Companies in Malaysia must follow the employment law/labour law Malaysia for hiring, managing, and terminating work agreements with employees. This involves getting a permit to hire foreigners, giving time off, setting schedules, registering retirement fund, drafting contracts, and salary payment.
Content Outline
Employment contracts in Malaysia
Employment law/labour law Malaysia stipulates that every employment of more than one month must be recorded in a written contract.
It should set out the most important conditions of employment such as place of employment, nature of work to be done, wage rates, holidays, benefits and whatever else may be necessary to ensure the employee’s safety in his or her working environment.
The Employment Act of 1955 governs employment contracts in Malaysia. Copies of them must be retained by the employer for seven years after expiration date.
Hiring foreign employees
Companies that wish to hire foreigners must first get approval on Foreign Quota from the Ministry of Home Affairs’s Local Centre of Approval.
Foreign employees under Labour Law Malaysia allowed to work with Malaysian companies in the agriculture, construction, manufacturing, plantation and services industries.
Employers must know that only a small number of positions are for foreigners and these are generally high-skilled or technical posts that local cannot fill.
Some of the positions include:
- Foreign companies top-level position in Malaysia
- Professional or mid-managerial positions
- For highly technical, experienced jobs.
Once the requirements are fulfilled, employers must submit all documents to the Immigration Department.
After receiving quota approval, the employer must apply to the Immigration Department for an employment pass and submit a letter explaining why a foreigner must fill this role. If approved, a letter of approval for the employment pass will be issued.
Main regulations outlined in the Employment Act / Labour Law Malaysia
Working hours and overtime
Effective January 2023, the regular working hours in Malaysia are eight hours a day and 45 hours a week.
On a normal working day, if an employee is obliged to work overtime he must be paid 1.5 times the hourly wage rate.
Other rates for overtime work are as follows:
| Overtime work hours | Overtime pay calculation |
|---|---|
| On a rest day but required to work regular hours | Overtime work does not exceed half the normal work hours: 1/2 wages Overtime work is more than half but does not exceed the regular work hours: one day’s wage at the normal rate. |
| Working beyond regular hours on a day off | 2x the hourly wage |
| Working regular hours on a public holiday | 2 days wage |
| Working beyond the normal hours on a public holiday | 3x the hourly wage |
Read Public Holiday in Malaysia
Leave entitlement
Annual leave
In Malaysia, employees are entitled to paid annual leave according to the number of years of service.
| Years of service | Leave per year |
|---|---|
| 1-2 years | 8 days |
| 2-5 years | 12 days |
| > 5 years | 16 days |
Sick leave
Based on length of service with the firm, full-time employees are entitled to paid sick leave.
| Years of service | Leave per year |
|---|---|
| < 2 years | 14 days |
| 2-5 years | 18 days |
| > 5 years | 22 days |
For hospitalisation leave, employees are entitled to 60 days in addition to the number of days for sick leave a year.
Maternity leave
Working mothers in both the private and public sectors in Malaysia are now eligible for 98 days of paid maternity leave, which represents a significant step forward toward supporting families and work-life balance. However, eligibility for this leave comes with certain conditions:
Employment Duration:
- Private Sector: Nine months before confinement must have worked for the same employer at least 90 days.
- Public Sector: No overall minimum standard of service.
- Pregnancy Notification: The employer should be notified at least 60 days before the expected date of confinement.
Read: Leave Entitlements in Malaysia
Employees provident fund
The EPF is a retirement saving scheme that the employer and employee in Malaysia contributes to monthly.
The employer must register both itself and its employee with the EPF seven days after hiring the employee.
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
Pursuant to section 12 of the Employment Act 1955, the employer shall give notice in accordance with the following lengths for termination:
| Length of notice | Years of service |
|---|---|
| 4 weeks | Employed for less than 2 years |
| 6 weeks | Employed between 2-5 years |
| 8 weeks | Employed for more than 5 years |
Reasons of termination
Employers may terminate an employee in circumstances where such a termination is justified, and conducted in good faith and fairly.
If the dismissal is thought to be unfair, it may come before the court; otherwise, it should only terminate with just cause and excuse.
Just cause and excuse: this means that the employer has a valid reason for dismissing the employee. The reasons may include:
- Misconduct: theft, sexual harassment or disobedience of safety instructions.
- Negligence in performing duties
- Poor performance
- Redundancy and closing the business
- Retirement
- Death of employees
- Breach of the contract
- At the end of the probation period, termination.
- Expiration of fixed-term contract
- Mental disorders
- Bankruptcy
- Criminal offence
- Over two days consecutively without leave and/or reasonable excuse Misses work
Severance payment
Those employed less than two years are entitled to 10 days ’wage for each service year.
An employee employed for two to five years is entitled to 15 days’ wage per completed year of employment, and an employee employed for five or more years is entitled to 20 days’ wage per completed year of employment.
However, those who are dismissed for misconduct, resign or retire will not receive severance pay.
| Service Years | Entitlement (Days’ Wage per Year) |
|---|---|
| Less than 2 years | 10 |
| 2 to 5 years | 15 |
| 5 years or more | 20 |
Read: Payroll Processing and Administration Guide in Malaysia
How FastLane Group Can Help with Your HR Needs in Malaysia
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Partner with the FastLane Group and enjoy a competent and reliable partner along your HR road. Stay compliant with Labour Law Malaysia and contact us today to unlock your HR potential!