The Case on Service Charge as Part of Minimum Wages in Malaysia

The Case on Service Charge as Part of Minimum Wages in Malaysia

Case Update: Georgetown City Hotel Sdn Bhd v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar dan Restoran, Semenanjung Malaysia (Award No 1326 of 2016)

The Industrial Court recently followed the decision of the High Court in Crystal Crown Hotel & Resort Sdn Bhd (Crystal Crown Hotel Petaling Jaya) v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia, by concluding that hotels could not convert a portion of the employees’ service charge to form part of the minimum wages. Georgetown City Hotel Sdn Bhd (“the hotel”) imposed a service charge on its customers. According to the fifth collective agreement between the hotel and its employees (“the union”), the hotel was required to distribute 90% of the total service charge imposed on monthly bills to all employees, save for certain categories of workers.

With effect from 1 October 2013, the hotel was required to implement the Minimum Wages Order 2012, which fixed the minimum wage at RM900. Following several discussions that were inconclusive, the hotel unilaterally restructured the wages of its employees by incorporating a portion of the service charge into the employees’ wages to ensure that they received the minimum wage of RM900.

One of the arguments that the hotel relied on was that it had adhered to the Guidelines on the Implementation of the Minimum Wages Order 2012 (“the Guidelines”), which provide that an employer may restructure part of the service charge to form part of the minimum wages. The union, however, argued that the Guidelines were not binding and, further, did not promote the purpose of the National Wages Consultative Council Act 2011.

In short, the Industrial Court dismissed the hotel’s implementation of the minimum wages by utilising the employees’ service charge. This position may not necessarily remain for long, as the High Court’s decision in the Crystal Crown case has been appealed against at the Court of Appeal.

Note: The Minimum Wages Order 2012 has been revoked by the Minimum Wages Order 2016.

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