SMEs worry minimum wage hike to RM1,700 could strain businesses despite potential benefits

KUALA LUMPUR, Oct 19 — The announcement of a minimum wage increase to RM1,700 starting next February by Prime Minister Datuk Seri Anwar Ibrahim has raised concerns among small and medium enterprises (SMEs), with industry experts describing the move as a double-edged sword.

In unveiling Budget 2025, Anwar said the wage hike was necessary to help Malaysians cope with rising living costs, utilities, and global economic pressures. Employers with fewer than five employees will have until August 1, 2025, to comply with the new wage floor.

SME advisor Yeoh Seng Hooi acknowledged the potential benefits of the hike but warned that it could strain businesses already facing challenges.

“If you’re already struggling, any additional cost will worsen the situation. But, on the other hand, more disposable income could boost sales, making this a double-edged sword,” he told Malay Mail.

“Workers are also consumers, and the RM200 increase is extra disposable income, which can have a multiplier effect on spending,” Yeoh added.

The Small and Medium Enterprises Association of Malaysia (Samenta) echoed these concerns.

Its president, Datuk William Ng, cautioned that the wage hike could lead to significant job losses, particularly in Sabah and Sarawak, where businesses operate on razor-thin margins.

“In urban centres like the Klang Valley, southern Johor, and Penang, median wages are already higher than RM1,700.

Beyond job losses, we could see wage compression among the M40, with foreign workers being the biggest beneficiaries of the revised minimum wage,” Ng said.

He urged the government to allow lesser-developed states to maintain the current wage levels or remove the minimum wage requirement altogether. Ng also noted that automation is not a feasible solution for many SMEs.

“Automation isn’t an automatic solution for SMEs dealing with severe margin compression, which will worsen with the minimum wage hike. Many multinational enterprises (MNEs) outsource labour-intensive tasks like cleaning, maintenance, and logistics to SMEs,” he said.

Ng also criticised the two per cent dividend tax, calling it a “penalty” for SME owners who face cash flow issues and often do not draw salaries.

“Taxing dividend income, which is already taxed, amounts to double taxation,” he said, adding that it could discourage SMEs from reinvesting in their businesses.

However, economist Lim Teck Ghee offered a more optimistic view, stating that the RM200 wage hike would have a minimal impact on the overall economy.

“The increase in minimum wage won’t negatively affect the economy or cost of living. It’s less than the raise recently given to public sector workers, now set at a minimum of RM2,000 a month,” Lim said.

He added that the hike would benefit the bottom 40 per cent of private sector workers but acknowledged that smaller SMEs would bear the brunt of the burden.

“Smaller SMEs will need more targeted assistance to avoid being the biggest losers,” he said.

Datuk Harjit Singh Sidhu, CEO of HSS Advisory Sdn Bhd, also expressed reservations, noting that while the wage hike might offer short-term relief to workers, it’s uncertain if it will fully address their financial difficulties.

“The service sector, including security guards, factory workers, and labourers, will be most affected. The wage increase will drive up costs, which will ultimately be passed on to consumers. This will impact the daily lives of those in the M40 and B40 groups,” he said.

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