Understanding employment law in Malaysia is important to ensure that the rights of both employer and employee are protected. This article explains the main employment laws and rights and resolving employment disputes.
What is Employment Law in Malaysia?
Employment law in Malaysia is a set of laws that sets the rights and obligations of employer and employee in an employment relationship. The main employment law in Malaysia is the Employment Act of 1955
Employment laws in Malaysia cover employment matters and primarily offer employee protection with minimum entitlement. These laws apply when there is an employment relationship, that is there is an employer and employee. However, it does not apply to independent contractors, who are not employees.
Employees need to understand the legal obligations under the labour law and ensure compliance with Malaysia employment law and regulations.
On the question of what the ‘Malaysia Employment Act’ is, the main legislation is the Employment Act of 1955 (‘Act’). This Act applies to all employees in Malaysia except for certain provisions which do not apply to employees earning more than RM 4,000.
Key Labor Regulations and Requirements
The key employment laws in Malaysia with the related provisions and regulations providing statutory benefits and minimum rights are explained below:
Working Hours and Overtime
Under the Act, the maximum weekly working hours are 45 hours per week with a minimum of 1 rest day per week. On a normal full working day, the employees are allowed to work up to a maximum of 8 hours per day, and up to 5 consecutive hours with a period of at least a 30-minute break/meal breaks in between.
If the employer requires the employee to work beyond normal working time, then they will have to pay for the overtime work on an hourly basis whereby the overtime payments per hour are as follows:
Overtime on the normal working day: 1.5 x the normal rate of pay per hour
Overtime on a rest day but is required to work exceeding normal working hours: 2 times the hourly wage
Public holiday but is required to work for normal working hours: 2 days wage.
Public holiday but is required to work over the normal working hours: 3 times the hourly wage
Note:
1. The normal rate of hourly pay is calculated as follows:
Monthly wages/26 days: Daily wages/ number of working hours per day
Leave Entitlements and Benefits
There are 4 primary leave types and leave entitlements which are:
Annual leave
On the query 'annual leave Malaysia calculation', the annual leave varies depending on years of service or employment and for:
Less than 2 years: 8 days
2 years or more but less than 5 years: 12 days;
5 years or more: 16 days.
The employees can use those leaves for vacation and emergency leave. However, if they have used all their annual leave, then they will have to apply for unpaid leave and the employer may approve based on the employees' requests.
Medical leave (Sick and hospitalization leave)
Upon examination by a registered medical practitioner for illness, the employees are entitled to sick leave which also varies depending on years of service or employment period for:
Less than 2 years: 14 days;
2 years or more but less than 5 years: 18 days;
5 years or more, 22 days.
Holiday leave
There are 11 holidays in Malaysia whereby the employees enjoy holiday pay (wages are being paid and given off day on certain holidays)
Maternity leave for female employees
Pregnant female employees are entitled to maternity leave of 98 days for pregnancy.
Paternity leave
This is a parental leave of 7 days for fathers who had a new childbirth.
Wages
Minimum Wages Order 2020 sets the national minimum wages whereby the minimum monthly salary/wage is RM 1,500 per month and the minimum hourly rate is RM 7.21 per hour.
The employer should know that wage period payment is by the 7th of every month for last month's wages. For this, they can use some payroll software to ensure timely wage payments and accurate employee salary payments.
Termination
Employer needs to ensure productivity and job satisfaction for the employees. However when it comes to terminations, both employer and employee can terminate the contract by giving each other notice depending on years of service and for continuous employment of:
Fewer than 2 years, 4 weeks’ notice;
2 years or more but less than 5 years, 6 weeks’ notice;
5 years or more, 8 weeks’ notice.
However, the employer is required to have good reasons for terminating the employees. Otherwise, the employees can claim unfair dismissal or in some cases, constructive dismissal (when the employer breaches the main terms of the employment contract, such as non-payment of wages)
When there is termination without good reasons, the employees can file an unfair dismissal claim in the Industrial Court whereby the Court can award statutory compensation of up to 24 months of back wages for the termination benefits.
Some of the good reasons for termination may include:
Poor performance
Major misconduct such as theft and sexual harassment.
Redundancy and closing the business
Expiration of fixed-term contract
Mental disorders
Bankruptcy
Criminal offence
Absence from work for more than consecutive two days without leave and/or reasonable excuse.
Reaching mandatory retirement age
Alternatively, both employers and employees can discuss and agree on the severance payments as compensation for the termination.
