This article is dedicated to all the employers, employees or the soon-to-be employers or employees in Malaysia.
The employment law in the private sector in Malaysia is mainly provided in the Employment Act 1955 (“the EA”), among others sources of law, which shall be applicable in the Peninsular Malaysia and the Federal Territory of Labuan.
In light of the impending extensive amendments to the EA which is now at its final stages of public engagement before tabling in the Parliament, this article serves to provide a basic understanding of the current state of the law before the amendments set in.
The proposed amendments to the Employment Act 1955 can be seen in the Ministry of Human Resource web link as follows:-
There is, however, a different set of employment law in the public sector which governs the civil servant under the purview of the Public Service Commission.
Sources of Law
For clarity, the sources of employment law in Malaysia are basically found in:-
(a) the statutes, being the Parliament made law or an Act of Parliament
- Industrial Relation Act 1967;
- Holidays Act 1951;
- Weekly Holidays Act 1950;
- Income Tax Act 1967 (Schedular Tax Deduction);
- Children and Young Person (Employment) Act 1966;
- Employees Provident Fund Act 1991;
- Employees Social Security Act 1969;
- Minimum Retirement Age Act 2012;
- National Wages Consultative Council Act 2011;
- Employment Insurance System Act 2017); and
(b) subsidiary legislation, being the ministerial orders or regulations made under the relevant empowering statutes
- Employment (Part-time Employees) Regulations 2010; and
- Minimum Wages Order 2016); and
(c) case laws refer to such judicial precedents found in the law reports for future similar cases to be treated alike.
Applicability of the EA
It is important to note that the EA only covers the following categories of employees as stated in the First Schedule of the EA.
Further clarifications on this can be found in Categories of Employee covered under the Employment Act 1955:-
(a) any person, irrespective of his occupation, who has entered into a contract of service with an employer under which such person’s wages do not exceed RM2,000 a month; and
(b) any person whose wages exceed RM2,000 a month has entered into a contract of service with an employer in pursuance of which:-
(i) is engaged in manual labour;
(ii) is engaged in the operation or maintenance of any mechanically propelled vehicle operated;
(iii) supervises or oversees other employees engaged in manual labour;
(iv) is engaged in any capacity in any vessel registered in Malaysia; or
(v) is engaged as a domestic servant.
There is no distinction between ‘contract of service‘ and employment contract in law. But, one must distinguish that from ‘contract for service’ is a contract to engage independent contractors who are self-employed, for their work.
All in all, the Malaysian employment law does not recognize a contract with a mixture of both ‘contract of service’ and ‘contract for service’.
A contract of service also includes an apprenticeship contract which is a written contract entered into by a person with an employer who undertakes to employ that person and train or have him trained systematically for a trade for a specified period which shall not be less than two years in the course of which the apprentice is bound to work in the employer’s service.
However, it must be noted that such apprenticeship contract must be distinguished from the master and pupil relationship under the Legal Profession Act 1976.
In fact, the Rules and Rulings of the Bar Council 10.09 provides that a master shall not, under any circumstance enter into any contract of or for service, with his/her pupil.
In another word, there cannot be employer-employee relationship in the case of master and pupil.
For the employee who does not cover by the EA, his employment relationship with the employer boiled down to the employment contract or contract of service, subject to such other statutes and case law mentioned above in the sources of employment law.
Statutory Rights of Employee under EA
Terms less favourable than the EA shall be void
Provided that the employee covered under the EA as stated in the First Schedule, it is the law that any term and condition of the employment contract or contract of service, which is less favorable than the provisions under the EA or any other regulations made thereunder shall be ‘void’, as per Section 7 of the EA. Section 7 of the EA further states that such term which is less favorable shall be substituted by those prescribed under the EA.
At this juncture, it is worth noting the other 6 Interesting Facts about Employment Contracts in Malaysia at the outset.
Section 2 of the EA defines a ‘contract of service’ as an agreement, be it oral or in writing, whether by implied or express conditions, where a person is engaged as an employee to serves his employer.
Notwithstanding that, Section 10 of the EA provides that such contract of service or employment contract shall be in writing if the period of employment is more than a month. It shall also include a termination clause by either party.
Time for payment of wages
Section 19 of the EA provides that every employer shall pay to each of his employees no later than the 7th day after the last day of any wage period. Depending on the employment contract, wage period will normally be 1 month.
If there is no wage period mentioned in the employment contract, the wage period shall be deemed to be 1 month.
‘Wages‘ means the basic wages and all other payments in cash payable to an employee for work done in respect of his employment contract excluding such allowances, expenses and lawful deductions in the course of his employment.
