Malaysia’s employment and labour laws govern the hiring, management and termination of employees. Key requirements include obtaining foreign worker quota approvals, complying with statutory leave entitlements and working hour limits, registering with the Employees Provident Fund (EPF), preparing compliant employment contracts and calculating severance payments.
This guide covers the main provisions of Malaysian labour law, including employee categories, statutory entitlements, EPF and SOCSO contributions, foreign worker requirements and termination procedures.
- 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 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 |
Leave entitlement
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 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 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% | 11% | 12% | 11% |
| Residents ages 60 and above | 4% | 0% | 4% | 0% |
| Permanent residents ages below 60 | 13% | 11% | 12% | 11% |
| Permanent residents ages 60 and above | 6.5% | 5.5% | 6% | 5.5% |
| Non-residents ages below 60 | RM 5.00 | 11% | RM 5.00 | 11% |
| Non-residents ages 60 and above | RM 5.00 | 5.5% | RM 5.00 | 5.5% |
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 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
- 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 HR and employment law compliance in Malaysia
Acclime Malaysia offers complete support for HR administration and employment law compliance. From employment contract preparation and payroll processing to EPF and SOCSO registration and foreign worker quota applications, our team of experts can assist with everything from ensuring compliance with the Employment Act 1955 to managing statutory contributions and handling termination procedures in accordance with Malaysian labour law.
By partnering with us, businesses operating in Malaysia can confidently manage their workforce obligations while maintaining full compliance with employment regulations and statutory requirements. Contact us to learn more about how we can support your HR administration needs and employment law compliance requirements in Malaysia.
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Acclime helps businesses, from funded startups to multinational corporations, start and operate in Malaysia and beyond, navigating local regulatory complexities to maximise opportunities while ensuring compliance. As a trusted partner, we provide premier advisory and corporate services across Malaysia and the Asia-Pacific region.
