Budget 2024 Insights
The Malaysian 2024 Budget, which is themed “Madani Economy: Empowering the People”, was announced on...
APRIL 22 — If anyone had said four months ago that a third of the world’s population would be on some form of lockdown with movement restricted by their respective governments, few would have believed them.
Yet here we are today, in our new reality where the Covid-19 pandemic has brought the world as we know it to a screeching halt. The International Monetary Fund (IMF) predicts that the world economy would shrink at its fastest pace in decades, describing this decline as the worst since the 1930s Great Depression.
Here in Malaysia, many businesses have been severely affected, with cash flow maximisation and employee retention becoming paramount issues. As the pandemic escalates, the government has introduced several initiatives to stand behind employers, with the intention that employers will in turn, stand behind their employees.
Among these initiatives are the wage subsidy programme (WSP) and employment retention programme (ERP). These measures are mutually exclusive and many employers are unaware of its features and which measure would suit them best.
Under the WSP, employers are subsidised for a period of three months for wages incurred on employees earning RM4,000 and below. Subsidies are provided as follows:
Employers are required to retain their employees with no forced unpaid leave or wage cuts for at least six months (three months under wage subsidy and three months thereafter). Applications can be submitted via Socso’s website from April 9, 2020 until September 15, 2020.
From a tax perspective, subsidies received from the government are tax exempt in the hands of the recipient and the portion of expenditure subsidised would not be deductible.
For example, if an employer incurs RM4,000 wages for his employee and receives a subsidy of RM1,200 under the WSP, the subsidy would not be taxable and the deduction available to the employer on wages incurred is limited to RM2,800.
The ERP relates to financial assistance provided for local employees who have agreed with their employers to take unpaid leave beginning March 1, 2020. Such employee must be currently contributing to the Employment Insurance System (EIS) with a monthly salary of RM4,000 and below.
The period of assistance is between one and six months, depending on the unpaid leave notice issued by employers.
While this measure is to benefit employees, employers are required to apply for the benefit on behalf of their employees and must channel the incentive disbursed to the employees within seven days of receipt from Socso. Applications can be submitted on Socso’s website from March 20, 2020.
It is clear that the intention of the government in introducing the above measures is to maximise employee retention.
It is important for employers to examine their cash flow projections to determine whether they would be able to continue to afford their employees’ wages for a period of at least 6 months without imposing unpaid leave or wage cuts on their employees, bearing in mind that the current movement control order may be extended or lifted with significant restrictions imposed on how businesses are run.
If so, the employer should examine the conditions of the WSP to determine if they meet the pre-requisite conditions. Qualifying employers should act fast as subsidies provided are subject to fund availability.
If an employer is financially distressed where they can no longer bear the cost of their employees’ wages, rather than retrenching their employees, they should consider if a mutually agreed unpaid leave arrangement can be made with their employees and let their employees take benefit of the assistance under the ERP.
Employers can take heart that the IMF expects Malaysia’s economy to grow a whopping 9 per cent next year. But in the meantime, as the British Chancellor of Exchequer recently said, “we want to look back on this time and remember how in the face of a generation-defining moment we undertook a collective national effort and we stood together. It’s on all of us.”
Remember that this challenging economic situation is for a time and a season and in the end, this too shall pass.
Source: Malay Mail
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Celine See
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