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Guide to Employment Law in Malaysia

Guide to Employment Law in Malaysia

In today’s global business environment, understanding the intricacies of local employment laws is crucial for business leaders and owners. In Malaysia, like any dynamic and rapidly growing economy, the legal landscape governing employment relationships is multifaceted and requires intimate understanding for businesses employing staff. This guide aims to provide an exploration of Malaysian employment law, offering valuable insights to ensure legal compliance and foster a healthy working environment.

Please note: As of November 2023, this guide provides an up-to-date overview of Malaysian employment law, reflecting the current legal landscape. However, it is important to note that laws and regulations are subject to change. Employment laws are expansive and intricate — while we strive to provide comprehensive and accurate information, this guide should not be considered legal advice. Businesses seeking specific legal advice or up-to-the-minute legal information should contact InCorp, the leading provider of corporate solutions in the region. 

Legal Framework: The Cornerstone of Employment Relations

Employment Act 1955 and Industrial Relations Act 1967

The foundation of employment law in Malaysia was established by the Employment Act 1955 and the Industrial Relations Act 1967. The Employment Act primarily addresses the minimum terms and conditions of employment for a certain category of worker. It includes provisions for working hours, overtime, leave entitlements, public holidays, termination, and maternity benefits.

Meanwhile, the Industrial Relations Act governs the resolution of employment disputes and the regulation of trade unions. This Act plays a pivotal role in maintaining harmonious industrial relations, providing mechanisms for conciliation and arbitration of labour disputes.

Statutory Benefits and Entitlements

Under the Employment Act, employees are entitled to various statutory benefits, including sick leave, annual leave, maternity leave, and public holidays. 

Sick Leave

Sick Leave Tenure of Employment 
14 days Less than 2 years
18 days 2 years to 5 years
22 days 5 years or more

Annual Leave

Annual Leave Tenure of Employment
8 days 1 year to 2 years
12 days 2 years to 5 years
16 days 5 years or more

Maternity and Paternity Leave

All female employees are entitled to 60 consecutive days of paid maternity leave. At this point in time, there is no requirement for paternity leave.

Public Holidays

Every employee is entitled to 11 public holidays, 5 of which shall be of the following:

  • The National Day
  • The Birthday of Yang-Di Pertuan Agong
  • The Birthday of the Ruler or Yang di-Pertua Negeri or Federal Territory Day 
  • The Workers’ Day (Labour Day)
  • The Malaysia Day (16 September).

The employer is then free to choose the remaining 6 public holidays from the following:

  • Birthday of the Prophet Muhammad (s.a.w)
  • Chinese New Year  (2 days, except 1 day in the states of Terengganu and Kelantan)
  • Wesak Day,
  • Hari Raya Puasa (2 days)
  • Hari Raya Haji (1 day, except 2 days in the states of Terengganu and Kelantan)
  • Deepavali
  • Christmas day
  • Nuzul Al-Quran – only in Federal Territory of Kuala Lumpur, Putrajaya, Labuan

Employment Contracts: The Framework of Workplace Relationships

Essentials of Employment Contracts

Employment contracts in Malaysia, whether oral or written, represent a mutual agreement between employer and employee, setting out terms and conditions of employment. These contracts must detail job responsibilities, salary, working hours, and termination conditions, among other elements.

Employee Contract

Types of Employment Contracts

In Malaysia, there are two recognised forms of employment agreements: those that are written and those that are verbally agreed upon.

For a written employment contract, the Employment Act of 1955, particularly Section 10(1), mandates that any job lasting more than a month must have a formal written agreement between the employer and the employee. Additionally, Malaysian labour regulations require that these written contracts be kept by the employer for a period of six years following the end of the contract.

On the other hand, an oral employment contract is also legally valid. According to Section 2(1) of the Employment Act, 1955, a verbal agreement made between an employer and an employee is considered a legally enforceable contract.

Balancing Rights and Obligations in the Workplace

Employee Rights and Protections

Employees in Malaysia enjoy a range of rights and protections under the law. This includes the right to fair wages, safe working conditions, and protection against unlawful dismissal. For example, the Employment Act mandates protection against unfair dismissal, ensuring that terminations are conducted with just cause and after due process.

Employer Obligations

Employers have significant responsibilities towards their employees, encompassing timely wage payments, adherence to working hours regulations, and the provision of statutory benefits. For instance, the law requires employers to pay wages no later than the 7th day after the end of a wage period, as stipulated in Section 19 of the Employment Act.

Wages, Benefits, and Working Hours Regulations

Compliance with regulations regarding wages, working hours, and other benefits is crucial. The Malaysian government has set a minimum wage policy, and failure to comply can lead to legal repercussions. Additionally, working hours are capped at 48 hours per week, with regulations governing overtime pay.

Wages and Benefits: Beyond Monetary Compensation

Minimum Wage and Compliance

The minimum wage in Malaysia is a crucial aspect of employment law. As of May 2022, the minimum monthly wage nationwide is set at RM1,500. Employers must regularly review their payroll systems to ensure compliance with these updates.

Overtime Pay and Entitlements

Overtime compensation is another critical area of employment law. Employees are entitled to overtime pay at a rate of 1.5 times the normal hourly rate for work beyond the standard hours. This regulation ensures fair compensation for extended working hours.

