GUIDE TO MALAYSIA LABOUR REGULATIONS | NuSmart HRMS
 

GUIDE TO MALAYSIA LABOUR REGULATIONS | NuSmart HRMS

Introduction

The purpose of this guide is to provide general information about the statutory requirements as per the labour regulations and common practices on employment in Malaysia. The guide tries to explain the different laws and regulations concerning employment and should be taken for reference only.

When in doubt or if further clarification is required, please refer to or contact the relevant Government authority for assistance.

Malaysia Labour Regulations

The various labour regulations in Malaysia are:

  • Employment Act 1955
  • The Labour Ordinance, Sabah and the Labour Ordinance, Sarawak
  • Employees Provident Fund Act 1991
  • Employees’ Social Security Act 1952
  • Employment Insurance System Act 2017
  • Workmen’s Compensation Act 1952
  • Occupational Safety and Health Act 1964
  • Industrial Relations Act 1967

Employment Act 1955

The Employment Act is one of the main legislations that govern the employment of people in Malaysia.

  • Coverage

The Employment Act applies to all manual labourers or workers regardless of their wages or salaries, and all other employees whose salaries do not exceed MYR2,000 per month.

Employees earning between MYR2,001 and MYR5,000 can also seek address with the Labour Court on terms and conditions of their employment contract.

  • Hours of Work

Under the Employment Act, all employees cannot work more than 8 hours a day or more than 48 hours a week. The law also does not allow an employee to work more than 10 hours a day consecutively over a period.

For every 5 consecutive hours of work, there must be a break of 30 minutes.

  • Rest Day and Public Holidays

All employees must have at least 1 rest day per week. In some Muslim states, the rest day is designated as Friday instead of Sunday.

There are 10 gazetted National public holidays in Malaysia. Each state has its own additional public holidays.

In the event that an employee is requested by the employer to work on public holiday, the employer has to pay the employee 1 time the ordinary rate of pay for the day work or to replace another working day as the public holiday.

  • Overtime

Employees covered under the Act are entitled to overtime payments for any work carried out more than the normal working hours. The overtime rates for overtime work requested by the employer are as follow:

  • Normal working days and off day – 1.5 times the ordinary rate of pay
  • Rest day – 2.0 times the ordinary rate of pay
  • Public holiday – 2.0 times the ordinary rate of pay

Any overtime hours done in excess of the normal working hours on a public holiday will be paid 3.0 times the ordinary rate of pay for the excess hours.

  • Leaves

Annual Leave

Employees under the Employment Act are entitled to annual leave as follow:

  • Less than 2 years of service – 8 days per year
  • 2 years but less than 5 years of service – 12 days per year
  • More than 5 years of service – 16 days per year

For any incomplete year of service, the annual leave of entitlement will be pro-rated in accordance with the number of completed months of service.

Sick Leave

Employees are entitled to the following sick leave:

  • Less than 2 years of service – 14 days per year
  • 2 years but less than 5 years of service – 18 days per year
  • More than 5 years of service – 22 days per year

Where hopitalisation is required, the employee will be entitled to 60 days per year.

 Maternity Leave

All female employees who have been employed for at least 4 months with an employer immediately before her confinement is entitled to 60 days paid maternity leave as follow:

  • Before confinement – 30 days
  • After confinement – 30 days

However, some employers and the public sectors are giving their female employees 90 days of maternity leave.

The paid maternity leave is for the first 5 children and from the 6th child onwards, the maternity leave will be unpaid.

  • Termination

The notice period for employees covered under the Employment Act is as follow:

  • Less than 2 years – 4 weeks
  • More than 2 years but less than 5 years – 6 weeks
  • More than 5 years – 8 weeks

Either party may terminate the employment contract without notice or waiting for the expiry of the notice by paying the other party a sum equal to the wages or salary of the notice period.

  • Severance Payments

Under the Employment (Termination and Lay-Off Benefits) Regulations 1980, employees covered under the Employment Act with 12 months or more of continuous service who is terminated or lay-off shall be entitled to statutory severance payments as follow:

  • Less than 2 years – 10 days
  • More than 2 years but less than 5 years – 15 days
  • More than 5 years – 20 days
  • Retirement Age

The retirement age in Malaysia is 60 years old.

