A Quick Guide for a ‘Boss to be’ to Malaysian Labour Law
Finally, you are a boss of your own company. You have spent much time and effort and not forgetting money in establishing your business. As a company, you need to start hiring. Business is one thing but when it comes to hiring, there are certain things that you may be unsure of or could be confused about what benefits must be offered? Well, guess what, in this article, we lined out some basic information for employers about Malaysian labour law.
So, what is Malaysian labour law?
Labour law in Malaysia is generally administrated by the Employment Act 1955 (“Employment Act” or “EA”). The EA spells out certain benefits that are required for applicable employees. If, in the event you offered any clause in the employment contract to your staff which is less favourable benefits than those set out in the EA, these clause shall be void and replace with the minimum benefits in the Employment Act.
However, here, we need to inform everyone that the Employment Act does not apply to all employees. It only applies to these categories of employees as per the examples below:
- Those monthly salary does not exceed RM2,000
- Those who engaged in the operation or maintenance of mechanically propelled vehicle
- Those who supervise or oversees other employees engaged in manual labour
- Those who are engaged in manual labour, regardless of salary
- Those who engaged in any capacity on a vessel (subject to certain other conditions)
- Domestic servants
Certain parts of the Employment Act are not applicable to certain categories of employees. For example, multiple parts of the Employment Act do not apply to domestic servants such as termination benefits, hours of work and maternity protection.
So what happens to those employees who don’t fall under the Malaysian Employment Act? What law governs them?
These employees, shall be governed by the terms of their contract of employment, subject to any other applicable statutory requirements (eg: minimum retirement age, SOCSO and EPF, etc). In short, employers are mostly free to set any benefits for Non-EA Employees, on the assumption that those employees agree to those benefits by accepting and signing the employment agreement. Some, if not all employers, still based on the Employment Act for basic guidelines benefits for their Non-EA Employees.
Unless otherwise stated, the rest of this guide addresses the minimum benefits applicable to EA Employees.
What is the minimum wage?
Under the Minimum Wages Order 2016, effective 1 July 2016, the minimum wage is RM1,000 a month (Peninsular Malaysia) and RM920 a month (East Malaysia and Labuan).
What are the lawful and required deductions from an employee’s salary?
Generally, an employer is required to make the following deductions from an employee’s salary (irrespective of whether they are an EA Employee or a Non-EA Employee):
- Employee’s contribution to Employees Provident Fund (EPF)
- Employee’s contribution to social security organization (SOCSO)
- Monthly income tax deduction
In addition to making these deductions, an employer must also make the employer’s contributions to their employee’s EPF and SOCSO accounts, so don’t forget to factor these additional “costs” into your payroll and headcount budget.
Can employers deduct further other things from an employee’s salary?
Under the Employment Act, an employer only allowed to make deductions from an EA Employee’s salary in the following circumstances:
- Over-payment of wages due to a mistake by the employer (only for the immediately preceding 3 months)
- Deductions for payment in lieu of notice, where the employee resigns without serving the full notice required under the contract
- Deductions for recovery of advances of wages (provided no interest is charged on the advances)
- Deductions authorized by any other written law (eg: EPF, SOCSO, income tax deductions)
An employer can also deduct these items from an EA Employee’s salary ONLY if the employee requests:
- Deductions for payments to a trade union or co-operative thrift/loan society for entrance fees, subscriptions, etc
- Deductions as payment for any shares in the employer’s business offered for sale by the employer and purchased by the employee
Certain other deductions can only be made if the EA Employee requests in writing and prior permission from the Director General of Labour is obtained. For Non EA Employees, the normal rules of contract shall apply, so deductions can be made upon mutual agreement, provided it does not contravene any law or statute.
How should you grant annual leave?
Under the Employment Act, these are the minimum requirements for annual leave:
- Less than 2 years = 8 days
- 2 years or more, but less than 5 years = 12 days
- More than 5 years = 16 days
Annual leave can be pro-rated if an employee has worked less than a full year in that particular calendar year.
What should you deal with sick leave?
Under the Employment Act, sick leave entitlements are:
- Less than 2 years = 14 days
- 2 years or more, but less than 5 years = 18 days
- More than 5 years = 22 days
Where hospitalization is required, EA employees are entitled to 60 days of hospitalization leave per year, provided that the number of sick leave and hospitalization leave pear year shall not exceed 60 days in total.
