What is Malaysian employment law?

Employment law in Malaysia is generally governed by the Employment Act 1955

(“Employment Act”). The Employment Actsets out certain minimum benefits that are
afforded to applicable employees. For applicable employees – any clause in an
employment contract that purports to offer less favourable benefits than those set out in
the Employment Act, shall be void and replaced with the minimum benefits in the
Employment Act.

What many people fail to realize is that the Employment Act does not apply to all
employees. The protection under the
Employment Act only applies to these categories of employees (let’s call them EA
Employees):

 Employees whose monthly salary does not exceed RM2,000

 Employees who are engaged in manual labour, regardless of salary
 Employees engaged in the operation or maintenance of mechanically propelled vehicle
 Employees who supervise or oversees other employees engaged in manual labour
 Employees engaged in any capacity on a vessel (subject to certain other
conditions)

Domestic servants

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
servants such as termination benefits, hours of work and maternity protection.

What law governs employees who don’t fall under the Malaysian Employment
Act?

These employees, typically referred to as “Non-EA Employees” will be governed by the

terms of their contract of employment, subject to any other applicable statutory
requirements (eg: minimum retirement age, SOCSO and EPF, etc). In other words,
employers are mostly free to set any benefits for Non-EA Employees, on the
assumption that those employees agree to those benefits by accepting and signing the
employment agreement. That being said, most employers still use the Employment Act
benefits as a guideline or “bare minimum”, even for Non-EA Employees.

Unless otherwise stated, the rest of this guide addresses the minimum benefits
applicable to EA Employees.

What is the minimum wage?

 Under the Minimum Wages Order 2016, effective 1 July 2016, the minimum wage is
RM1,000 a month (Peninsular Malaysia) and RM920 a month (East Malaysia and
Labuan). For more details on the minimum wage, please read our previous article here.

What are the required statutory deductions from an employee’s salary?

Generally, an employer is required to make the following deductions from an

employee’s salary (irrespective of whether they are an EA Employee or a Non-EA
Employee):

 Employee’s contribution to Employees Provident Fund (EPF)

 Employee’s contribution to social security organization (SOCSO)
 Monthly income tax deduction

In addition to making these deductions, an employer must also make the employer’s
contributions to their employee’s EPF and SOCSO accounts, so don’t forget to factor
these additional “costs” into your payroll and headcount budget.

For more information about the new SOCSO rate (that apply to both Employment Act
and non EA Employees) that took place effective 1 July 2016, please read our previous
article here.

Can employers deduct other things from an employee’s salary?

Under the Employment Act, an employer only allowed to make deductions from an EA
Employee’s salary in the following circumstances:

 Overpayment 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 for recovery of advances of wages (provided no interest is charged on the
advances)
 Deductions authorized by any other written law (eg: EPF, SOCSO, income tax
deductions)

An employer can also deduct these items from an EA 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 (For more information on Employee
Share Option Schemes, click here)

Certain other deductions can only be made if the EA Employee requests in writing and
prior permission from the Director General of Labour is obtained.

For Non EA Employees, the normal rules of contract shall apply, so deductions can be
made upon mutual agreement, provided it does not contravene any law or statute.

What is the legal position of probationers?

The Employment Act doesn’t distinguish between probationers and confirmed

employees. However, case law does provide that there is no “automatic confirmation”
as 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. For more information about probationers, read our previous article here.

How should you deal with annual leave?

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, 12 days
but less than 5
years
More than 5 years 16 days

Annual leave can be pro-rated if an employee has worked less than a full year in that
particular calendar year. You can also read our previous article about annual
leave here.

What about sick leave?

Under the Employment Act, sick leave entitlements are:

Length of Sick Leave

service Entitlement (per
annum); where
 hospitalization not
necessary
Less than 2 years 14 days
2 years or more, 18 days
but less than 5
years
More than 5 years 22 days

Where hospitalization is required, EA employees are entitled to 60 days of

hospitalization leave per year, provided that the number of sick leave and hospitalization
leave pear year shall not exceed 60 days in total.

For more information about sick leave, read our previous article here.

What are the overtime rates?

For employees paid on a monthly basis, overtime entitlements under the Employment
Act are as follows:

Working in excess of 1.5x hourly rate of

normal working pay
hours on a normal
work day
Rest day, but Where work does
working normal not exceed half his
working hours 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 2x hourly rate of pay

 working in excess of
normal working
hours
Public Holiday, but 2 days wages at
working normal ordinary rate of pay
workings hours
Public holiday – 3x hourly rate of pay
Excess of normal
working hours
“Ordinary rate of pay” in this context is basically 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 salary of
RM1,300.00 would have an ordinary rate of pay of RM50 (RM1,300 / 26 = RM50). That
employee’s hourly rate of pay would be RM6.25 (RM50 / 8 hours = RM6.25)
If that employee was asked to work on a public holiday during his normal working hours,
his overtime payment for that day would be RM100 (RM50 x 2).

Non-EA Employees are not entitled to overtime payments.

How are public holidays handled? Can an employer choose which public holidays
to observe?

EA employees are entitled to a minimum of 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
 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 six
gazetted public holidays are being observed.

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?

There have been instances where the government has declared a public holiday without
much notice to the public. One example was in 2010 when the government declared a
public holiday under the Holidays Act 1951 because of Malaysia’s victory at the AFF
Suzuki Cup.

The Employment Act provides that employers must also observe any public holiday
declared under 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.

What about maternity protection?

All female employees (including Non-EA Employees) are entitled to 60 consecutive

days of paid maternity leave for her first 5 children.

An employer is required to pay maternity allowance (ie payment of her salary for that 60
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 at any time in the four months immediately before
her confinement

This means that an employer could still be required to pay maternity allowance to an
employee who has left employment before giving birth. However, the law requires that
a female employee who is 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 will not be allowed to receive any maternity allowance.

A female employee cannot be terminated during maternity leave or for a period of 90

days after her maternity leave (if she is unable to resume work due to an illness arising
out of her pregnancy and confinement, as certified by a registered medical practitioner).
For more information about pregnancy discrimination laws in Malaysia and termination
of pregnant employees, please read our previous article here.

How about paternity leave?

Sorry, dads: there is no statutory requirement for employers in Malaysia to provide

paternity leave to new fathers.
Can employees be terminated purely by notice or payment in lieu of notice? Does
the employer have to give a good reason for termination?

An employer cannot terminate an employee just by giving them notice, or payment in

lieu of notice – even if this is what is stated in their employment contract. Permanent
employees cannot be terminated without “just cause and excuse” and this requirement
applies to both EA and Non-EA Employees. For more information about what amounts
to “just cause and excuse”, read our previous article here.

However, certain exceptions may apply if the employee is on a fixed term contract. For
more information about employees on fixed term contracts, click here.

Terminating employees without good reason can amount to unfair dismissal. For more
information about unfair dismissal, click here.

Do employers have any obligations regarding sexual harassment complaints?

Yes. Under the Employment Act, an employer is required to inquire into all complaints
of sexual harassment, and this regardless of whether the employee involved is an EA
Employee or a Non-EA Employee. For more information about an employer’s
obligations when it comes to sexual harassment complaints, please click here.

Malaysian employment law can look confusing, complicated and even tricky at first
glance. However, having the right source of information will make navigating Malaysian
employment law much simpler.

Note: This guide is for information or reference purposes only, and is not intended to act
as, or substitute, legal advice. Certain requirements may change depending on specific
factual circumstances. This article is based on information as at 1 December 2016 and
does not address any updates or revisions to the law that may come into effect after this
date.