Employer’s Statutory Obligation in Malaysia

In Southeast Asia, Malaysia is one of the more populous countries and one of the more prominent economies. The economy of Malaysia has grown over the past half-century at the rate of 6.5% annually. During the 20th century, Malaysia has rapidly industrialized, transitioning from reliance on traditional agriculture and mining sectors to modern business infrastructure. However, if you are thinking of setting up a business or company in Malaysia, there are few things that you need to know, such as the Employer’s Statutory Obligations in Malaysia under the Employment Act.

Related read: Amendment to the Employment Act

Starting A Business in Malaysia

The country has a wealth of natural resources, such as gas, crude oil, palm oil, and timber, with some of its major industries being automotive manufacturing, construction, and electronics.

Foreign investment in Malaysia has been increasing for over 50 years and counting, with the government working towards transforming the country into one of the major financial hubs in the region.

Related read: Why should you incorporate a private limited company in Malaysia? »

Malaysian Employment Law

The Employment Act of 1955 generally governs employment law. It specifies the minimum benefits that should be afforded to employees in Malaysia. Any clause within an employment contract that offers less favourable benefits than those specified by the Employment Act will be regarded as null and void and shall be replaced with the minimum benefits offered under the Employment Act.

Below are some of the employer’s statutory obligations in Malaysia that are required by law.

The Statutory Deductions From An Employee’s Salary

Whether an employer falls under the Malaysian Employment Act or not, all employers are required by law to make the following salary deductions from each of their employees:

• Monthly income tax deductions
• Employee contribution to EPF, also known as Employees Provident Fund
• Employee’s contribution to SOCSO, to social security organizations
• Employee contribution to EIS, also known as the Employment Insurance System contribution

Once you, as an employer, have made the above deductions, you will have to ensure that these contributions are made into your employee’s SOCSO and EPF accounts. Therefore it would be the course of wisdom to factor these additional costs into your headcount and payroll budget.

Under the Employment Act, some circumstances could arise that would require further deductions to be made on your employee’s salaries. For instance:

• Overpayment of employee wages due to an error on the part of the employer. However, the deductions can be made only for the period of the preceding 3 months
• Deductions for payment instead of notice, for instance, when an employee resigns before serving the full notice of time as specified in the contract
• Deductions that are made to recover the payment of advance wages. However, no interest should be charged on the advances
• Deductions that are made to satisfy any other written law

In some instances, your employee may request you as an employer to make further deductions on his/her salary for the following reasons:

• Deductions to facilitate payments to co-operative or loan societies, trade unions for subscriptions or entrance fees, etc.
• Deductions for payments for shares that your company is selling, that your employee would want to purchase

Annual Leave

As per the terms specified in the Employment Act, the minimum requirements for annual leave are as follows:

• If an employee has worked for your company for fewer than 2 years, then they will be entitled to a total annual leave of 8 days.
• If an employee has worked for your company for more than 2 years, but less than 5 years, this employee will be entitled to a total annual leave of 12 days.
• If an employee has worked for your company for more than 5 years, this employee will be entitled to a total annual leave of 16 days.

Sick Leave

As per the stipulations of the Employment Act, sick entitlements for your employees should be administered as follows:

• Employees who have worked for your company for less than 2 years will be given a sick leave entitlement of 14 days
• Employees who have worked for your company for more than 2 years, but less than 5 years, their sick leave entitlement will be 18 days
• Employees who have worked for your company for more than 5 years will be given a sick entitlement of 22 days

If hospitalization is required, employees who fall under the Employment Act will be entitled to 60 days per year for hospitalization leave.

Public Holidays

All employees who are covered under the Employment Act are entitled to a minimum of 11 public holidays annually. Five of these public holidays must be:

• National Day
• Birthday of Yang di-Pertuan Agong
• Birthday of Ruler of the Yang di-Pertua Negeri of the state in the which the employee works
• Labour day
• Malaysia day

You, as the employer, can select the remaining 6 public holidays from the list of gazette public holidays.

Termination of Employees

In Malaysia, under the Employment Act, an employee cannot be terminated just by giving them payment instead of notice or by giving them notice, whether or not these are the terms stated in their contract. To terminate your employees, you will have to provide them with a just cause and excuse. This will apply, whether or not the employee falls under the Employment Act or not.

If you do not provide your employees with a just cause and excuse, then their termination could amount to unfair dismissal.

Christine

Christine is a content writer at WeCorporate whose focus is mainly on the business landscape in the APAC region. She also occasionally writes on trending topics and provides useful insights to aspiring entrepreneurs and seasoned businessmen alike.