A complete guide to understanding salary vs wage
Understanding different compensation structures can help job seekers and employees in Malaysia's diverse job market. Whether negotiating a job offer, considering a career change, or wanting to do some financial planning, knowing the differences between salary and wages can significantly impact your choices.
We can help you understand the difference between salary and wage so that you can better manage your finances.
Here's what we'll cover in this guide:
- What is a salary?
- What are wages?
- What is the difference between a salary and a wage in Malaysia?
- What is legally required in Malaysia to receive a salary or a wage?
- What is minimum wage?
- In summary
- FAQs
What is a salary?
A salary is a fixed amount of money that your employer pays you. Payments are often monthly or bi-weekly. A salary offers you predictability and stability as an employee since you know the amount of income you'll likely receive on a regular basis.
Salaried employees often work in the professional services sector. They work in administrative or management roles. These workers often work set hours, such as 9 a.m. to 6 p.m.
A salary has a key advantage: it provides income consistency, making financial planning and budgeting easier. Salaried employees often get extra perks, including health insurance, paid time off, sick leave, and retirement contributions.
You may also receive additional compensation through annual performance bonuses and incentives. You are a salaried employee, and your employee contract sets your salary. You may occasionally work overtime without extra pay.
What are wages?
A wage is compensation based on the number of hours you work. Your employer pays you hourly, daily, or per-task. Hourly workers receive payment for each hour they work. In Malaysia, it's standard for retail workers to see hourly wages ranging from RM10 to RM12.
They can receive overtime pay if they work more hours per week or month than their contract states. Jobs that usually offer hourly wages include hospitality, manufacturing, or retail roles.
You may get an hourly rate. But, these jobs offer flexibility. You can earn more by working longer hours or taking on extra shifts. So, your pay as an hourly worker can vary depending on how many hours you work.
This may lead to fluctuations in income, as you may earn less for fewer hours. Hourly employees may also have less job security than salaried employees. They may not receive the same perks and benefits.
What is the difference between a salary and wages in Malaysia?
What is the difference between a salary and wage employee?
The payment structure and implications for employees point to the primary difference between a salary and a wage. Salaried positions offer a fixed amount for each payout, giving employees a stable and predictable income and pay period.
Employers pay wage-based positions based on the number of hours they work. This structure offers flexibility, but pay may vary.
Salary and wage may also differ in benefits. A salaried job offers benefits and perks such as insurance and paid time off as part of your compensation package.
On hourly pay, you may receive fewer benefits or none at all.
As a salaried worker, you receive consistent pay. You may find it easier to budget and save for the future. A wage-based job may not offer consistent pay rates.
But you may have the opportunity to work overtime. With the increased number of hours that overtime provides, you can earn more than your basic wage.
There are also legal differences between salary and wages in Malaysia. The Employment Act of 1955 currently regulates hourly wage payments.
Regulations include ensuring that employers pay you at least a minimum wage and pay a higher rate for overtime and extra hours. The same Act covers salaried employees, ensuring you receive your pay regularly.
However, since fixed amounts determine salaries, you may not be subject to the regulations regarding overtime.
What is legally required in Malaysia to receive a salary or a wage?
Various labour laws and standards govern salary and wages in Malaysia. These ensure that employers deliver fair treatment and protection around employee pay.
In Malaysia, the Employment Act of 1955 outlines the rights and protection that employees receive, including the minimum wage, overtime pay, and other perks and benefits. Employers must comply with labour laws to ensure that workers receive fair compensation for their work.
Here's a quick breakdown of the employment laws in Malaysia:
Payment of salary and wages
- The Employment Act of 1955 mandates that employers pay employees in legal tender and on time. Employers must pay wages or salaries at least once a month within seven days of the end of the wage period or earlier.
- All payments must go directly to the employee or to a bank account they specify. However, the Act allows employees to receive payment in kind for certain types of work in specific circumstances.
Overtime pay
- The Employment Act of 1955 also states that employees who work hourly must receive extra pay for the overtime hours they work.
- Overtime rates are typically 1.5 times the worker's hourly wage on normal working days and twice the hourly wage on public holidays or rest days.
