Are you hiring an employee but confused about what benefits must be offered? Or are you unsure about whether certain things are allowed by law? This brief guide sets out some basic information for employers about Malaysian employment law.
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 realise 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)
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, but less than 5 years||12 days|
|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 service||Sick Leave Entitlement (per annum); where hospitalization not necessary|
|Less than 2 years||14 days|
|2 years or more, but less than 5 years||18 days|
|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 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|
|Rest day, but working in excess of normal working hours||2x hourly rate of pay|
|Public Holiday, but working normal workings hours||2 days wages at ordinary rate of pay|
|Public holiday – Excess of normal working hours||3x hourly rate of pay|
“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.
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho