Having trouble sleeping during this MCO? Let me guess, you're a Business owner?
If you are an employee, you might be able to sleep a bit better since the last stimulus announced by the Prime Minister of Malaysia.
But for business owners, those who risked capital, reputation and time with family, sleep might be elusive these days.
Having digested the various economic stimulus packages announced by the Malaysian government of the day, all of us are surely facing a tough decision. The damned if you do, damned if you don't question.
Do I continue to operate or do I close my company?
A quick look at the 27th March stimulus for businesses in Malaysia was:-
1. EPF contribution deferment, restructuring, rescheduling options
2. 6 months exemption on HRDF levy payments
3. Government to provide guarantee facilities for working capital loans.
4. Wage Subsidy Program, the Government will subsidize wages of RM600 per month per employee for 3 months.
- a reduction in income of more than 50% since January 2020 (only for employees with a monthly salary of less than RM4,000.)
- employees should be retained for at least 3 months from the beginning of the Program and should not be directed to take no-pay leave or suffer pay-cuts within this 3-month period.
5. Discounts of between 15% to 50% on electricity bills.
6. Six months rental exemption on Federal (maybe also for State, Local and GLC) premises.
If you are a micro or small Small Enterprise (which would be around 90% of the companies in Malaysia according to stats), then the only thing in this announcement that really comes close to being a stimulus would be the "Wage Subsidy Program".
Let's unpack this. Let's look at this stimulus from a money coming IN, No Impact or going OUT POV. As businesses, we want more money coming in than going out. No Impact means whatever cash reserves you have in your company is not affected.
1. (OUT!) EPF. Can be deferred, restructured or rescheduled...meaning, it still needs to be Paid, sooner or later.
2. (No Impact!) HRDF Levy. Suspended for 6 months if you contribute and no impact to you if you don't.
3. (An IN for now but nett effect is an OUT!) (Loans) Money borrowed (IN) has to be RETURNED. With an additional 3.5% interest on top of it. So nett effect, an OUT.
4. (IN!) Wage subsidized by the government. The only IN. Pure and simple. But hang on, still comes with caveats...we will look at that shortly.
5. (OUT!) Electricity. Reduces your OUT! a bit.
6. (No Impact!) Rental. Reduces your OUT only IF you rent at any of these premises. Otherwise, no impact to you.
Final score: Out x 2.5, No Impact x 2 and In 1.5.
So we have only 1 clear IN from this stimulus. The Wage Subsidy Program. Is this WSP enough for us to get an answer to the question that keeps us awake at night?
Do I continue to operate or do I close my company?
If your business income has dropped by 50% since January, then you can get a RM 600 subsidy for each of your employees who are earning less than RM 4000.
For example, if your business income is RM 0.00 now and you have 3 employees earning RM 2,000 each, government will pay to your company, RM 1,800 per month x 3 months. You only need to cover the balance of RM 1,400 per employee.
(who to apply with, when will the money appear in your company account etc you can check online)
But what if you continue to have no business in April, May and June? Was this subsidy worth going for?
You get RM 1,800 subsidy but still fork out RM 1,400 x 3 = RM 4,200 of your companies' money in salaries.
And since you took the subsidy money, you can't force them to take non-pay leave, or cut their pay or terminate them.
(Note: The English translation I received states that "should be retained from the BEGINNING of this program whereas the BM text of the PM Speech says "Majikan mesti memastikan mereka tidak membuang pekerja SELEPAS pelaksanaan" - does that mean 3 months or 6 months from beginning of subsidy?)
Is the RM 600 per employee worth losing the flexibility of adjusting payroll or retrenching(let go of) employees?
There is no simple answer. Every enterprise is different. However, in my opinion, in this uncertain time, flexibility is key...and having cost flexibility is an advantage.
We are about to enter the month of Ramadan, internationally, many countries are still in lockdown, flights in and out of countries are few, people are adjusting to a new normal, business sentiment may not be the best, how will these factors impact your business?
And one other thing you need to remember, even in retrenching employees, there is a cost to it. Do you have the reserves?
For Employees earning less than RM 2,000, retrenchment is governed by the Employment Act. Depending on length of service, termination benefits can range from 10 days wages to 20 days. Retrenchment of employees above RM 2,000 is based on their employment contract.
(*Note: This is info gathered from other sites. Consult with the proper professionals for the proper process.)
At the end of the day, whether you decide to continue to operate or close your company, there will be a financial cost. This decision needs to be seen from a logical, financial perspective and not an emotional one.
I know that you have worked long and hard and sacrificed a lot to build your company. But to arrive at this decision, you may need to put all of these emotions aside. At the end of the day, it is a financial decision.
The government's stimulus itself is a financial reaction. You too need to adopt that mentality. Ask yourself, if you continue, how much can you bring in vs how much of your hard-earned capital is going out.
The government's stimulus package falls short of helping MSMEs weather this Covid19 storm. There are many suggestions for the government to consider and I would like to add another.
One thing that the government could do to make this decision easier is to loosen regulations in regards to retrenchment and closure of companies. By making it easier for businesses to conduct downsizing and retrenchment exercises, some business owners may opt to downsize over close. In this current environment and under existing regulations, winding up a business seems to be the easier option.
Hope this long write up can help you see a clearer path and sleep better.