Deductions and allowances
- The Act regulates wage deductions. It monitors any form of deduction for specified purposes such as income tax and social security contributions. Deductions may also include the employer's services and amenities, such as company lunches, workplace facilities, and donations.
- Employers may also provide salaried employees with various allowances and benefits. As a salaried employee, you can usually negotiate these within your employment contract.
Leave entitlements
- The Act covers leave entitlements for people receiving a salary. These entitlements can include paid annual leave, sick leave, marriage leave, and maternity leave.
- The law mandates that employers adhere to these conditions and entitlements under the Act. Currently, leave entitlement is eight days per year for employees with one to two years of service, 12 days per year for employees with two to five years, or 16 days per year for employees with longer than five years of service.
What is minimum wage?
The minimum wage is vital in ensuring that workers receive a fair wage in the job market. The Minimum Wages Order 2020 states that employers should pay workers a minimum wage for their hours to cover their daily living expenses.
This rule applies regardless of industry. Minimum wage law in Malaysia establishes a baseline for salary and wages. It helps protect vulnerable workers from exploitation and ensures they can meet their daily basic needs.
As of 1 July 2023, the minimum wage for employees is RM1,500 per month across all industries and sectors. The Minimum Wages Order sets out the minimum wage for daily or hourly employees, with the hourly rate set at RM7.21 per hour.
In summary
Understanding the differences between salary and wage can help you make better career decisions and improve your financial planning. While salaries offer benefits and stability, jobs with an hourly rate provide flexibility and the chance for extra money. Knowing these distinctions and laws can help you navigate your career. You can ensure your employer treats you somewhat in the workplace.
Keep up with changes in labour laws and compensation structures to maximise earning potential. This knowledge can help you decide between a salaried job with a fixed income and regular working hours or an hourly-based job with wages and the potential for overtime pay.
FAQs
Here are some common questions that you can refer to help you understand the key aspects of salary and wage payments.
These FAQs cover their fundamental differences, how they potentially affect your job stability, and the laws and regulations surrounding them.
- What are the primary differences between a salary and a wage?
In Malaysia, the primary difference between salary and wage lies in their payment structures. A salary is a specific amount of money you receive regularly.
Payment periods are usually monthly, regardless of your work hours. Employers pay wages only for the hours you work. This means they pay you by the hour.
Professional positions are usually salaried. Roles involving manual work are often hourly, so employers pay wages.
- How do salary and wage affect employee benefits and job stability?
Salary and wages can affect employee benefits and job stability differently. Salaried workers usually enjoy benefits, such as paid annual leave, maternity leave, retirement plans, or medical insurance.
Hourly workers also have more job stability since they receive a fixed income every pay cycle. Hourly workers may also have benefits, such as overtime pay, based on their work hours.
They may have less job stability since they don't have fixed hours and income but have the opportunity to earn more money based on the hours they work every month.
- What legal considerations should employers and employees be aware of regarding salary and wage payments?
Employers and employees in Malaysia must comply with the Employment Act 1955, which regulates salary and wage payments. The government requires employers to pay salaries and wages on time, at least once a month, within seven days of the end of the earlier wage period.
They must also comply with minimum wage requirements and calculate and pay overtime accurately, which is 1.5 times the usual rate on rest days or public holidays. Workers should know their entitlements under the Act to ensure fair work conditions.
- How can understanding salary and wage structures influence career progression and decision-making?
Understanding salary and wage structures can influence your career progression. Knowing the market rate for your skills and experience can help you negotiate better salary or wage packages when looking for a new job.
With this knowledge, you can also negotiate for better benefits and perks that suit your lifestyle and needs in addition to your salary and wage. Understanding these structures within your industry can help you make informed decisions when you advance in your career or change your job.
- What role does the minimum wage play in determining salary and wage levels?
Established under the National Wages Consultative Council Act 2011, the minimum wage in Malaysia sets a standard for salary and wage levels across industries. The government mandates that employees comply with minimum wage requirements.
As of 1 July 2023, the minimum wage for employees is RM1,500 per month across all industries and sectors. The minimum wage protects the interests of low-income workers and provides fair compensation to the labour market. It contributes to income equality and socioeconomic development.
