Understanding Labour Law Malaysia

Understanding Labour Law Malaysia

Contact Us

HR & Payroll

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.

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 hoursOvertime pay calculation
On a rest day but required to work regular hoursOvertime 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 off2x the hourly wage
Working regular hours on a public holiday2 days wage
Working beyond the normal hours on a public holiday3x 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 serviceLeave per year
1-2 years8 days
2-5 years12 days
> 5 years16 days

Sick leave

Based on length of service with the firm, full-time employees are entitled to paid sick leave.

Years of serviceLeave per year
< 2 years14 days
2-5 years18 days
> 5 years22 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 salaryRM 5,000 and belowMore than RM 5,000
Employee’s statusEmployer’s contribution rateEmployee’s contribution rateEmployer’s contribution rateEmployee’s contribution rate
Residents ages below 6013%11%12%11%
Residents ages 60 and above4%0%4%0%
Permanent residents ages below 6013%11%12%11%
Permanent residents ages 60 and above6.5%5.5%6%5.5%
Non-residents ages below 60RM 5.0011%RM 5.0011%
Non-residents ages 60 and aboveRM 5.005.5%RM 5.005.5%

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 noticeYears of service
4 weeksEmployed for less than 2 years
6 weeksEmployed between 2-5 years
8 weeksEmployed 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 YearsEntitlement (Days’ Wage per Year)
Less than 2 years10
2 to 5 years15
5 years or more20

Read: Payroll Processing and Administration Guide in Malaysia

How FastLane Group Can Help with Your HR Needs in Malaysia

Dealing with the intricacies of Malaysian human resources? FastLane Group is ready to be your driver. You can rely on us as your partner. We arm you with the right tools and information to control your workforce, to make it compliant with Labour Law Malaysia, efficient and comfortable for all parties concerned.

Here’s how we can accelerate your HR success:

Expert Compliance: Our in-depth knowledge of Labour Law Malaysia and regulations will keep you ahead of the curve. We will walk you through salary, employee benefits, leave management and other aspects. Minimize your legal risks, maximize your peace of mind.

Streamlined Administration: We handle the dull tasks, from onboarding new hires to releasing staff. This gives you more time to focus on building your business. Our integrated system can track employee information, streamline operations and ensure smooth everyday running.

Strategic Workforce Solutions: Leverage our recruitment and HR consulting services to attract and retain top talent. We design solutions to your unique requirements which build you a powerful, motivated team capable of pushing forward your company.

Flexible Options: We have the right HR solution for either the small start-up, or even an established company. Select from our complete range of comprehensive HR outsourcing services, tailored HR consulting packages and the convenient EOR option-no need for entity setup to get hassle-free employee management.

With FastLane Group by your side, you can:

Focus on your core business: Allow us to handle the HR complexities and focus your energies on growth-related strategic initiatives.

Reduce costs and risks: With our experience, you can avoid the hassles and expenses of non-compliance. You realize a higher return on your investment.

Boost employee satisfaction: With our HR best practices and employee-centered approach, we can build a happy work environment filled with energy.

Gain a competitive edge: A robust HR framework that supports your growth ambitions can ensure you attract and retain top talent.

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!

hello there