Statutory Benefits
Employers have the obligation to contribute to certain funds for the benefit of employees. These statutory entitlements include:
Employee Provident Fund (EPF)
Under the Employees Provident Fund Act 1991, the employer must contribute a certain percentage of the employee’s wages to the provident fund. At the same time, they are given the mandate to deduct a certain portion of the employee wages to contribute to the fund.
Social security
The employee must contribute to social security under the Employees’ Social Security Act 1969 (SOCSO). This security is for a healthy working environment and working conditions whereby it may provide compensation for employment injury due to workplace accidents.
At the same time, the employer must contribute to the Employment Insurance Scheme (EIS) which is like an unemployment insurance scheme, providing benefits for unemployed workers.
Optimal working environments
The employee must also ensure the workplace satisfies the minimum standards in compliance with the Occupational Safety and Health Act 1994, thus preventing and minimizing any occupational diseases.
Permits and License
If the employer hires foreign employees especially expatriate employees, then they must obtain the necessary valid work permit and employment pass for them following the related immigration law in Malaysia.
On another note, under the Minimum Retirement Age Act 2012, the minimum retirement age for retirement is 60 years.
Terms of Employment Contracts
Under Section 10(1) of the Act, any employment for work exceeding 1 month must be in writing, that is the employment terms must be stated in an employment contract. All employment agreements should comply with the Contracts Act 1950 and the labour laws in Malaysia to ensure it is an enforceable contract.
A valid employment contract usually contains the below comprehensive provisions:
Employment information
This includes the date when the employees commence work and the workplace.
Job description
This includes the employee’s job scope including daily tasks. It is important to ensure the workload is manageable to prevent employee burnout.
Working hours
This can include the normal working days and normal working hours and whether the employee is placed on shift work.
These hours are also applicable for flexible work arrangements which include working from home. However, the employer should have the discretion to change the regular working hours and days depending on the business needs.
Wages and Salaries
A typical employment contract will also include the monthly basic wages and whether any incentive payment is given. If there are shift works, then it may state whether any shift allowances are given. The wage rates are usually reviewed and can be increased from time to time based on the employer’s discretion.
Contractual benefits
As mentioned above, granting leaves is part of the legal requirements under Malaysian labour laws. Here, it should state sick, holiday, and annual leave entitlement, and the leave policies.
Probationary period
This is the period where the employer evaluates the employee’s suitability and performance. After the end of the probationary period, the employer can confirm the employment and convert the employment status into permanent employees.
Termination
This is when the parties can terminate the contract by giving a certain period of notice to each other, etc: 1 month.
Others
Other employment terms include restrictions on revealing employer’s confidential information and anti-workplace discrimination based on gender and religion.
All employers should be familiar with our local employment laws to preserve good employee relationships, whether it is with permanent employees or casual employees and keep the employee records.
If the employers intend to provide employment conditions that differ from statutory law, that is the Employment Act, then in some cases he should get approval from the Director General of Labour. If you need any help to draft employment contracts, you can contact us.
Resolving Disputes
Apart from complying with Malaysian labour regulations, employers should also create a positive working environment for a productive workplace.
However inevitably, there are employment disputes and there are few authorities to turn to to resolve the disputes.
Jabatan Tenaga Kerja
This is also known as the Labour Department of Malaysia. Here, it commonly deals with wage disputes and other matters under the labour laws such as breach of employment regulations.
Here, it usually deals with the termination of employees. The parties can be represented by representatives from their trade unions, lawyers, or themselves.
Malaysian courts
Here, it deals with specific employment matters that are not covered by the Labour Department of Industrial Court. Depending on the disputes and if it is an interpretation of the contract, then the parties can commence the case in the civil courts by filing an originating summons.
On the other hand, if the case is simpler and can be decided without the attendance of a witness, then the parties can apply for summary judgment in Malaysia (that is hearing for judgment without the attendance of a witness)
Conclusion
Understanding employment law in Malaysia is important to ensure compliance and preserve employment relationships. If you need any legal advice on labour disputes, you can contact our lawyer firm in Kuala Lumpur and we will assist you.
Frequently Asked Questions
1. What is the basic employment law in Malaysia?
The basic law is the Employment Act 1955. It describes the rights of workers and the responsibilities of employers in Malaysia. It covers wages, working hours, and leave entitlements such as annual, sick, holiday, and annual leave.
2. What is the notice period for resignation in Malaysia?
Under section 12 of the Employment Act 1955, the parties can agree on the notice period for resignation. If there is no such clause in the employment contract, then the notice period is 4 weeks for employment less than 2 years.
3. Can an employer hold salary in Malaysia?
No, the employer cannot hold a salary. However, the employer can deduct the salary for some instances such as insufficient notice period given by the employees for resignation.
