May 13, 2022

What happens when the minimum wage increases?

The minimum wage in Malaysia was officially increased to RM1500 on May 1st. While this may be excellent news for employees, it poses a problem for companies across the country.

What challenges will you face as an employer if the minimum wage rises?

In this article, we'll discuss the challenges and how HR outsourcing companies can help you overcome them.

Challenge 1: Increase in business cost

Most firms are unable to adopt the proposed new minimum wage since their cash flow and revenue are still recovering and have not yet returned to pre-pandemic levels. Raising the minimum wage would almost certainly result in higher wages and salaries across the board, significantly increasing operational expenditures for businesses, who would then have to raise product and service prices to compensate for their increased labour costs. While huge organisations with plenty of cash on hand could handle the additional payroll costs, many small businesses would be unable to do so, forcing them to lay off workers or close down totally.

Certain industries may find it more difficult to adjust to the increased minimum wage. Restaurants, for example, typically operate with a profit margin of 3% to 6%, leaving little room to pay higher wages. Raising the minimum wage takes money out of the company's coffers and puts it in the workers'. Some businesses may be forced to choose between laying off employees and taking a hit to their bottom line. Many employers may decide to protect their businesses, resulting in a wave of layoffs. Small business owners, who frequently operate on razor-thin profit margins, would almost certainly bear the brunt of the consequences of a minimum wage increase. This has a direct impact on the profitability and viability of small businesses. It renders businesses unviable, causing some to close or pass on the costs to customers in the form of price increases.

How manpower outsourcing reduces business cost

The most significant advantage of manpower outsourcing is that it allows one to complete work at a very low cost and in a much more efficient manner, up to 60%. A Manpower outsource company can undeniably help their clients save money by assisting them in avoiding misclassification errors and other payroll-related pitfalls. When a specific type of work is outsourced, the company or organisation does not need to hire skilled people to do it. There will also be no need to set up training programmes for the same. The work will be delegated to people who are already experts in the field. You can save money with manpower outsourcing and also improve work efficiency and quality.

Challenge 2 Lack of manpower

A significant increase in the minimum wage could result in massive layoffs at both large and small businesses, which leads to short Manpower supply malaysia. If employers are forced to pay their employees more, many will reduce their workforce in order to maintain profits. And, more than likely, those laid off would be low-level workers—so, while some workers would benefit from a higher wage, others would lose their only source of income entirely. Because labour is a significant cost of doing business, some argue that businesses will be forced to cut jobs in order to remain profitable. Companies made a significant shift toward offshoring more jobs to less expensive labour markets outside of the country. Small business loans may provide employers with temporary financial relief if they are struggling to meet payroll obligations. In the worst-case scenario, businesses that are unable to keep up with rising labour costs may be forced to close their doors. Increasing the minimum wage may reduce the value of hiring a new entrant worker because business owners may find it more cost-effective to hire a higher-paid experienced worker or invest in machines and technology.

How manpower outsourcing boosts manpower

Hiring a new employee costs more than RM4,000 on average, with a 42-day hiring period. Your company might need to bear the human resources costs per employee. These figures may be higher for small business owners who lack recruiting expertise. There is a shortage of specific skilled workers in developed countries, either because there is a shortage or because they are available at a very high cost. As a result, human resource outsourcing provides access to a large number of skilled individuals who are efficient and proficient in English and are available for work at a very low labour cost. You can help reduce these costs by partnering with HR professionals to improve job recruitment strategies.

Challenge 3 Increased competition

A higher minimum wage could result in a large number of overqualified workers filling minimum wage positions that would otherwise go to young or otherwise inexperienced workers. This could make it difficult for younger, less experienced job seekers to find work and gain experience to advance their careers. Increasing the minimum wage may reduce the value of hiring a new entrant worker because business owners may find it more cost-effective to hire a higher-paid experienced worker or invest in machines and technology. Teenagers, less-educated, and lower-skilled workers would be disproportionately represented among those who would be unemployed as a result of the minimum wage increase. Businesses may put a freeze on new hires, limiting opportunities for recent college graduates and others entering the labour force.

How manpower outsourcing reduces competition

Many times, there are fluctuations in the labour force when there are fewer workers available to work on an assignment; this is especially true during the holiday and festive seasons. Outsourcing the work allows you to control this issue because the workforce is available around the clock to complete the assignments. It becomes simple because the outsource partner shares some of the burden. This allows for the rapid development of ideas into concepts, as well as the faster delivery of products, ideas, and concepts into a competitive market.

Conclusion

Whether your firm is a small startup on its way to becoming a multinational corporation, or you're already there and wanting to grow your operations, outsourcing parts of your business's activities is a wise choice. The benefits of human resource outsourcing are many, such as allowing businesses to cut costs while still adhering to minimum wage requirements, using the most effective hiring process.

Choose Manpower outsourcing, Choose Xetron Solutions.