and success of an industry, an employer has to create a firmly stabilised employment period. Besides that, an employer also needs to do the following:

(a) Give hope for advancement and promotion in the industry by giving opportunities for any required training; and

(b) Make provisions for retirement schemes, employee reduction and paid leave in addition to the statutory provisions.

2.4.6 Excessiveness and Retrenchment of Employees

When there is an excess of employees, employers have to take the necessary steps to take care of their own interests and those of the employees. Apart from consultations with representatives of trade unions and the Ministry of Human Resources, employers have to take positive steps to avoid or reduce retrenchment of the work force. These steps are listed in Figure 2.6.


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Figure 2.6: Protecting employeesÊ interests The employer has the last say in determining the size of its work force. Nevertheless, before any decisions are made about the retrenchment of employees, employers have to consult the employees or trade unions. If retrenchment still needs to be done despite taking specific measures, employers have to undertake the following steps:

(a) Immediately inform the relevant employees;

(b) Propose retrenchment schemes and voluntary retirement schemes;

(c) Pay benefits to the employees;

(d) Offer retirement to employees who are past the normal retirement age;

(e) Assist employees in looking for jobs out of the said industry with the cooperation of the Ministry of Human Resources;

(f) Extend the process of employee discharge to a longer period; and

(g) Ensure that the announcement of the employee discharge is not made prior to informing the employees and their representatives or trade unions.

Employee discharge has to be done according to an objective measure. The measure must be discussed first with the employeesÊ representatives or trade unions and must contain the following:

(a) The need to operate the workplace or industry site efficiently;

(b) An employeeÊs job capability, experience, expertise and qualifications that are needed by the workplace or industry site under item (a) above;

(c) Consideration due to long service and employee position (non-citizen, part-time, temporary or permanent);

(d) Age; and

(e) Other measures that might be formulated in the context of national policies.


Employees who have been discharged due to an excessive work force must be given priority to be re-employed by their employers when they can afford to take in employees again. Specific objective steps and measures must be part of the working policy of a workplace or industry site. Table 2.3 shows the discharge of employees in Malaysia in 2001 and 2002.

Table 2.3: Employee Discharge in Malaysia in 2001 and 2002

Source: Adapted from http://mohr.gov.my/new/pasaran-buruh-thn2001.htm

2.4.7 Negotiation Regulations

Joint negotiation agreements must be performed in the easiest manner possible and for that purpose, employers and unions must agree on the regulations they must abide by. The regulations should have:

(a) Similar conditions of employment that could be used effectively within the entire industry;

(b) General guidelines for negotiations on matters that could not be finalised satisfactorily at the industry level; and

(c) A regulation to resolve conflicts whether for the industry as a whole or as an example, for use at the industry site or workplace level.


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2.4.8 Joint Agreements

Joint agreements operate important matters, and both can be included in one document or elaborated on separately. Nevertheless, specific provisions must exist so that revision can take place to ensure that the regulation provisions are always updated. Regulation provisions must affirm the formal laws of the joint negotiating body and they should embrace:

(a) Matters that need to be negotiated and the level at which the negotiations should take place;

(b) Important methods of negotiating agreements with regard to employment conditions, including period of agreement and how a party can terminate and renegotiate the agreement; and

(c) Regulation on excessive employees and temporary lay-offs, discipline and termination.

These important provisions should cover wage and pay, overtime rates, bonus if applicable and other systems of the calculating income in relation to performance; working period; provisions for overtime work and work shifts; leave and salary qualifications. The provisions should also embrace various matters including side-benefits such as paid leave, pension, guaranteed salary scheme and work study. These provisions are important to determine the level of performance and output capacity, including the categorisation of the types of job such as method study, work measure and work evaluation; trade union fee reduction and other deduction from the employeesÊ salary by the management; facilities of trade union activities at the workplace and others.

IMPORTANCE OF THE LAW IN DETERMINATION OF SALARY AND WAGE PAYMENT RATES

2.5

SELF-CHECK 2.2

Based on the discussions in the previous section, what will happen to the employer if the payments of salary and wages are not in accordance with the three main acts, namely the Employment Act 1955, the WorkmenÊs Compensation Act 1952 and the Industrial Relations Act 1967?


The importance of legislation when designing a compensation administration system is a matter that cannot be argued about. This is because legislation aspects can guarantee the welfare of an employee so that he will be better protected and not oppressed by the employer. The importance of legislation in four aspects of a compensation administration system is as illustrated in Figure 2.7.

Figure 2.7: Legislation and the four aspects of the compensation administration system Source: http://creative.gettyimages.com

The following are descriptions of the four aspects of the compensation administration system.

