Payment Systems and Working Hours

Payment Systems and
Working Hours
CHAPTER5
Learning Objectives
At the end of this chapter, you should be able to:

• Explain different types of payment structures, including basic pay,
benefits and incentives.
• Describe the wage systems currently in use.
• List and explain the various factors which influence the quantum of wages
paid by employers to employees.
• Understand the legal requirements which impact the payment of wages.
• Outline the provisions of the Employment Act 1955 on working hours.
• Explain the reasons for having, and limitations on, overtime working.
• Examine the shift system of working.
• Clarify alternative work schedules such as flexitime, job-sharing and part-
time work.
• Look at the advantages of tele-working and working from home.
To attract workers and to retain
the best performers, employers
need to have a compensation
system that will achieve these Introduction
objectives.
Payment systems and quantum

of payment play a significant role
not only for individual
employers, but also at the level
of society.
Wage and Payment Systems
– A remuneration or compensation package consists of

several elements, usually a combination of basic pay,
incentives and benefits.
Components of a Remuneration Package
The goals of a wage system:
Attract employees to work in the

organization
Purpose
Retain efficient employees
Motivate employees to perform

effectively
Establish a simple system that is easy to

administer.
Two major systems of
payment:
Wage
1 Time-related systems— Systems
wages are paid for a set
period of work on an hourly,
weekly or monthly basis.
2 Piece-rated systems—
workers are paid according to
the number of units
produced in a given time.
Time-related Systems
Advantages:
• They are easy to understand and administer.
• The worker is assured of a steady income.
• A time-related system of payment is particularly suitable where there is no
direct relationship between productivity and an individual’s performance.
Disadvantage:
• There is no relationship between effort and reward.
Piece-rated Systems/ Piece-
work Systems/ Payment by
Results
The types:
• Differential rate system
• Commission system
• Straight piece-rate system
Payment by results or piece-work is most successful when:

• The job has a short learning cycle (i.e. it is easy to learn)
• The worker has control over the pace of the work and effort
put in (i.e. the job is not machine controlled)
• There are no breaks or stoppages in production
Mainly used in:
– Sales jobs
– Plantation industry and certain manufacturing operations, especially those with
largely manual jobs
– Transport industry whereby lorry and bus drivers are paid by the trip
Disadvantages:
Workers do not necessarily attempt to maximize their earnings for

several reasons
Quality of output may be affected
Cause significant friction between the workers and the management
Strongly resist any new procedures

Factors Affecting Levels of
Pay
LEGISLATION AND UNIONS SELECTION POLICY EMPLOYMENT

GOVERNMENT CONDITIONS
POLICY
COMPANY
PROFITABILITY
Factors Affecting Individual
Levels of Pay
FACTORS AFFECT SENIORITY INCREASE IN THE PERFORMANCE

INDIVIDUAL LEVELS COST OF LIVING
OF PAY:
DEGREE OF SKILL
Legislation Relating to
Payment of Wages
Laws relevant to the payment of wages are:
– The Employment Act
– The Sabah Labour Ordinance
– The Sarawak Labour Ordinance
– The National Wages Consultative Council Act
The Employment Act and the Sabah
and Sarawak Labour Ordinances
THE ORDINARY PAYMENT OF SERVICE CHARGES

RATE OF PAY (ORP) WAGES (TRONC SYSTEM)
The National Wages Consultative
Council Act and Minimum Wages
Orders
– The National Wages Consultative Council Act was passed

and a Council established in 2011.
– Consists of representatives from government, employers,
employees and economic experts.
– Conducts research on a continuous basis and
recommended a minimum wage.
Will some businesses have to close as they
cannot afford the minimum wage?
Will employers be less likely to employ labour

and prefer to automate rather than pay high Issues
wages?
How often should the minimum wage be

changed?
Will the introduction of a minimum wage

mean that all wages would have to be raised,
and if so, what would be the impact on
employers and the economy?
Reduction in Wages
The Industrial Court has ruled on this issue in a

number of cases and the answer is ‘no’.
Legislation Relating to Working Hours
• Various methods an employer can use to organize the working hours in his
enterprise.
• Right to decide upon the system of working hours in his organization (but not
absolute).
• Working hours and other key terms and conditions of employment are very much
influenced by recommendations of the International Labour Organization,
headquartered in Geneva, Switzerland.
• Malaysia is a signatory to many of the employment standards established by this
organization.
Working Hours, the Employment
Act, and the Sabah and Sarawak
Labour Ordinances
Maximum working hours are laid down in the

Employment Act, and the Sabah and Sarawak
Labour Ordinances, which state that no employee
shall be required under his contract to work:
• more than 8 hours per day, or
• more than 48 hours per week, or
• more than 10 hours per day when a spread-over
period is involved, and
• more than 5 consecutive hours without a 30-
minute break.
Rest days:
All workers are entitled to at least

one rest day per week.
Workers who are requested to

work on a rest day and who agree
to their employer’s appeal are
entitled to premium rates of pay
Public holidays
• Workers must be granted at least 11 public holidays
per year (National Day (e.g. Hari Kebangsaan, the
Agong’s Birthday, the relevant State Sultan’s or
Governor’s Birthday, Malaysia Day and Labour Day).
• One-off occasion (announced by Prime Minister or

