Incorporating legislation up to 1 January 2023, including the Employment (Amendment) Act 2022. The primary focus of this guide is the Employment Act 1955.
What is Malaysian employment law?
Employment law in Malaysia is generally governed by the Employment Act 1955 (“Employment Act”). The Employment Act sets out certain minimum benefits afforded to all employees in the private sector.
If any clause in an employment contract offers less favourable benefits than those set out in the Employment Act, that clause shall be void and replaced with the minimum benefits in the Employment Act.
Effective 1 January 2023, all employees shall be entitled to the minimum benefits under the Employment Act and the Employment (Amendment) Act 2022, subject to the exclusion of certain provisions on overtime work and termination benefits, which shall be applicable only to these categories of employees:
- Employees whose monthly salary is RM 4,000 and below
- Employees engaged in manual labour, regardless of salary
- Employees engaged in the operation or maintenance of mechanically propelled vehicle
- Employees who supervise or oversee other employees engaged in manual labour
- Employees engaged in any capacity on a vessel (subject to certain other conditions)
Certain parts of the Employment Act are not applicable to certain categories of employees. For example, multiple parts of the Employment Act do not apply to domestic employees such as termination benefits, hours of work and maternity protection.
What are the provisions under the Employment Act which do not apply to employees earning above RM4,000 per month (assuming those employees are not engaged in manual labour)?
- Work and overtime payment on rest days
- Overtime payments for work in excess of normal hours of work
- Shift work allowance
- Work, allowance and overtime payments on public holidays
- Termination, lay-off and retirement benefits.
Are employers obliged to follow the Employment Act strictly?
Employers are mostly free to set any benefits for their employees, provided that they are not contrary to anything in the Employment Act and the benefits offered do not fall below the statutory minimum.
Apart from the Employment Act, employees are governed by their contract of employment, and will also be subject to any other applicable statutory requirements (e.g.: minimum retirement age, SOCSO and EPF, etc).
What is the minimum wage?
Effective 1 May 2022, under the Minimum Wages Order 2022, the minimum wage is RM1,500 a month for employees paid on a monthly rate.
What are the required statutory deductions from an employee’s salary?
Generally, an employer must make these deductions from an employee’s salary:
- Employee’s contribution to Employees Provident Fund (EPF)
- Employee’s contribution to Social Security Organisation (SOCSO & EIS)
- Monthly income tax deduction
In addition to making these deductions, an employer must pay an employer’s contribution to their employee’s EPF and SOCSO accounts, and pay the Human Resource Development Fund (HRDF) levy if applicable. Do not forget to factor these additional “costs” into your payroll and headcount budget.
Can employers deduct other things from an employee’s salary?
Under the Employment Act, an employer may only make deductions from an employee’s salary in these circumstances:
- Over-payment of wages due to a mistake by the employer (only for the immediately preceding 3 months)
- Deductions for payment in lieu of notice, where the employee resigns without serving the full notice required under the contract
- Deductions to recover advances of wages (provided no interest is charged on the advances)
- Deductions authorized by any other written law (e.g.: EPF, SOCSO, EIS, income tax deductions)
An employer can deduct these items from an employee’s salary ONLY if the employee requests:
- Deductions for payments to a trade union or co-operative thrift/loan society for entrance fees, subscriptions, etc.
- Deductions as payment for any shares in the employer’s business offered for sale by the employer and purchased by the employee
Certain other deductions can only be made if the employee requests in writing and prior permission from the Director General of Labour is obtained.
What is the legal position of probationers?
The Employment Act does not distinguish between probationers and confirmed employees. Therefore, probationers are generally entitled to the same benefits under the Employment Act as a confirmed employee.
Are probationers automatically confirmed upon the end of their probation period?
Case law provides that there is no “automatic confirmation”. A probationer who does not receive a confirmation letter is still a probationer, even though the probationary period has lapsed and the employer continued to retain the employee.
What are the minimum requirements for annual leave under the Employment Act?
Under the Employment Act, these are the minimum requirements for annual leave:
| Length of service | Annual Leave entitlement |
| Less than 2 years | 8 days |
| 2 years or more, but less than 5 years | 12 days |
| 5 years or more | 16 days |
Upon termination, if the employee has not completed 12 months of continuous service, his entitlement to paid annual leave shall be in direct proportion to the number of completed months of service. Any fraction of a day of annual leave which is less than half a day shall be disregarded, and any fraction of a day that is half a day or more, shall be treated as one full day.
Employees are allowed to use their annual leave up to 12 months after the end of every 12 months continuous service, failing which their leave may be forfeited.
