In Malaysia, employees enjoy the privilege of “carrying forward” their unused leave from one year to another, ensuring flexibility in managing personal and professional commitments. It allows employees to make plans to attend to their personal matters, without the burden of losing their unused leave entitlement.

Here are some frequently asked questions about carry forward leave in Malaysia.

What is carry forward leave?

You will not find this phrase anywhere in legislation. “Carry forward leave” is the colloquial phrase used to describe the employee’s balance annual leave that they are allowed to use (i.e.: “carry forward”) in the subsequent year. 

Are employers legally required to allow their employees to carry forward their unused leave?

Under section 60E(2) of the Employment Act 1955 (“EA”), which applies to all employees in Malaysia, an employer must allow their employees to take their annual leave “not later than twelve months after the end of every twelve months continuous service”, failing which it can be forfeited.

Reading the section as a whole, it means that employees are entitled to use their annual leave up to 12 months from when the leave is earned. This is because the entitlement to annual leave is given on the basis of every twelve months of continuous service.

Wouldn’t it be difficult to keep track of when each day of leave expires?

Many companies provide that annual leave entitlements shall accrue on a pro-rata basis. For example, if an employee is entitled to 12 days of annual leave, this means that they do not get to use the full 12 days of annual leave on the first day of employment. They will gradually accrue 1 day of leave per month, where at the end of 12 months of service, they will have earned the full entitlement of 12 days.

Illustration
An employee joins the Company on 1 January 2022 and is entitled to 12 days of annual leave for every twelve months of continuous service. His annual leave accrues on a pro-rata basis, so he will accrue 1 day of annual leave per month, until he hits 12 days of annual leave in end December 2022. 

The difficulty with following section 60E(2) strictly is that this means every day of annual leave could have a different “expiry” date” if it is accrued on a pro-rata basis. That is why, for administrative purposes, some employers fix the expiry date to the end of the following year, even if this means providing for a longer carry forward period than legally required.

Can Employers limit carry forward leave?

Some annual leave policies dictate that an employee can only carry forward a maximum of X days of annual leave. However, the EA doesn’t provide for a limit to carry forward leave. As required under section 60E(2), employees should be allowed to use their annual leave not later than twelve months after the end of every twelve continuous months of service – any limitation on this would be non-compliant.

If an employer does not want to give carry forward leave, can it be replaced by a payment in lieu?

Yes, provided this is requested by the employer, and the employee agrees in writing not to avail themselves of part or all of the balance annual leave entitlement. 

What does this all mean for employers?

Employers should review their annual leave policies to ensure compliance with the EA. Policies that restrict employees’ use of annual leave or reduce the allowable duration may be non-compliant. With the recent expansion of the EA’s coverage to include all employees as of 1 January 2023, it is important not to assume that previously acceptable “old” policies do not require updating.

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This article was written by Adelyn Fang (Associate) from Donovan & Ho’s employment law practice. 

Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations.  Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.

 

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