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Understanding employment law in Malaysia.

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Understanding employment law in Malaysia

Employers in Malaysia must comply with employment and labour laws when hiring, managing and terminating employees, including obtaining foreign quota approval for foreign employees, providing leave entitlements, setting working hours, registering with the Employees Provident Fund, drafting employment contracts, and providing severance payments.

To help you navigate these legal requirements and obligations, we have put together a guide outlining some of the most important provisions employers must know when hiring, managing and terminating employees in Malaysia.

Key takeaways

  • Written employment contracts are mandatory for employees working for more than a month in Malaysia. The contract should cover crucial aspects of employment such as job nature, salary, benefits, work hours, and safety measures. Employers should keep a copy of the contract for seven years after its expiration.
  • Companies in Malaysia that intend to hire foreigners must obtain foreign quota approval from the Ministry of Home Affairs. Only certain positions are available for foreigners, and employers must submit documents to the Immigration Department and obtain an employment pass letter of approval.

Employment contracts in Malaysia

In Malaysia, every employment that lasts more than one month needs to be formalised through a written contract.

The contract should outline the key features of the employment relationship, such as the place of employment, the nature of the work to be performed, wage rates, holidays, benefits, and any provisions necessary to protect the employee’s health and safety.

Employment contracts in Malaysia are governed by the Employment Act of 1955 and must be kept by the employer for a minimum of seven years after their expiration date.

Hiring foreign employees

Companies that are hiring foreigners must obtain foreign quota approval from the Local Centre of Approval from the Ministry of Home Affairs.

Foreign employees are allowed to work with Malaysian companies operating in the agriculture, construction, manufacturing, plantation and services industries.

Employers should know that only certain positions are available for foreigners and are usually positions that are highly skilled or technical positions that locals cannot fill.

Some of the positions include:

  • Top managerial positions for foreign companies in Malaysia
  • Professional or mid-managerial positions
  • Highly skilled, technical positions that require experience

Once the requirements are met, employers must submit all the documents to the Immigration Department.

Upon quota approval, the employer must submit the employment pass application and a letter explaining why a foreigner must fill the position to the Immigration Department. Once approved, a letter of approval for the employment pass will be issued.

Key provisions of the employment act in Malaysia

Working hours and overtime

The regular working hours in Malaysia are eight hours a day and 45 hours a week, effective January 2023.

If an employee is required to work overtime on a normal working day, he/she must be paid 1.5 times the hourly wage rate.

Other rates for overtime work are as follows:

Overtime work hours

Overtime pay calculation

Rest day but is required to work normal working hours Overtime work does not exceed half the normal work hours: 1/2 of the normal rate of pay

Overtime work is more than half but does not exceed the regular work hours: one full day wage at the normal rate of pay

Rest day but is required to work in excess of normal working hoursTwo times the hourly wage
Public holiday but is required to work normal working hoursTwo days wage
Public holiday but is required to work in excess of the normal working hoursThree times the hourly wage

Leave entitlement

Annual leave

Employees in Malaysia are entitled to paid annual leave depending on the number of years of service.

Years of serviceLeave per year
One to two yearsEight days
Two to five years12 days
More than five years16 days

Sick leave

Full-time employees are entitled to paid sick leave in accordance with the length of service with the company.

Years of serviceLeave per year
Less than two years14 days
Two to five years18 days
More than five years22 days

In the case of hospitalisation, employees are eligible for 60 days of hospitalisation leave a year in addition to the number of days for sick leave.

Maternity leave

Female employees in the private sector are entitled to 60 days of maternity leave, while employees in the public sector are entitled to 90 days of maternity leave.

The Malaysian 2020 Budget extended the maternity leave for private employees to 98 days starting on 1 January 2023.

Employees provident fund

The employees provident fund (EPF) is a retirement savings scheme for employees in Malaysia comprising of the employer’s and employee’s monthly contributions.

Employers must register with the EPF within seven days of hiring their first employee and also register the employee as an EPF member.

The contribution rate for employees and employers are as follows:

Monthly salaryRM 5,000 and belowMore than RM 5,000
Employee’s statusEmployer’s contribution rateEmployee’s contribution rateEmployer’s contribution rateEmployee’s contribution rate
Residents ages below 6013%11%12%11%
Residents ages 60 and above4%0%4%0%
Permanent residents ages below 6013%11%12%11%
Permanent residents ages 60 and above6.5%5.5%6%5.5%
Non-residents ages below 60RM 5.0011%RM 5.0011%
Non-residents ages 60 and aboveRM 5.005.5%RM 5.005.5%

Termination of employment

Termination notice

According to section 12 of the Employment Act 1955, the employer or employee must give notice within the following lengths:

Length of noticeYears of service
Four weeksEmployed for less than two years
Six weeksEmployed between two to five years
Eight weeksEmployed for longer than five years

Reasons of termination

Employers can terminate an employee’s contract under the condition that the termination is justified, done in good faith and fair.

The court may be involved if the dismissal is considered unfair, and to avoid an unfair dismissal claim, the termination must be with just cause and excuse.

Just cause and excuse means that the employer has a justified reason to terminate the employee. The reasons may include:

  • Major misconduct, such as theft, sexual harassment and failure to follow safety protocols
  • Negligence in performing duties
  • Poor performance
  • Redundancy and closing the business
  • Retirement
  • Death of employees
  • Breach of the contract
  • Termination at the end of the probation period
  • Expiration of fixed-term contract
  • Mental disorders
  • Bankruptcy
  • Criminal offence
  • Absent from work for more than two days consecutively without leave and/or reasonable excuse

Severance payment

Employees employed for less than two years are entitled to 10 days’ wage for every service year completed.

Employees who have been employed for two to five years are entitled to 15 days’ wage for every year completed, and employees of five or more years are entitled to 20 days’ wage for every year completed.

Employees who are dismissed for misconduct, voluntarily terminate their contract or retire are not entitled to severance pay.

How Acclime can help with your HR needs

As an employer in Malaysia, it is essential to familiarise yourself with the government’s labour laws and regulations to ensure that you are providing fair and legal treatment to your employees. Following these regulations can create a positive working environment, reduce the risk of legal disputes, and maintain a good reputation in the business community.

Therefore, it is imperative to stay up-to-date with the latest labour laws and regulations, implement best practices, and maintain a positive work culture to ensure the long-term success of your business.

Contact Acclime to get help with HR-related matters in your business. As a professional services provider, we can ensure your compliance with Malaysian labour laws, draft employment contracts, and handle any HR administrative work for your employees. If you aren’t ready to set up an entity in Malaysia, we can even employ staff on your behalf through our PEO services.

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Acclime is Asia’s premier tech-enabled professional services firm. We provide formation, accounting, tax, HR and advisory services, focusing on delivering high-quality outsourcing and consulting services to our local and international clients in Malaysia and beyond.

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