What about sick leave and hospitalization leave?
Under the Employment Act, the minimum paid sick leave entitlements are:
| Length of service | Sick Leave entitlement; where hospitalization is not necessary – per calendar year |
| Less than 2 years | 14 days |
| 2 years or more, but less than 5 years | 18 days |
| 5 years or more | 22 days |
Where hospitalization is required, employees are entitled to 60 days of hospitalization leave per year, which is a separate entitlement from and in addition to the number of outpatient sick leave days provided above.
What is an employee’s maximum working hours?
An employee’s working hours must not exceed 45 hours per week and subject to these conditions:
(a) It cannot be more than 8 hours in one day, except where the number of hours of work on one or more days of the week is less than 8, the limit of 8 hours may be exceeded on the remaining days of the week, but so that no employee shall be required to work for more than 9 hours in one day or 45 hours in one week.
(b) The employee cannot be required to work in excess of a spread over period of 10 hours in one day.
(c) If required to work for 8 consecutive hours, the employee must be given not less than 45 minutes in the aggregate during which he shall have the opportunity to have a meal.
(d) The employee cannot be required to work more than 5 consecutive hours without a minimum of 30 minutes break.
(e) The employee must be given at least 1 day of rest in a week.
For shift workers, they may be required to work more than 8 hours in any one day or more than 45 hours in any one week, so long as the average number of hours worked over any period of 3 weeks shall not exceed 45 hours per week, and where they do not work more than 12 hours in any one day.
What are the overtime rates?
An employee earning RM4,000 and below a month, or involved in manual labour (regardless of salary), is entitled to overtime if they work in excess of their normal working hours.
Overtime entitlements for employees on a monthly rate of pay under the Employment Act are:
| Working in excess of normal working hours on a normal work day | 1.5x hourly rate of pay |
| Rest day, but working normal working hours |
Where work does not exceed half his normal hours of work: ½ the ordinary rate of pay for work done on that day
Where work is more than half but does not exceed normal hours of work: 1 full day’s wages at the ordinary rate of pay
|
|
Rest day, but working in excess of normal working hours
|
2x hourly rate of pay |
|
Public Holiday, but working normal working hours
|
2 days’ wages at ordinary rate of pay |
| Public holiday, but working in excess of normal working hours | 3x hourly rate of pay |
“Ordinary rate of pay” means the employee’s “daily” wage, and is calculated by dividing the employee’s monthly salary by 26.
“Hourly rate of pay” means the ordinary rate of pay divided by the normal hours of work.
For example:
An employee who works 8 hours a day for a monthly basic salary of RM 1,500 and a monthly fixed allowance of RM 60 would have an ordinary rate of pay of RM 60 (RM 1,560 / 26 = RM 60).
That employee’s hourly rate of pay would be RM 7.50 (RM 60 / 8 hours = RM 7.50).
If that employee was asked to work on a public holiday during his normal working hours, his overtime payment for that day would be RM 120 (RM 60 x 2).
How do you calculate wages for an incomplete month’s work?
An employee who is employed on a monthly rate of pay and has not completed a whole month of service shall be paid wages for that month using this formula:
|
Monthly wages ————————————
|
X | Number of days eligible in the wage period |
How are public holidays handled? Can an employer choose which public holidays to observe?
Employees are entitled to at least 11 public holidays per calendar year, 5 of which must be:
- National Day
- Birthday of Yang di-Pertuan Agong
- Birthday of the Ruler or the Yang di-Pertua Negeri of the State where the employee works / Federal Territory Day
- Labour Day / Worker’s Day
- Malaysia Day
The other 6 holidays can be chosen by the employer from the list of gazetted public holidays.
However, the employer must exhibit conspicuously at the workplace which 6 gazetted public holidays are being observed before the commencement of each calendar year. If any of the 6 holidays are substituted, the agreement of the employee must be obtained.
Where a public holiday that falls on a rest day (typically Sunday), the next working day shall be a holiday in substitution.
What about “sudden” public holidays? Are employers required by law to observe them?
Sometimes, a public holiday can be declared with little notice. One example was in 2023 when the government declared a public holiday under the Holidays Act 1951 to allow travel plans for Hari Raya Aidilfitri.
The Employment Act provides that employers must also observe any public holiday declared by the Minister under section 8 of the Holidays Act 1951. However, for this category of public holidays, the employer has an option to choose another day as a paid public holiday in substitution, if they do not want to observe this public holiday. There is no requirement for employers to get the consent of employees to make the substitution.