the Head of a State). Not gazetted. Private sector
workers are not entitled to the holiday.
Choosing a Working Hours
System
The hospitality industry is known for its ‘24/7’ and ‘face
time’ culture.
Factors to be taken into consideration when choosing a
system are:
• The legal constraints
• The effect on the efficiency of the workers of a particular system
• The effect on the motivation of the workers
• The type of system being used by a majority of employers in comparable
organizations and in the same locality.
Overtime Working
Working longer hours than normal can be a requirement in
case of:
• accident, actual or threatened, in or with respect to the employee’s
place of work
• work, the performance of which is essential to the life of the
community
• work essential for the defence or security of Malaysia
• urgent work to be done to machinery or plant
• an interruption of work which it was impossible to foresee
• work to be performed by employees in an industrial undertaking
essential to the economy of Malaysia or any essential service as defined
in the Industrial Relations Act 1967.
Overtime Working
The overtime rates set by the Employment Act
are as follows:
– Overtime worked on an Ordinary Working Day = 1½ times the normal
hourly rate
– Overtime worked on a Rest Day = 2 times the normal hourly rate
– Overtime worked on a Public Holiday = 3 times the normal hourly rate
Reasons for Overtime
– A temporary shortage of manpower

– A temporary increase in workload
– Low productivity of the workers
– Difficulty in recruiting additional workers
Problems Caused by Excessive
Overtime
– Increased cost
– Effect on morale
– Effect on productivity
Steps to Reduce Overtime
Work
– Keep records
– Recruit new staff
– Improve supervision and training
– Invest in new technology
– Change the mode of payment
Working Long Hours
– Employees who are outside the scope of the Employment

Act, or the Sabah or Sarawak Labour Ordinances are not
entitled to overtime payments when they work longer than
the hours stipulated in their contracts of employment.
Shift Work Systems
Shift work involves:
– hours of work, which include hours outside the ‘normal’ or traditional 8 to
4, or 9 to 5 pattern, and
– two or more groups of workers who take turns to man the workstations.
Patterns of Shift Work
– Double-day shifts
– Three-shift work
– The split shift
– Rotating and permanent shifts
Justification for shift work
Four common situations:

– service-oriented industries
– nature of some production technologies is that the
machinery needs to be run continuously
– maximize the productive use of plant and machinery
– Consumer services
The Problems Caused by Shift
Work
– Women and night work

– Increase in costs
– Workers’ health and shift work
– Stress and psychological problems
Flexitime
A system of working hours where the starting

and stopping times are decided by the individual
worker within a number of limitations set by the
employer.
Flexitime terminology
The Benefits of Flexitime
Problems Caused by Flexitime
– Not suitable for all jobs and the issues of supervision of

workers and communication between workers become
more complex.
– Feasibility
– Supervision and communication
Job-sharing / Work Sharing
– An arrangement where two people share one job, and

divide the salary and other benefits between them.
Working Part-time
– The Employment Act defines a part-timer as one whose

average hours of work do not exceed 70% of the normal
hours of work of a full-time worker doing the same job in
the same establishment.
Summary
• Wage and payment systems are made up of a combination of basic pay,
incentives and benefits.
• A wage system must be designed so as to attract and retain employees,

motivate them to perform well and be simple to administer.
• Wage systems may be time-related or piece-rated.
• A number of factors affect the levels of pay provided to employees,

including legislation, unions, the employer’s selection policy, employment
conditions and company profitability.
• Individual levels of pay are affected by seniority, increase in the cost of
living, performance of the employees and their degree of skill.
• Payment of wages must comply with the Employment Act, the Sabah
Labour Ordinance and the Sarawak Labour Ordinance. These laws include
sections on frequency of wage payment, mode of payment, giving of
advances and deductions from wages.
• Malaysia has no fixed minimum wage, except for workers within the scope
of the Wages Councils Act.
• An employer cannot reduce an employee’s wages without his or her
consent.
• Working hour systems must comply with the Employment Act as well as
the Sabah and Sarawak
• Labour Ordinances.
• Non-traditional working hour systems can help attract and retain workers.
These systems, known as alternative work schedules, include flexitime,
job-sharing, part-time work and tele-working.

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Payment Systems and

At the end of this chapter, you should be able to:

Payment systems and quantum

– A remuneration or compensation package consists of

Attract employees to work in the

Retain efficient employees

Motivate employees to perform

Establish a simple system that is easy to

Payment by results or piece-work is most successful when:

Workers do not necessarily attempt to maximize their earnings for

Quality of output may be affected

Cause significant friction between the workers and the management

Strongly resist any new procedures

LEGISLATION AND UNIONS SELECTION POLICY EMPLOYMENT

FACTORS AFFECT SENIORITY INCREASE IN THE PERFORMANCE

THE ORDINARY PAYMENT OF SERVICE CHARGES

– The National Wages Consultative Council Act was passed

Will employers be less likely to employ labour

How often should the minimum wage be

Will the introduction of a minimum wage

The Industrial Court has ruled on this issue in a

Maximum working hours are laid down in the

All workers are entitled to at least

Workers who are requested to

• One-off occasion (announced by Prime Minister or

– A temporary shortage of manpower

– Employees who are outside the scope of the Employment

Four common situations:

– Women and night work

A system of working hours where the starting

– Not suitable for all jobs and the issues of supervision of

– An arrangement where two people share one job, and

– The Employment Act defines a part-timer as one whose

• A wage system must be designed so as to attract and retain employees,

• Wage systems may be time-related or piece-rated.

• A number of factors affect the levels of pay provided to employees,

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