There is basically no legal provisions for the required period of probation. Normally, it ranges from 1 to 6 months depending on the industries the employees are in.
Probation refers to a trial period of employment which can be culminated in the employees being confirmed or terminated.
Termination of probationer must, however, be subjected to ‘just cause and excuse’ as provided under Section 20 of the Industrial Relation Act 1967.
As a general rule, there is no ‘automatic confirmation’, even though the probationary period has lapsed and an employee is neither terminated nor confirmed.
Under EA, either the employer or the employee may give notice or payment in lieu of notice to terminate the contract of service, as provided under section 12 of the EA.
The length of such notice shall not be less than the following depending on the employee’s tenure of employment:-
|Length of Notice of Termination||Tenure of Employment ('X')|
|4 weeks||X < 2 years|
|6 weeks||2 years ≤ X < 5 years|
|8 weeks||5 years ≤ X|
Termination of an employee by the employer must also be subject to ‘just cause and excuse’ as provided under Section 20 of the Industrial Relation Act 1967.
EPF & SOCSO & other contributions
Regardless of whether the employee falls under the purview of EA, the employer is under legal obligations to make the following statutory contributions:-
(a) Employees Provident Fund (‘EPF’)
(b) Social Security Organization (‘SOCSO’)
(c) Employee Insurance System (‘EIS’) Scheme
(d) Schedular Tax Deduction or ‘Potongan Cukai Berjadual’ (‘PCB’)
(e) Trade Union Subscription Fees or PTPTN loan repayment (subjected to a request in writing by the employee must first be obtained)
Rates of the above contributions can be found in Malaysian Employment Law: 5 Compulsory Statutory Contributions or Deductions
According to Section 60E of the EA, every employee is entitled to the number of paid annual leave as follows depending on his or her tenure of employment:-
|Annual Leave||Tenure of Employment ('X')|
|8 days||1 year ≤ X < 2 years|
|12 days||2 years ≤ X < 5 years|
|16 days||5 years ≤ X|
For the incomplete 12 months of service, the employee’s entitlement to paid annual leave shall be in direct proportion to the number of completed months of service.
Under Section 60F of the EA, every employee’s shall be entitled to the number of paid sick leave as follows where no hospitalization is necessary, depending on his or her tenure of employment:-
|Sick Leave||Tenure of Employment ('X')|
|14 days||X < 2 years|
|18 days||2 years ≤ X < 5 years|
|22 days||5 years ≤ X|
However, if hospitalization is necessary, every employee shall be entitled to paid sick leave of 60 days in the aggregate in each calendar year, as may be certified by such registered medical practitioner or medical officer.
It must be noted that the number of sick leave and hospitalization leave per year that every employee is entitled shall not exceed 60 days in total.
Maternity Leave and Paternity Leave
Regardless of whether the employee falls under the purview of EA, Section 44A of the EA provides that all female employees are entitled to 60 consecutive days of paid maternity leave.
Details of law in this respect can be found in 6 Legal Facts about Maternity Protection in Malaysia
There is so far no statutory requirement for employers in Malaysia to provide paternity leave to new fathers.
The law, as provided under Section 60D(1) of the EA states that every employee shall be entitled to 11 gazetted public holidays, 5 of which shall be as follows:-
(a) the National Day;
(b) the Birthday of Yang-Di Pertuan Agong;
(c) the Birthday of the Ruler or Yang di-Pertua Negeri or Federal Territory day (all of which varies in different states);
(d) the Workers’ day; and
(e) the Malaysia Day (16 September).
The employer is then free to choose the remaining 6 gazetted public holidays to make up the 11 days, and these chosen days must be effectively communicated with the employees either through notice or stated in the employment contract:-
(a) Birthday of the Prophet Muhammad (s.a.w)
(b) Chinese New Year (2 days, except 1 day in the states of Terengganu and Kelantan)
(c) Wesak Day,
(d) Hari Raya Puasa (2 days)
(e) Hari Raya Haji (1 day, except 2 days in the states of Terengganu and Kelantan)
(g) Christmas day
(h) Nuzul Al-Quran – only in Federal Territory of Kuala Lumpur, Putrajaya, Labuan
Regardless of whether the employee falls under the purview of EA, all Malaysian employees shall also be entitled to any days which are appointed as a public holiday under section 8 of the Holidays Act 1951 which commonly known as Ad Hoc Public Holiday.
In the event an employee is required to work on a public holiday, he shall be paid not less than 3 times his daily rate of pay. The same principle applies should he be required to work overtime on the said public holiday.
Details of law on public holidays can be found in: It’s Public Holiday Again!