Under the Employment Act, there is no requirement to observe holidays granted under other sections of the Holidays Act 1951 (e.g.: holidays declared by the State Authority under section 9).
What about maternity protection?
All female employees are entitled to 98 consecutive days of paid maternity leave, unless she already has 5 or more surviving children at the time of her confinement.
An employer must pay maternity allowance (i.e.: payment of her salary for that 98 consecutive days) to an employee if she has been employed by that employer for:
- At least 90 days in aggregate during the 9 months before her confinement; and
- She was employed by the employer in the 4 months immediately before her confinement
This means that an employer could still have to pay maternity allowance to an employee who has left employment before giving birth.
However, the law requires that a female employee about to leave her employment and knows she is expected to deliver within 4 months from her last date of employment must notify her employer of her pregnancy, failing which she may not receive any maternity allowance.
Are there any restrictions against dismissal of pregnant employees or employees who are on maternity leave?
Pregnant employees cannot be terminated during pregnancy unless there is a wilful breach of contract, misconduct, or closure of business.
A female employee cannot be terminated during maternity leave or for 90 days after her maternity leave (if she cannot resume work due to an illness arising out of her pregnancy and confinement, as certified by a registered medical practitioner).
What about paternity leave?
Only married male employees are entitled to 7 consecutive days of paid paternity leave up to 5 confinements irrespective of the number of spouses, provided:
- He has been employed by the employer at least 12 months immediately before the commencement of the paternity leave; and
- He has notified his employer of the pregnancy of his spouse at least 30 days from the expected confinement or as early as possible after the birth.
Can employees be terminated purely by notice or payment in lieu of notice? Does the employer have to give a good reason for termination?
Employees cannot be terminated without “just cause and excuse”. As such, an employer cannot terminate an employee purely by giving them notice, or payment in lieu of notice – even if this is stated in their employment contract.
Certain exceptions may apply – for example, if the employee is on a genuine fixed term contract. In such a situation, the employment ceases upon expiry of the fixed term and the employer is not required to give any reason for the non-renewal of the fixed term contract.
Terminating employees without good reason can amount to unfair dismissal.
Do employers have to pay termination benefits?
Employers are only legally required to pay termination benefits to employees earning RM4,000 per month and below and/or those involved in manual labour. The statutory termination benefits are:
- 10 days’ wages for less than 2 years of service;
- 15 days’ wages for 2 years or more, but less than 5 years of service; and
- 20 days’ wages for 5 years of service or more.
For incomplete years of service, termination benefits are paid pro-rata but calculated to the nearest month. Termination benefits must be paid no later than 7 days after the termination date.
Certain exemptions apply. For example, employers are not required to pay termination benefits to employees terminated for misconduct, to retiring employees, or where an employee has voluntarily resigned.
Do employers have any obligations regarding sexual harassment?
Yes. Under the Employment Act, an employer must inquire into all complaints of sexual harassment. An employer can refuse to inquire into a complaint of sexual harassment only if: (a) the complaint was previously inquired into and no sexual harassment has been proven; or (b) the employer is of the opinion that the complaint is frivolous, vexatious or is not made in good faith. Where the employer refuses to inquire into the complaint, he must notify the complainant not later than 30 days after receipt of the complaint, and inform the reasons for the refusal in writing.
Employers must also exhibit a notice to raise awareness on sexual harassment conspicuously at the place of employment. There are no specific requirements as to what must be stated in the notice.
How should employers handle flexible working arrangements?
An employee may apply for flexible working arrangements to vary:
- Hours of work
- Days of work
- Place of work
Employers must consider applications for flexible working arrangements and to respond with an approval or refusal (with reasons) of the application within 60 days. This is not an obligation for employers to grant the application for flexible working arrangements.
How do the changes to the employment law landscape affect employers?
The key issues and considerations of businesses is whether any changes to existing practices need to be made, and whether this would have an impact financially, procedurally or on productivity of day-to-day operations. For example, an increase in statutory leave entitlements means an increase in costs, and the need to procure adequate manpower replacement for employees on leave.
Organisations should consider the potential commercial and operational issues that may arise and take necessary measures to comply with the law, such as:
- Headcount and workforce management
- Budgeting and overhead costs
- Time and resources
- HR and payroll procedures
- Various leave benefits and applications
- Risk and compliance
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Note:
The information in this document is meant to act only as a general guide and is not intended to constitute legal, technical or professional advice. As certain requirements may change depending on the facts, you are always advised to consult a legal professional for advice specific to your situation if you have any queries. This guide is based on information as at 1 January 2023 and does not address any updates or revisions to the law that may come into effect after this date.