  • Minimum Wage

With effect from 1 May 2022, the minimum wage in Malaysia is as follow:

Minimum Wage Rate
Monthly Daily Hourly
MYR1,500 Number of Working Days in a Week MYR7.21
4 5 6
MYR86.54 MYR69.23 MYR57.69

However, from 1 May 2022 to 31 December 2022, the minimum wage for employees working in and outside the City Council and Municipal Council will be as follow:

City Council or Municipal Council Areas
Minimum Wage Rate
Monthly Daily Hourly
MYR1,500 Number of Working Days in a Week MYR7.21
4 5 6
MYR86.54 MYR69.23 MYR57.69

 

Other than the City Council or Municipal Council Areas
Minimum Wage Rate
Monthly Daily Hourly
MYR1,200 Number of Working Days in a Week MYR5.77
4 5 6
MYR69.23 MYR55.38 MYR46.15

 

With effect from 1 January 2023, the minimum wage in Malaysia is as follow:

Minimum Wage Rate
Monthly Daily Hourly
MYR1,100 Number of Working Days in a Week MYR5.29
4 5 6
MYR63.47 MYR50.77 MYR42.31

 

  • Basic or Ordinary Rate of Pay (Daily Rate)

Under the Employment Act, the formula for calculating the basic rate of pay is as follow:

  • Monthly Rate of Pay to Ordinary Rate of Pay (Daily Rate):

Monthly Rate of Pay (Monthly Salary) ÷ 26

  • Weekly Rate of Pay to Ordinary Rate of Pay:

Weekly Rate of Pay ÷ 6

An employer may use other method or formula for calculation of the ordinary rate of pay but the ordinary rate calculated must not be less than the ordinary rate as determined by the above formula.

Employees’ Social Security Act 1969

The Social Security Organisation (SOCSO) provides the following two social security schemes for all employees:

  • Employment Injury Insurance Scheme – provides protection against work-related accidents or occupational diseases arising out of and in the course of employment.
  • Invalidity Scheme – provides coverage against invalidity or death due to any cause not connected with one’s employment.

Any employer who employs one or more employee is required to make contributions to SOCSO.

All employees are required to make contributions to SOCSO except the following individuals who are exempted from paying SOCSO:

  • Business owners
  • Foreign workers
  • Government employees
  • Self-employed people
  • Domestic servants

The SOCSO contribution calculation is based on the followings:

  • Salary
  • Overtime
  • Commission
  • Wages for leaves – maternity, paternity, sick, etc.
  • Other contractual payments

Excludes:

  • Bonus
  • EPF contribution
  • Travel allowances
  • Gifts or festive payments
  • Reimbursement of expenses

The contribution rate for SOSCO is:

Employee Status Employer Employee
Age Below 60 1.75% 0.5%
Age 60 and Above 1.25% 0%

The maximum monthly limit is MYR4,000.

Employment Insurance System Act 2017

The Employment Insurance System (EIS) was implemented to provide immediate financial assistance to insured workers who lost their employment.

All local employees in the private sector are required to contribute each month to the Employment Insurance Scheme except Government employees, domestic workers and self-employed.

The contribution rate for EIS is as follow:

Employee Status Employer Employee
Age 18 to 60 0.2% 0.2%

The maximum monthly limit is MYR4,000 and the contributions to EIS shall be payable to SOCSO.

Employment Injury Scheme (Foreign Workers Only)

All employers are required to make monthly contribution to Employment Injury Scheme (EI) if they employ foreign workers.

The contribution rate is as follow:

Employee Status Employer Employee
Age 18 to 60 1.25% 0%

The maximum monthly limit is MYR4,000 and the contribution is also made payable to SOCSO.

Employee Provident Fund Act 1991

All employers must make monthly contribution to Employee Provident Fund (EPF or KWSP) for their local employees and Malaysia Permanent Residents. Foreigners who are an EPF member before 1 August 1998 can opt to contribute to  EPF.

