Definition of “Wages”

The Employment Act 1955 (“EA”) of Malaysia covers broadly the minimum entitlements of an employee who falls within the purview of the EA. Before zooming directly into the EA, it is more important to determine the true meaning of “wages”. This term holds utmost importance for every employer and employee and bears huge implications should it be wrongly interpreted.

Under section 2 of the Employment Act 1955, the term “wages” means basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but does not include-

a)      the value of any house accommodation or the supply of any food, fuel, light or water or medical attendance, or of any approved amenity or approved service;

b)      any contribution paid by the employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme established for the benefit or welfare of the employee;

c)       any travelling allowance or the value of any travelling concession;

d)      any sum payable to the employee to defray special expenses entailed on him by the nature of his employment;

e)      any gratuity payable on discharge or retirement; or

f)       any annual bonus or any part of any annual bones;

In other words, wages consist of the basic salary of an employee and any allowances in respect of work done.

It will be good to place emphasis on sub-section (a) as it more often than not creates an inconsistent interpretation compared to decided case laws. Literally, sub-section (a) states that the value of any accommodation, food, fuel, etc shall not constitute wages and in Chin Swee Hin v Mohd Arif bin Khalid, the employer argued that since food allowance does not constitute wages as per sub-section (a), it shouldn’t be taken into consideration in calculating an employee’s overtime payment. This proposition was however rejected by the Court in deciding this case. It was held by the High Court that food allowance constitutes wages because sub-section (a) merely mentioned that the value of any food shall not be taken into consideration but this meaning does not extend to include an allowance provided for food. In other words, if a company is providing daily meals to an employee, the value of that meal shall not constitute the wage of that particular employee but if the company is compensating an employee for meals, that amount provided shall be deemed as wages under the meaning of the EA.

The next important point to note is the definition of “wages” is found on various clauses in the EA  and it is important to note the existence and distinguish the definition in other clauses and/or Acts to avoid miscalculations and unforeseen errors. Under para 3 of the First Schedule to the EA, it is stated that:

For the purposes of this Schedule “wages” means wages as defined in section 2, but shall not include any payment by way of commission, subsistence allowance and overtime payment.

The First Schedule to the EA is the schedule defining whether or not an employee falls within the meaning of the EA. The definition provided under the First Schedule is as follows:

Any person irrespective of his occupation, who has entered into a contract of service with an employer under which such person’s wages do not exceed RM1,500 a month.

That being said, assuming an employee who receives a total package of RM1,700 a month, he will generally be regarded to be outside the scope of the EA and shall not be bound by the provisions under the EA. However, if the breakdown of his wages reflects a basic salary of RM1,300, a travelling allowance of RM150, service charge of RM50 and overtime of RM200, he is still considered to be an employee within the definition of the EA because the First Schedule excludes overtime calculation from wages whereas section 2(c) excludes any travelling allowance from this equation. With the 2 allowances being excluded, the employee’s wages is only RM1350 per month and therefore considered an employee under the Act.

Secondly, section 60I of the EA defines “wages” to exclude certain days of work. This clause is drafted as such mainly because it is used to determine an employee’s ordinary rate of pay for the purposes of wage calculation. It states that wages shall have the meaning under Section 2 but shall not include payment made under an approved incentive payment scheme or any payment for work done on a rest day or on any gazetted public holiday or any day substituted as a public holiday.

Lastly, “wages” has its own specific meaning under the Employees Provident Fund Act 1991. Section 2 of the act states that:

“wages” means all remuneration in money, due to an employee under his contract of service or apprenticeship whether agreed to be paid monthly, weekly, daily or otherwise and includes any bonus, commission or allowance payable by the employer to the employee whether such bonus, commission or allowance is payable under his contract of service, apprenticeship or otherwise, but does not include –

a)      service charge;

b)      overtime payment;

c)       gratuity;

d)      retirement benefits;

e)      retrenchment, lay-off or termination benefits;

f)       any travelling allowance or the value of any travelling concession; or

g)      any other remuneration or payment as may be exempted by the Minister.

This clause clearly shows another difference in the way each area of law interprets “wages”. Using the aforementioned example, will the employee be subjected to EPF contribution based on his total package of RM1700 per month? With the application of this definition, strictly, the employee should only be contributing the prevailing statutory rates based on his basic salary of RM1300 because travelling, service charge and overtime is specifically excluded by this section.

In conclusion, it is important for all employers to understand the true meaning of “wages” in every scenario in an effort to better HR management systems. Any slip up in the definition might not only cost the company monetary losses but might include employee dissatisfaction inevitably affecting the nature of the business as a whole.


5 thoughts on “Definition of “Wages”

  1. If an employee contract expired; the employer renew the contract with the changes of benefits likes cancel of the allowances – COLA. Is the employer allow to do so?

    1. i would like to know,if in my contract stated that transportation elauns (fixed).My question is that did fixed elauns fall on definition of wages.My basic salary is 2120 + elauns 550.and during my hospitalization due to accident my elauns has been deducted .

    2. Hi Quah,

      The renewal of contract should be on no less favourable terms unless it is a contract that has been terminated and a fresh new contract is offered.

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