The Wage Subsidy Program was introduced by the government under the second stimulus package to prevent large-scale retrenchment by funding a portion of the employees’ wages and to ensure that businesses remain sustainable.
Available to all businesses regardless of nature or size, the government will contribute between RM600 and RM1,200 per month towards the salary of each local employee who earns a salary of RM4,000 or less, for up to a maximum of 200 employees.
Stringent conditions apply as businesses (other than those with less than 75 employees) must show a decline in revenue or income of more than 50% since 1 January 2020, and further, they are prohibited from reducing salaries, retrenching or imposing no-pay leave upon employees for 6 months, among others.
A 25% reduction in foreign worker’s levy (except for the domestic help sector) payment is given for work permits expiring between the period of 1 April 2020 and 31 December 2020, whilst levies payable to the Human Resources Development Fund will be waived for 6 months commencing April 2020 for all sectors.
To increase employees’ disposable income, the statutory contribution rate by employees to the EPF has been revised from 11% to 7% for wages commencing April 2020 to December 2020. The EPF has also established the Employer Advisory Services program with a view to assisting affected businesses to restructure or reschedule their EPF contributions to enhance cash flow.
Stopping EPF contributions entirely would not be a good move as EPF is meant for retirement. Reducing or cutting EPF contributions would affect the well-being of Malaysians when they retire. However, the stimulus package announced a programme allowing employers to defer, restructure and reschedule employers’ EPF contributions. This is expected to generate cash flow savings of RM10 billion.
This proposal is more palatable and is a welcomed move as it alleviates cash flow constraints, while also ensuring retirement savings are not significantly impacted. Lowering the EPF rate will have an immediate increase in disposable income, which translates to a positive impact on domestic spending as the rate cut is expected to unlock RM10 billion worth of private consumption. It is heartening to note that this is not made mandatory and Malaysian workers can still choose to opt out from the scheme. The limited time frame allowed for the EPF cut is a good measure to preserve retirement savings.
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