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Understanding employment & labour laws in Malaysia.

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Understanding employment & labour laws in Malaysia

Employers must comply with laws related to employment and labour and should refrain from any unfair labour practices. We have listed some of the important provisions that employers must know when hiring, managing and terminating employees.

Let’s start.

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 cannot be filled by locals.

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 the position must be filled by a foreigner to the Immigration Department. Once approved, a letter of approval for the employment pass will be issued.

Leave entitlement

Public holidays

Annual leave

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

Years of service

Leave per year

One to two years

Eight days

Two to five years

12 days

More than five years

16 days

Sick leave

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

Years of service

Leave per year

Less than two years

14 days

Two to five years

18 days

More than five years

22 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 90 days starting on 1 January 2021.

Working hours in Malaysia

The regular working hours in Malaysia are eight hours a day and 48 hours a week.

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 hours

Two times the hourly wage

Public holiday but is required to work normal working hours

Two days wage

Public holiday but is required to work in excess of the normal working hours

Three times the hourly wage

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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 salary

RM 5,000 and below

More than RM 5,000

Employee’s status

Employer’s contribution rate

Employee’s contribution rate

Employer’s contribution rate

Employee’s contribution rate

Residents ages below 60

13%

9%

12%

9%

Residents ages 60 and above

4%

0%

4%

0%

Permanent residents ages below 60

13%

9%

12%

9%

Permanent residents ages 60 and above

6.5%

5.5%

6%

5.5%

Non-residents ages below 60

RM 5.00

9%

RM 5.00

9%

Non-residents ages 60 and above

RM 5.00

5.5%

RM 5.00

5.5%

Types of employment and contracts

Employment contracts

Employment contracts are required for employments that are longer than one month and must include the following information:

  • Job title
  • Wage rate
  • Wage period
  • Working hours
  • Employment benefits
  • Work location
  • Leave and holiday entitlement
  • Probationary period
  • Confidentiality requirements
  • Termination notice

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 notice

Years of service

Four weeks

Employed for less than two years

Six weeks

Employed between two to five years

Eight weeks

Employed 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

Severance payment

Employees employed for less than two years are entitled to 10 day’s 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.

Employers must ensure that they fully comply with the employment and labour laws in Malaysia to avoid any penalties and treat employees fairly. Feel free to contact Acclime if you have any additional questions about employment.

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