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Compensation Legislation

LEARNING OUTCOMES

1. Describe six elements of a salary reform system and two models of a salary
reform system
2. Correlate the legislative frameworks and the compensation administration
system
3. Explain the importance of legislation in the determination of the rate of pay and
wage
4. Assess the functions of legislative control over the rate of pay and wage.
Describe six elements of a salary reform system and two models of a
salary reform system
Six elements of a salary reform

1. Cover the combination of monthly salary or other frequent


payments, annual salary increment, annual bonus or other non-
frequent bonus
2. Salary has to have fixed components, which include basic pay and
additional components in the form of variable payments
Fixed Variable component
3. Fixed and variable components
Basic pay, annual salary increment and Annual salary increment is based on the
contractual bonus (whichever is relevant) growth in productivity or profit
distribution formula
1. Change in basic pay needs to take into account factors such as cost of living

2. Fixed salary components should portray work values and the payment of salary
increment is the recognition of an employee's period of service and performance

3. Variable salary components can be determined by correlating productivity and


an individual's performance, work force or organization. The indicators used
should be transparent and can be measured
SALARY REFORM SYSTEM MODELS
Do you know that the salary reform system is made up of
the profitability model and the productivity model?

An organization can combine both models by taking


into account the factors of company profit
and employee productivity.
Profit Model Productivity Model
Fixed salary components consist of basic salary, Fixed salary components consist of basic salary, annual salary increment and
annual salary increment and contractual bonus contractual bonus
(whichever is relevant)
Variable components consist of the payment of variable productivity. It is
Variable components consist of performance determined as follows:
bonus determined according to the profit
distribution formula and other correlated
variables 1.Management and union will negotiate the pay increase incentive based on the
increase in productivity for the related year
(i)The formula should be agreed on by the
management and union and clarified in joint 2.The pay incentive for a particular year should match the productivity increase
agreements or through consultations for sectors 3.The annual increment will be deducted from the agreed amount of pay increase and
that are not represented by unions
the remainder given as a payment of variable productivity, made periodically

(ii) (ii) Salary increment will be paid when 4.The payment of variable productivity depends on an organization's performance.
profit is greater than the determined level or 5.An organization that does not have its own productivity indicators can use the
value that is calculated based on the return of
industry indicator or the country's productivity or growth indicator as a guide to
investments, return on assets or return on equity
and the average profit acquired in the past few determine the salary adjustments for that particular year
years. 6. The productivity indicators used should be based on the added values of every
employee or other methods.
LINK BETWEEN LEGISLATION AND
COMPENSATION
LINK BETWEEN LEGISLATION ANDADMINISTRATION
COMPENSATION ADMINISTRATION
Employment Act 1955

Workmen’s Compensation Act


1952

Industrial Relations Act 1967


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

1.Those who work in the private sector in Peninsular Malaysia and Federal Territory of
Labuan

2.Those whose wages do not exceed RM2,000 per month under a contract of service with an
employer or those, without taking into account their total earnings. This applies to those two:

1. Work as manual labourers


2. Engage in the operation or maintenance of mechanically propelled vehicles operated for the
transport of passengers or goods or for reward or for commercial purposes
3. Supervise and oversee employees in manual labour employed by the same employer in and
throughout the performance of their work
4. Engage in any capacity, in any vessel registered in Malaysia with certain exceptions
5. Engage as a domestic servant
Workmen’s Compensation Act 1952

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 employee's dependents if the employee dies as a result
of a work-related accident.
Industrial Relations Act 1967

The enforcement of the Industrial Relations Act 1967 has allowed the intervention of the
government in industry conflicts. Harmonious relations between employees and employers can
exist when the interests of both parties are protected.
Payment System
The payment system must be prepared in the easiest manner possible

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

Overall work rate, performance bonus and other remuneration have to be determined according to definite
methods

The payment rate must be negotiated between employers and employees, or their representatives
Employment Guarantee

Give hope for advancement and promotion in the industry by giving opportunities for any
required training

Make provisions for retirement schemes, employee reduction and paid leave in addition to the
statutory provisions.
Redundancy and Retrenchment of Employees
If retrenchment still needs to be done despite taking specific measures, employers have to undertake the
following steps

Immediately inform the relevant employees

Propose retrenchment schemes and voluntary retirement schemes

Pay benefits to the employees

Offer retirement to employees who are past the normal retirement age

Assist employees in looking for jobs outside the industry with the cooperation of the Ministry of Human
Resources

Extend the process of employee termination to a longer period

Ensure that the announcement of the employee termination is not made prior to informing the employees
and their representatives or trade unions.
IMPORTANCE OF THE LAW IN DETERMINATION OF
SALARY AND WAGE PAYMENT RATES
Four aspects of the compensation administration system
1. Achieving Justice and Fairness
Employment Act 1955 -salary determinations for public holidays, off days and
overtime have been set at reasonable rates
The Workmen's Compensation Act 1952- guarantees that employees who suffer from
accidents get fair treatment from their employers, that is, receive compensation that
is proportionate to the severity of the accident that has taken place.

2. Avoiding Oppression and Discrimination


Workmen's Compensation Act of 1952 - compensation to employees who suffer from
accidents in the workplace or suffer service or employment illnesses, which are
illnesses due to the job
3. Maintaining Good Relations between Employers and Employees in
a Work Environment- trade union

4. Adhering to Procedures and Legislation in Protecting the Rights of


Employers and Employees
LEGISLATIVE CONTROL OVER SALARY AND WAGE
PAYMENT RATES

 The main aim of the Wages Council is to regulate on the minimum remuneration and
conditions of employment of certain categories of employees.
 Wages Regulation (Catering and Hotel) Order 1967

 Wages Regulation (Shop Assistants) Order 1970

 Wages Regulation (Cinema Workers) Order 1972

 Wages Regulation (Penang Stevedores and Cargo Handlers) Order 1967.

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