(a) Achieving Justice and Equality To ensure that proportionate salaries are given to employees, the

Employment Act 1955 lays down a few regulations and conditions in salary calculation. For example, salary calculations for public holidays, off days and overtime have been set at reasonable rates.

Employers must adhere to the regulations in this Act to ensure fairness in

the payment of employee salaries. The WorkmenÊs Compensation Act 1952 guarantees that employees who suffer from accidents get equal treatment


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from their employers, that is, receive compensation that is proportionate to the severity of the accident that has taken place.

(b) Avoiding Oppression and Discrimination Apart from the Employment Act 1955 that aims to prevent the exploitation

of employees by their employers, the WorkmenÊs Compensation Act of 1952 was also introduced to award proportionate compensation to employees who suffer from accidents in the workplace or suffer service or employment illnesses, which are illnesses due to the job. Therefore, oppression will not happen to employees who are disabled due to workplace accidents. Employers will assume full responsibility for the welfare of these employees.

Various benefits that employees are qualified for should include lifetime hospitality allowance, given to employees who are disabled and who need someone, such as a nurse to care for them. Through this benefit, an allowance will be given to pay the nurse who will care for the disabled employee.

(c) Maintaining Good Relations between Employers and Employees in a Work Environment An employeeÊs welfare can be better protected with the existence of a trade union. The purpose of a trade union is to ensure that the rights of employers and employees are adhered to impartially. If both parties abide by the regulations that have been determined and agreed upon, there would not be any industrial conflicts that would have adverse impact on an organisationÊs performance and productivity.

(d) Adhering to Procedures and Legislation in Protecting the Rights of Employers and Employees

Each process in any work activity must follow the procedures laid down. The procedures developed by the employers should be guided by the acts specified by the government. For example, the WorkmenÊs Compensation Act 1952 requires employers to submit written reports on accidents to the Labour Department within 10 days from the date of the accident. This is one of the accident reporting procedures that needs to be adhered to by the employers. If an employer fails to do so, he could be fined up to RM2,000. The enforcement of fines or penalties is one method to ensure that the employers and employees obey the regulations in the respective acts.


LEGISLATIVE CONTROL OVER SALARY AND WAGE PAYMENT RATES

Acts related to employment were created by the government to, among other things, control the rate of salary and wage payment to the employees. Legislative control over the payment rate of salary and wage was first introduced when there was low unemployment. This caused the payment rate of salary and wage to increase and resulted in an increase in demand for services and products. Such economic conditions will lead to inflation; hence, the need for the government to step in. Employers are allowed to determine their payment rate of salary and wage but they have to adhere to the regulations set by the acts. Before we end this topic, test your understanding through Exercise 2.2.

2.6

Multiple Choice Questions

1. Legislative control over the payment rate of salary and wage was introduced to: (i) Control unemployment. (ii) Control the increase in payment rate of salary and wage. (iii) Control the increase in demand for services and products. (iv) Control inflation.

A. i and ii. B. i, ii and iii. C. i and iii. D. i, ii, iii and iv.

2. The WorkmenÊs Compensation Act 1952 was introduced to

provide compensation to employees if they suffer: (i) Service illness. (ii) Death or permanent disability during the course of

employment. (iii) Permanent disability. (iv) Temporary disability. A. i and iii. B. iii and iv. C. i, iii and iv. D. i, ii, iii and iv.

EXERCISE 2.2


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Although an employer has the full right to determine the rate of pay, legislation aspects should also be taken into account.

Acts that control the payment of employee compensation in Malaysia are the Employment Act 1955, the WorkmenÊs Compensation Act 1952 and the Industrial Relations Act 1967.

An employer should make the acts related to compensation the basis of its compensation administration system.

A good compensation system is important to increase an organisationÊs efficiency and productivity, in addition to protecting the employeesÊ welfare and improving the quality of life of the employees. In light of these, the National Labour Advisory Council has formulated the Guidelines on the Salary Reform System (GSRS).

The GSRS can benefit union and non-union employees, employers and the country, both in the short run and long run.

The guideline will assist employers and employees in formulating a salary reform system that is most appropriate to the interests and environment of their organisation.

The salary reform system is made up of the profit model and the productivity model.

Finally, the employers and employees should cooperate in the issue of compensation payment so that they can protect both the interests of the employees and the employers.

Essay Questions

1. State four reasons why legislation is important to the compensation administration system.

2. Explain how legislative control plays its role in determining a rate of

pay.


Burial expense benefits

DependentÊs benefits

Disability benefits

Employment Act 1955

Employment illnesses

Industrial Relations Act 1967

Medical benefits

Permanent disability benefits

Rehabilitation expense benefits

Temporary disability benefits

WorkmenÊs Compensation Act 1952

Topic Compensation Administration Legislation

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