The Employer’s Guide to Handling Employee Demotions and Salary Cuts in Malaysia

October 1, 2021
Nicholas K

Whenever you hear about an internal job change in an organisation, the first thing that springs to mind is: promotions. Sometimes, however, employees are subject to the opposite end of the stick — demotions, or even salary cuts. This may be particularly true in a time of economic uncertainty for Malaysia, as the nation begins to recover from the global pandemic that is COVID-19. 

As employers, managers, and HR professionals, this can be a difficult situation to handle. While promotion meetings can be a joy for both managers and employees, demotion and salary cuts can be significant lows in someone’s career. 

As such, here is a quick breakdown on how you employee salary cuts and demotions — and what you, as managers or employers, can do to get the best out of the situation. 

Employee demotions: The what, how, and why 

Essentially, an employee demotion is the opposite of an employee promotion. When an employee is demoted, this means that their individual position or rank in the organisation has been downgraded. 

A salary cut, meanwhile, is the reduction in an employee’s wages — this can happen to an employee who is being demoted, or even to an employee who is maintaining the same position/rank in the company. 

There are a number of things can result in an employee demotion, including: 

  • Poor performance 
  • Violation of company policy 
  • Improper work ethic 
  • Lack of discipline 
  • Restructuring of the organisation 

It’s also worth noting that employment law in Malaysia actually gives employers the right to demote employees. According to Section 14 of the Employment Act 1955, employers have the right to “downgrade the employee” if there is “misconduct inconsistent with the fulfilment of the express or implied conditions of his service, after due inquiry”. 

In layman terms, this means that employers have the right to demote employees, although the Employment Act 1955 only covers employees in West Malaysia who earn RM2,000 and below, as well as manual labour workers. For those that aren’t covered by the Act, it’s important to look through your employment contract to see if there are provisions for poor performance, or misconduct.

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So, how can managers handle employee demotions (well)?

The first thing managers and employers need to consider is whether a demotion is the right call to make. When making this decision, it’s good to think about the following questions: 

  • How will the demotion affect the employee, and their team? 
  • Will the employee be successful in the new, demoted role? 
  • Have other options, such as a Performance Improvement Plan been exhausted? 

Ultimately, demoting an employee is a difficult decision to make, and you need to consider how the move will affect your employee — and its overall effect on team dynamics. It’s also worth noting that demotions due to severe misconduct (or other similar disciplinary issues) are more unlikely to solve the issue, so be sure to consider the root problem behind the decision. 

When/if the decision to demote an employee is made, here are a couple of tips to facilitate a constructive discussion, and to help make the transition smoother for all parties involved: 

1. Be respectful and have an honest conversation 

During your discussion with a soon-to-be demoted employee, be respectful. Remember that this decision is being made for the good of the company, but remember also that the company still wishes to retain this employee with a view to being successful in their new role. 

Be sure to communicate the reasons behind the demotion to the employee clearly and honestly. If it is for performance-related reasons, explain why the organisation wants to retain the employee, rather than terminate the agreement — this is key to ensuring that there is a constructive element to the discussion. 

2. Be open

In the same train of thought, you should also be as open as you can to facilitate this discussion with the employee. A demotion is certainly not an easy decision to accept by any employee, so be prepared to answer some hard questions with effective feedback. 

Do not ignore any tough questions, as a demotion is a sensitive issue for most, if not all employees. Some examples of these questions may include: 

  • Why am I getting demoted? 
  • What does this mean for my performance review?
  • Can I have a second chance in my current role? 
  • What are the repercussions if I refuse to accept the new role? 

3. Set a clear outline for the transition to the new role

During this meeting, you should take the opportunity to outline how the transition to the new role will be, and when this will take place. Share information such as: 

  • The date of the employee’s last day in current role
  • The date of the employee’s first day in new role 
  • Impact on employee’s remuneration (salary, bonuses, incentives, etc.)
  • Any other relevant information 

4. Be transparent with your team

If the employee works regularly within a team, you also need to consider the effect of the demotion on other team members. Transparency is key here to ensuring that team communications are clear, and free from misunderstandings or office gossip/politics. 

When communicating this to your team, the message should be that the demoted employee is moving to a different role. Be honest — but tactful — when explaining the reasons for the change, and discuss how the move will impact other team roles and responsibilities. 

If you aren’t sure what you should say, keep your discussion to the facts of the matter. Emotions and personal issues should not form a part of the discussion here.

In general, you want your employee to walk out of that meeting with a clear understanding of what will happen next — and why. Demotions that are handled in a constructive way can offer employers and organisations the chance to retain a valuable employee with relevant experience and skills that can be better utilised in another role. 

At the end of the day, you’ll want to make the best of an otherwise negative discussion. Managing a demotion or salary cut in a constructive way can result in a win-win for both employer and employee — or at least, mitigate a difficult situation. 

Effectively manage all your employees with Digi’s super app, altHR

Situations like these can be better managed with Digi’s super app, altHR. Keeping track of performance improvement plans, employment contracts, or other important documents can take up a large chunk of your day as employers, or HR professionals — particularly for large teams. Part of this can be attributed to manual processes, including large quantities of paper-based documentation such as employee handbooks, contracts, and company policies. 

At the end of the day, the key to surviving — and thriving — in the new normal is digitalisation. With altHR, HR processes such as employment agreements can be streamlined and adapted to the Documents module — this functionality allows HR to publish and share documents with limited visibility to other employees within an organisation. 

You’ll also be able to revise documents on the go, and for sensitive documents, enable password protection to maintain the utmost confidentiality. This also helps employees to keep track of their important documents, with easy and secure access to their employment contracts, all within altHR. 

And of course, all of that works seamlessly with the other modules in the new normal, such as leaves, expense and payroll management.

HR professionals are often faced with manual, repetitive, and often tedious tasks on a daily basis — tasks that have become even more difficult to handle in light of the ongoing COVID-19 situation. 

But help is available, if you know where to look. Let us streamline your HR processes by managing and automating day-to-day tasks, so you won’t have to worry about things like paperwork, privacy concerns, time-tracking, or onboarding challenges.

Sign up for altHR, the all-in-one digital solution that covers everything from payroll and onboarding, to staff management and providing employees with information kits. You’ve done it the old way long enough.

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