Hours of Work and Rest day
Section 60A(1) of the EA says that an employee shall not be required under his contract of service to work:-
(a) more than 5 consecutive hours without a period of leisure of not less than 30 minutes duration;
(b) more than 8 hours in 1 day;
(c) in excess of a spread over a period of 10 hours in 1 day;
(d) more than 48 hours in 1 week.
Section 59 of the EA provides that every employee shall be allowed in each week a paid rest day of one whole day as may be determined from time to time by the employer.
Should the employee is required to work on a rest day, he shall be paid not less than 2 times his daily rate of pay. The same principle applies should he be required to work overtime on the said rest day.
Section 60A(3) of the EA provides that any number of hours of work carried out in excess of the normal hours of work per day shall be classified as overtime work.
For any overtime work carried out in excess of the normal hours of work, the employee shall be paid at a rate not less than 1 ½ time his hourly rate of pay.
Under 60I of the EA, the hourly rate of pay means the ordinary rate of pay divided by the normal hours of work. The ordinary rate of pay shall be calculated according to the following formula: Monthly salary/26 days
Details of law on hours of work and overtime work can be found in Hours of Work and Overtime Work in Malaysia
Restraint of Trade Union
Section 8 of the EA prohibits any term in any contract of service that restrains the right of an employee to:-
(a) join a trade union;
(b) participate in trade union activities; and
(c) to associate with any persons with regards to a trade union.
Hence, any such provisions in the contract of service or employment contract are void.
Section 81A – 81G of the EA provides that the law against sexual harassment are basically applicable to all employees regardless of whether they fall under the purview of EA.
The law now sets out the employer’s duty to act by inquiring into the complaint of sexual harassment, failing which shall be liable to fine not exceeding RM 10,000.
Details of law on sexual harassment can be found in Sexual Harassment Law at Private Employment in Malaysia
Termination or Lay-off Benefits
Generally, it is the right of the employer to reorganize business for the purpose of the economy and convenience provided it acted bona fide:
Section 60J of the EA provides that the Human Resource Minister may provide for the employees:-
(a) termination benefits
(b) lay-off benefits
(c) retirement benefits
According to Regulation 6 of the Employment (Termination and Lay-Off Benefits) Regulations 1980, employees are entitled to the termination and lay-off benefits as stated below, depending on their tenure of employment:-
|Number of Days' Wage for Each Year of Employment||Tenure of Employment ('X')|
|10 days||X < 2 years|
|15 days||2 years ≤ X < 5 years|
|20 days||5 years ≤ X|
and pro-rata as respect an incomplete year, calculated to the nearest month.
Retirement benefits are not compulsory benefit under the law unless if it is provided in the employment contract.
Other Relevant Provisions:-
- It is pertinent to note that the Minimum Wages Order 2018 and Minimum Wages Order (Amendment) 2018 as enacted under Section 23 of the National Wages Consultative Council Act provides that the minimum wages rates payable to an employee shall be RM 1,100 per month. Details of which can be found in Employment Law: Minimum Wages in Malaysia.
- Minimum Retirement Age Act 2012 provides that with effective from 01.07.2013, the employee’s retirement age for the private sector is 60 years old, details of which can be found in Law on Retirement Age in Malaysia.
- Pursuant to Personal Data Protection Act 2010, effective from 15.11.2013, ‘active’ measures need to be taken by the employer to comply with the Personal Data Protection Act 2010 and its regulations or risk facing prosecution with a maximum fine of RM 500,000 or up to three years in jail, or both. These are recommended compliance exercise to be undertaken by the employer:-
(a) obtain a certificate of registration; and
Details of which can be found in the Basics of Personal Data Protection for Employers
- Any of such clauses in the employment contract for the purpose of restraining employee from pursuing a same career for after the termination of the employment contract is invalid in view of its direct contradiction with Section 28 of the Contracts Act 1950 which states that “Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” Detailed explanations can be found in The Legal Effect of Restraint of Trade clause in Employment Contracts
Offenses and Penalty
Section 99A of the EA provides that any person who commits any offence under, or contravenes any provision of EA or any regulations made thereunder, in respect of which no penalty is provided, shall be liable, on conviction, to a fine not exceeding RM 10,000.
We hope the above information is helpful to all our clients as well as the well-deserved employers or employees out there, who earn an honest living through their very own efforts.
Lastly, let’s also not lose sight of the part-time employee’s rights whose average hours of work per week ranges between 30% – 70% compare to that of a full time employee.
Further details of the law can found in Employment Law: Part-Time Employees in Malaysia.
About the Author:
This article was written by Chia Swee Yik, Partner of this Firm, who endeavors to provide practical advice on employment law.
Feel free to contact us using the form below if you have any queries.