EPF is calculated on the following payments:

  • Salary
  • Allowances (with some exceptions)
  • Commission
  • Bonus and Incentives
  • Wages for leaves – maternity, paternity, sick, leave encashment, etc.
  • Other contractual payments

Excludes:

  • Overtime for rest day and holiday
  • Service charges such as tips
  • Travel allowances
  • Gifts or festive payments
  • Reimbursement of expenses
  • Termination or Retirement benefits
  • Payment of in lieu of notice for termination
  • Gratuity
  • Director fee

Contribution Rate for EPF

Must be based on Third Schedule of the EPF Act instead of using the exact percentage calculation and must be paid by the 15th of the following month.

 

Employee’s Age Employer’s Rate Employee’s Rate
Monthly Salary Limit Monthly Salary Limit
MYR5,000 & below More than MYR5,000 MYR5,000 & below More than MYR5,000
Malaysian age 60 & above 4% 0%
Malaysian age below 60 13% 12% 9%
Malaysia PR age 60 & above 6.5% 6% 5.5%
Malaysia PR age below 60 13% 12% 9%
Non-Malaysian age 60 & above MYR5.00 5.5%
Non-Malaysian age below 60 MYR5.00 9%

Income Tax

There are a few types of income tax assessment:

  • Self
  • Separate – for married taxpayers who prefer to file their taxes by individual filing
  • Joint – for married taxpayers who elect to file their taxes jointly under one filing

The conditions for joint assessment are:

  • The husband and wife must be living together in the year of assessment.
  • Both the husband and wife must be Malaysia citizen or considered as resident of Malaysia.
  • The total income must be a combined incomes of both husband and wife.

There are various tax reliefs for individual and the common types are:

 Type of Relief Amount (MYR)
Individual 9,000
Disabled Individual in addition to Individual Relief 6,000
Each unmarried child under 18 years old 2,000
Each unmarried child who is 18 years old & above receiving further education:

·           A Level or matriculation courses

·           Diploma or higher

 

 

2,000

8,000

Disabled child 6,000
Each unmarried disabled child who is 18 years old & above receiving further education:

·           Diploma or higher

 

 

8,000

The income tax rate for Assessment Year 2021 is as follow:

Chargeable Income (MYR) Calculations Tax Rate Tax Payable (MYR)
0 – 5,000 On the first 5,000 0% 0
5,001 – 20,000 On the first 5,000

Next 15,000

 

1%

0

150

20,001 – 35,000 On the first 20,000

Next 15,000

 

3%

150

450

35,001 – 50,000 On the first 35,000

Next 15,000

 

8%

600

1,200

50,001 – 70,000 On the first 50,000

Next 20,000

 

13%

1,800

2,600

70,001 – 100,000 On the first 70,000

Next 30,000

 

21%

4,400

6,300

100,001 – 250,000 On the first 100,000

Next 150,000

 

24%

10,700

36,000

250,001 – 400,000 On the first 250,000

Next 150,000

 

24.5%

46,700

36,750

400,001 – 600,000 On the first 400,000

Next 200,000

 

25%

83,450

50,000

600,001 – 1,000,000 On the first 600,000

Next 400,000

 

26%

133,450

104,000

1,000,001 – 2,000,000 On the first 1,000,000

Next 1,000,000

 

28%

237,450

280,000

Above 2,000,000 On the first 2,000,000

Next Ringgit

 

30%

517,450

…….

Malaysia practices withholding tax, that is, the employee’s annual income is estimated or calculated at the beginning of the year and the annual tax is divided over 12 months and paid monthly by the employer.

The amounts paid are reconciled to the total tax liability at the end of the year and an annual tax return must be submitted.

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We understand the changing needs of the workforce so we provide an easy-to-use mobile application for employees so that they can apply leave, expenses and check their salary slip anytime on their mobile phone. With NuSmart all the information is readily available to the employees even when they are not in the office.

Our mission is to ease out the complications of HR processes.

Besides offering a complete cloud-based employee life-cycle management software, we do offer the following services:

  • Payroll Outsourcing
  • HR Consulting

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