Malaysia’s thriving economy and the business-friendly climate attract global investors and organizations. On the one hand, Malaysia provides access to the vast and expansive Asia-Pacific market. On the other, the country’s excellent infrastructure, communication links, talented workforce, and diverse culture make it an ideal destination for growth and innovation. However, setting up a business entity there requires that you comply with Malaysia’s employment act and labor code provisions.
The employment and labor regulations in Malaysia, govern laws around working hours, minimum benefits, leaves, etc., of employees. The Employment Act, 1955, is the primary statute that sets down the minimum terms and conditions of employment in Malaysia. In this employment law in Malaysia guide, we’ll discuss the applicability of the Act, its key provisions, and penalties for those who fail to comply with the Malaysia labor law.
Who is Covered in the Employment Act?
The applicability of the labor regulations in Malaysia, governed by the First Schedule of the Employment Act, 1955, only applies to:
- Employees who have entered into a contract of service with an employer and whose monthly wages do not exceed RM2,000, regardless of the occupation
- Employees who have entered into a contract of service with an employer and whose monthly wages exceed RM2,000 but are engaged in the following:
- Manual labor
- Maintenance or operation of any mechanically propelled vehicle
- Supervision of other employees involved in manual labor
- Any vessel registered in Malaysia
- Domestic service
An employment contract is a legal agreement between an employer and their employee, stating the job details such as work hours, pay, benefits, etc. The labor code of Malaysia refers to the employment contract with a similar terminology called the contract of service.
As per Section 2 of the Employment Act, 1955, a contract of service refers to a written or oral agreement between an employer and employee whereby the latter agrees to serve the former.
Malaysia has two types of employment contracts: written and verbal.
Written employment contract
According to Section 10(1) of the Employment Act, 1955, any employment lasting longer than one month requires a formal written contract between the employer and employee. Further, the labor code in Malaysia requires that employers retain all employment contracts for six years after the termination of the said contracts.
Oral employment contract
Section 2(1) of the Employment Act, 1955 states that an oral agreement between an employer and an employee classifies as a legally binding contract.
Key Provisions of the Act
The Employment Act, 1955 of Malaysia guarantees certain statutory rights of employees, including holidays, leaves, rest days, etc. Below is a list of some key provisions of the Act, widely accepted as the labor code in Malaysia.
Time for payment of salaries
As per Section 19 of the Employment Act, 1955, every employer must complete payment of their employees’ wages by the 7th day after the last day of the wage period. While the wage period is typically one month, it may vary with employment contracts. In this context, wage includes the basic wage plus all other cash payments for the work done as per the employment contract. However, it excludes allowances, deductions, and other expenses incurred in the line of employment.
According to Section 60F of the Employment Act, 1955, every employee is entitled to paid sick leaves, the duration of which depends on the tenure of employment. The following table lists the duration of paid sick leaves against the length of service:
Additionally, the labor regulations in Malaysia also state that if an employee requires hospitalization, they are entitled to paid sick leave of 60 days in a calendar year or as certified by a registered medical practitioner. However, the total number of days in a year granted as sick leave must not exceed 60.
The labor code of Malaysia also has a provision on annual leave. As per Section 60E of the Employment Act, 1955, every employee is entitled to several annual leaves. The minimum requirements for annual leave are as follows:
Labor regulations in Malaysia further state that if an employee has worked less than a year in a particular calendar year, their paid annual leave will be directly proportional to the number of months completed in service.
Section 44A of the Employment Act, 1955, provides that all female employees are entitled to 84 days of paid maternity leave for their first five children. The provision of maternity leave applies regardless of whether a female employee falls within the scope of the Act.
Thus, an employer must pay maternity allowance to an employee who has been employed for:
- An aggregate minimum of nine months before the confinement and
- Employed at any time during the four months immediately preceding the confinement
The labor code in Malaysia further states that an employer cannot dismiss a female employee during the latter’s maternity leave or for 90 days after the said leave, owing to health issues resulting from the pregnancy or confinement.
As per Section 12 of the Employment Act, 1955, the employee or employer can terminate the service contract by giving notice or payment in lieu of notice. However, the length of the termination notice will depend on the employee’s tenure of service as given below:
Furthermore, an employer terminating a permanent employee must have “just cause and excuse,” regardless of whether or not the labor code in Malaysia applies to the employee.
The employer has to make specific statutory contributions irrespective of whether the employee falls under the purview of the Employment Act. These statutory contributions or deductions include
- Employees’ Provident Fund (EPF)
- Employee Insurance System (EIS)
- Social Security Organization (SOCSO)
- Schedular Tax Deduction
Work hours and rest days
As per the provision for working hours in Malaysian labor law, employees are not required to
- Work more than eight hours a day
- Work more than five consecutive hours without a break of at least 30 minutes
- Work more than 48 hours in a week
- Work more than a spread over 10 hours in a day
The Malaysia Employment Act further rules that every employee is entitled a whole day of paid rest leave in each week or as determined by the employer. However, if the employee has to work on the rest day or work overtime on the said rest day, they must be paid at least twice the daily rate of pay.
Section 60A(3) of the Employment Act, 1955, identifies overtime work as the number of hours an employee works more than the daily work hours. As such, the labor code in Malaysia sets out the following overtime entitlements for employees who are paid every month:
Section 60D(1) of the Malaysian Employment Act says that all employees are entitled to 17 gazetted public holidays, including,
- The National Day
- The Workers’ Day
- The Malaysia Day (September 16)
- The birthday of the Ruler or Yang di-Pertua Negeri or Federal Territory day
- The birthday of Yang-Di Pertuan Agong
The employer can choose the remaining six holidays from the following list and communicate the same to employees:
- Chinese New Year
- Birthday of the Prophet Muhammad
- Hari Raya Haji
- Hari Raya Puasa
- Wesak Day
- Christmas Day
- Nuzul Al-Quran
Employees in Malaysia are also entitled to Ad Hoc Public Holidays regardless of whether they fall under the purview of the Employment Act, 1955.
Sections 81A – 81G of the Malaysian Employment Act provides that anti-sexual harassment laws apply to all employees, whether or not they fall within the scope of the Act. As such, the employer must probe into sexual harassment complaints, and failure to do so would invite a fine of a maximum of RM10,000.
If you’re setting up business in Malaysia, it’s mandatory that you comply with the country’s labor laws. Moreover, Section 99A of the Malaysian Employment Act provides that a person committing any offense under the Employment Act or violating any provision therein shall be liable to pay a fine of a maximum of RM 10,000 where no penalty is given. Penalty for continued and repeated offenses may invite higher fines or imprisonment for five years.
Compliance Strategies for Employers
Complying with the labor code in Malaysia can get overwhelming and confusing, especially for new businesses. Below are some standard compliance strategies for your Malaysia business:
- Hire an HR manager to oversee employee recruitment, training, payroll, benefits, appraisals, and legal compliance.
- Establish and document company procedures and policies in writing and modify them over time.
- Use professional and standard basic employment document drafts such as employment contract, termination, offer letter, etc.
- Promote a compliance culture and remove barriers to compliance.
- Reinforce compliance procedures and policies through regular training.
- Hire a third-party firm to conduct periodic compliance audits.
How Can Multiplier Help?
Since it’s essential to adhere to the labor code in Malaysia while hiring there, you can make things easier with Multiplier. With solutions ranging from international payroll management and employee onboarding to drafting multilingual and compliant contracts, Multiplier is a comprehensive platform for all your EOR and PEO needs. You can avoid the hassle of incorporating an overseas entity and thrive in global markets while Multiplier handles compliance and hiring matters.