SME, retail groups warn minimum wage hike could trigger ‘cascading’ cost increases

KUALA LUMPUR, Oct 2 — The SME Association of Malaysia (SMEAM) and the Malaysia Retail Chain Association (MRCA) have jointly sounded an alarm over further proposed minimum wage hikes.

The associations cautioned that a blanket increase could severely strain small and medium enterprises (SMEs) already grappling with economic headwinds.

In a joint press conference held today, SMEAM President Chin Chee Seong unveiled findings from the “SMEAM Quick Business Survey: Minimum Wage Review 2026,” which drew 333 responses from a diverse range of sectors, including manufacturing, retail, and food and beverage.

Highlighting the survey feedback, Chin noted that the majority of respondents — 61.6 per cent — reported that their current business conditions are worse or significantly worse compared to 12 months ago.

“The findings show that businesses are not simply saying ‘no’ to higher wages. What they are telling us is that wage growth must be sustainable and must move together with productivity, business performance and economic conditions,” Chin said.

According to the survey, only 6.6 per cent of businesses outright support an increase of the minimum wage from RM1,700 to around RM2,000 at this juncture.

Instead, 45.9 per cent of respondents explicitly disagreed or strongly disagreed with the hike, while another 21.3 per cent suggested that any such increase should be deferred until economic conditions improve.

Chin emphasised that the industry is not opposed to the concept of better wages, but insisted that structural support is needed first.

“SMEAM fully recognises the importance of improving the income and standard of living of Malaysian workers. But better wages must ultimately come from better productivity and stronger businesses,” he added.

Malaysia last adjusted its national minimum wage to RM1,700 per month.

The policy was enforced for employers with five or more employees starting February 1, 2025, and extended to remaining micro and small enterprises by August 1, 2025.

This replaced the previous RM1,500 rate that had been active since 2022.

Joining the call for caution, MRCA president Datuk Liew Bin argued that the current business climate is ill-suited for a minimum wage increase, warning that the repercussions would extend far beyond the immediate payroll adjustment. — Picture by Firdaus Latif

The survey underscored a major concern regarding the “cascading effect” of a minimum wage hike.

Chin highlighted that 92.8 per cent of respondents anticipate pressure to adjust the salaries of existing staff currently earning above the new minimum threshold to maintain wage differentials.

Consequently, 76.9 per cent of respondents expect significantly higher operating costs, 59.5 per cent foresee lower profit margins, and 57.4 per cent indicated they might be forced to increase product prices.

Joining the call for caution, MRCA president Datuk Liew Bin argued that the current business climate is ill-suited for a minimum wage increase, warning that the repercussions would extend far beyond the immediate payroll adjustment.

“The current business climate is not suitable for such an increase in the minimum wage as it will have a cascading effect across the entire salary structure of others,” Liew stated.

He pointed to the volatile international landscape, specifically citing the impact of the ongoing war in West Asia as a primary disruptor.

“Malaysian businesses are facing many challenges brought by the West Asia war, from raw material shortages to higher business costs.

“Therefore, we hope the government will reconsider the minimum wage increase to give businesses more time to stabilise,” Liew added.

The SMEAM survey results reiterated this sentiment, with 63.7 per cent of business owners identifying employee productivity as the most critical factor that should determine future wage adjustments.

“Businesses are not asking Malaysia to become a low-wage economy. We want Malaysians to earn better salaries. We want to create higher-skilled and higher-paying jobs. But the sustainable way to achieve this is to help our companies become more productive, more automated, more innovative and more competitive,” Chin concluded.

Beyond the wage debate, both SMEAM and MRCA used the platform to present their “Budget 2027 Wishlist,” urging the government to adopt a more holistic approach to business sustainability while allocating more subsidies to small businesses.

Their proposals included:

Cumulative cost assessment:

Implementing a cumulative SME cost and regulatory impact assessment to manage the combined burden of labour costs, utilities, financing, and compliance mandates.

Life-cycle financing:

Introducing an SME life-cycle financing and investment framework that offers tailored support for working capital, automation, and digital transformation based on a company’s growth stage.

Productivity drives:

Enhancing support for the adoption of AI, robotics, and cloud technology, focusing on software and skills training rather than just hardware.

Strategic investment:

Strengthening Domestic Direct Investment alongside Foreign Direct Investment, leveraging government-linked companies to co-invest in local firms.

Integrated gateway:

Streamlining government assistance through an “SME Development Gateway” to simplify navigation for business owners, ensuring they can easily access the right programs for their specific growth pathway.