What are the overtime rates?
For employees paid on a monthly basis, overtime entitlements under the Employment Act are as follows:
- Working in excess of normal working hours on a normal work day = 1.5x hourly rate of pay
- Rest day, but working normal working hours =
- Where work does not exceed half his normal hours of work: ½ the ordinary rate of pay for work done on that day
- Where work is more than half but does not exceed normal hours of work: 1 full day’s wages at the ordinary rate of pay
- Rest day, but working in excess of normal working hours = 2x hourly rate of pay
- Public Holiday, but working normal workings hours = 2 days wages at ordinary rate of pay
- Public holiday – Excess of normal working hours = 3x hourly rate of pay
“Ordinary rate of pay” in this context is basically the employee’s “daily” wage, and is calculated by dividing the employee’s monthly salary by 26.
“Hourly rate of pay” means the ordinary rate of pay divided by the normal hours of work.
For example, an employee who works 8 hours a day for a monthly salary of RM1,300.00 would have an ordinary rate of pay of RM50 (RM1,300 / 26 = RM50). That employee’s hourly rate of pay would be RM6.25 (RM50 / 8 hours = RM6.25)
If that employee was asked to work on a public holiday during his normal working hours, his overtime payment for that day would be RM100 (RM50 x 2).
Non-EA Employees are not entitled to overtime payments.
How are public holidays handled? Can an employer choose which public holidays to observe?
EA employees are entitled to a minimum of 11 public holidays per calendar year, 5 of which must be:
- National Day
- Birthday of Yang di-Pertuan Agong
- Birthday of the Ruler or the Yang di-Pertua Negeri of the state where the employee works
- Labour Day / Worker’s Day
- Malaysia day
The other 6 holidays can be chosen by the employer from the list of gazetted public holidays. However, the employer must exhibit conspicuously at the workplace which six gazetted public holidays are being observed.
Where a public holiday that falls on a rest day (typically Sunday), the next working day shall be a holiday in substitution.
What about “sudden-declared” public holidays? Malaysians in general love to celebrate holidays should their favorite local football team wins a championship. Are employers required by law to observe them?
There have been instances where the federal or state government(s) has declared a public holiday without much notice to the public. Some example like when Selangor Football team wins the league cup and Selangor as a state declared a public holiday as a form of celebration.
The Employment Act provides that employers must also observe any public holiday declared under the Holidays Act 1951. However, for this category of public holidays, the employer has an option to choose another day as a paid public holiday in substitution, if they do not want to observe this public holiday. There is no requirement for employers to get the consent of employees to make the substitution.
What about maternity protection?
All female employees (including Non-EA Employees) are entitled to 60 consecutive days of paid maternity leave for her first 5 children. An employer is required to pay maternity allowance (ie payment of her salary for that 60 consecutive days) to an employee if she has been employed by that employer for:
At least 90 days in aggregate during the 9 months before her confinement; AND She was employed by the employer at any time in the four months immediately before her confinement. This means that an employer could still be required to pay maternity allowance to an employee who has left employment before giving birth. However, the law requires that a female employee who is about to leave her employment and knows she is expected to deliver within 4 months from her last date of employment must notify her employer of her pregnancy, failing which she will not be allowed to receive any maternity allowance.
A female employee cannot be terminated during maternity leave or for a period of 90 days after her maternity leave (if she is unable to resume work due to an illness arising out of her pregnancy and confinement, as certified by a registered medical practitioner).
Can employees be terminated purely by notice or payment in lieu of notice? Does the employer have to give a good reason for termination?
An employer cannot terminate an employee just by giving them notice, or payment in lieu of notice – even if this is what is stated in their employment contract. Permanent employees cannot be terminated without “just cause and excuse” and this requirement applies to both EA and Non-EA Employees. For more information about what amounts to “just cause and excuse”, read our previous article.
However, certain exceptions may apply if the employee is on a fixed term contract. Terminating employees without good reason can amount to unfair dismissal.
Do employers have any obligations regarding sexual harassment complaints?
Yes. Under the Employment Act, an employer is required to inquire into all complaints of sexual harassment, and this regardless of whether the employee involved is an EA Employee or a Non-EA Employee.