Bonuses and Incentives

While not mandated by law, bonuses and incentives are common practices that contribute to employee motivation and job satisfaction. These benefits, though discretionary, can significantly impact employee retention and productivity.

Deductions and Allowances

Employers are also responsible for making statutory deductions from employees’ salaries for contributions to the Employees Provident Fund (EPF), SOCSO, and Employee Insurance System (EIS). These deductions contribute to the employees’ long-term financial security and social safety net.

Upholding Equality and Non-Discrimination in the Workplace

Prohibition of Discrimination

Malaysian employment law emphasises the importance of a discrimination-free workplace. Employers must ensure that their employment practices, including hiring, remuneration, promotion, and termination, are free from bias based on gender, race, religion, or disability.

Creating an Inclusive Workplace Environment

Fostering an inclusive workplace goes beyond mere compliance with legal requirements. It involves implementing policies and training programs that promote diversity and prevent discrimination. Such an environment not only adheres to legal standards but also enhances employee morale and productivity.

Ensuring Occupational Health and Safety

Workplace Safety Regulations and Compliance

Employers in Malaysia are obligated to provide a safe and healthy working environment. This includes complying with the Occupational Safety and Health Act 1994, which mandates measures to prevent workplace accidents and illnesses.

Employee Health and Safety Rights

Employees have the right to work in an environment that does not pose a risk to their health and safety. Employers must conduct regular risk assessments, provide necessary safety equipment, and ensure that employees are trained on safety procedures.

Termination and Redundancy: A Delicate Process

Lawful Grounds for Termination

Termination of employment in Malaysia must be based on valid grounds such as misconduct, poor performance, or redundancy. The Industrial Relations Act provides guidelines for what constitutes ‘just cause and excuse’ for termination.

Termination Notice Periods and Severance Payments

Notice periods for termination vary based on the length of service, as outlined in the Employment Act. For instance, an employee with less than two years of service is entitled to a minimum of four weeks’ notice. Additionally, severance payments are required under certain conditions, especially in cases of redundancy.

Redundancy Procedures

When making employees redundant, employers must follow a fair and transparent process. This includes adhering to the ‘Last In, First Out’ principle, unless there are valid reasons for deviation, and ensuring that employees are adequately compensated.

Dispute Resolution: Safeguarding Employment Rights

Employee Dispute Resolution Avenues

The Industrial Relations Act provides avenues for employees to resolve disputes, including issues related to unfair dismissal, wage disputes, and workplace discrimination. This includes mediation and, if necessary, arbitration or adjudication by the Industrial Court.

Role of Labour Courts and Departments

The Industrial Court plays a crucial role in adjudicating employment disputes in Malaysia. It provides a formal platform for both employers and employees to resolve conflicts in accordance with the law.

Alternative Dispute Resolution Methods

Besides formal litigation, alternative dispute resolution methods such as mediation and arbitration offer less confrontational ways to resolve employment disputes. These methods are often quicker and more cost-effective.

Expatriate Employment in Malaysia: Navigating the Legalities

Work Permit Requirements for Expatriates

Expatriates wishing to work in Malaysia must obtain proper work permits. Employers are responsible for ensuring that their expatriate employees have the necessary legal documentation to work in the country.

Tax and Social Security Implications

Employers must also be aware of the tax and social security implications for expatriate employees. This includes understanding the requirements for EPF contributions and complying with Malaysian tax laws.

Rights and Protections for Expatriate Employees

Expatriate employees in Malaysia are entitled to the same legal protections as local employees. This includes fair treatment in terms of wages, working conditions, and access to statutory benefits.

Conclusion: Embracing Compliance for Sustainable Business Growth

Understanding and adhering to Malaysian employment law is not just about fulfilling legal obligations; it’s about creating a positive, fair, and productive workplace. For businesses in Malaysia, whether local or foreign, this knowledge is crucial for sustainable growth and success. 

For expert assistance and comprehensive solutions in navigating the complexities of employment law, contact us at InCorp. With a deep understanding of these legal frameworks, businesses can ensure compliance, foster employee satisfaction, and drive long-term success.

FAQs on Employment Law in Malaysia

  • What is the Employment Act 1955 in Malaysia?

  • The Employment Act 1955 is a key legislation in Malaysia that sets the minimum terms and conditions for certain categories of workers, including working hours, leave, and termination rules.
  • Yes, expatriates in Malaysia must comply with work permit requirements and are subject to the same legal protections as local employees, including wage and working condition regulations.
  • Employees in Malaysia are entitled to statutory benefits such as sick leave, annual leave, maternity leave, and public holidays, as outlined in the Employment Act.
  • Employment disputes in Malaysia can be resolved through avenues like mediation, arbitration, or adjudication by the Industrial Court, as provided under the Industrial Relations Act.

Ensure Legal Compliance, Foster a Positive Workplace.

About the Author

InCorp Content Team

InCorp's content team includes talented copywriters from our regional group and globally. We contribute informative, thought leadership, and market-trending articles to guide aspiring business entrepreneurs to a higher level across the Asia-Pacific region.

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