What Do You Need to Know & Adhere About Employment Laws in Malaysia?

Are you a business owner or an employee in Malaysia who wants to ensure that you are well-informed about the employment laws in the country?

Whether hiring new employees or seeking employment, a solid grasp of Malaysian employment law is essential. With the ever-changing landscape of labour regulations, staying updated and compliant with the legal requirements is vital.

Let's delve into the key aspects of Malaysian employment law, including hiring procedures, employment contracts, and employee rights, to provide you with a comprehensive understanding of the legal framework that governs the employment landscape in Malaysia.

Overview of Malaysian Employment Law

The Employment Act 1955 (EA) serves as the principal source of employment law in the private sector of Malaysia.

This law is applicable in Peninsular Malaysia and the Federal Territory of Labuan, where it provides a comprehensive framework for the rights and obligations of employers and employees.

It regulates the contracts of service, wages, holidays, termination of contracts, and other related matters.

The EA has recently undergone significant amendments, passed and came into force on the 1st of January 2023.

These changes were made to modernise the existing law and bring it in line with the prevalent employment practices in the country. This includes updating the scope of protections given to employees and enhancing the enforcement of the Act.

Relevant Employment-Related Laws

In addition to the Employment Act 1955, there are other applicable laws to keep in mind.

The Industrial Relations Act 1967 is another crucial legislation in the Malaysian employment law landscape. This Act governs the relations between employers and workers, including preventing and settling trade disputes. It provides a legal framework for collective bargaining, strike actions, lockouts, and other industrial actions.

Trade Unions Act 1959 regulates the establishment and operation of trade unions in Malaysia. It sets out the rights and duties of trade unions, their members, and officials. It also provides mechanisms for resolving trade disputes and promotes harmonious industrial relations.

Lastly, the Occupational Safety and Health Act 1994 is designed to ensure the safety, health, and welfare of persons at work in Malaysia. This Act imposes duties on employers to ensure a safe and healthy working environment and provides for establishing safety and health committees at the workplace.

Applicability of the Malaysian Employment Act

The Employment Act (EA) in Malaysia now covers all employees, regardless of salary.

The EA does not differentiate between a contract of service and an employment contract. Therefore, all terms and conditions outlined in either agreement are subject to and protected by the provisions of the Act.

Another important point to note is that apprenticeship contracts are also incorporated within the scope of the EA. However, a notable exception is the relationship between a master and pupil under the Legal Profession Act 1976, which does not come under the purview of the EA.

Employment Contracts

In Malaysia, all individuals who are employed for a period exceeding one month are required to have a written employment contract.

The employment contract should comprehensively cover essential aspects of the job.

This includes the nature of the work, the agreed-upon salary, any additional benefits provided to the employee, the stipulated work hours, and any safety measures applicable to the job.

Employers are responsible for maintaining a copy of the employment contract for seven years following its expiration. This ensures a record of the agreed terms, which can be referred to if any legal issues arise.

Under the Employment Act (EA), any terms and conditions of employment contracts less favourable than those provided by the EA are considered null and void.

The Act stipulates that employment contracts must be written if the period of employment exceeds one month. A written contract serves as a tangible record of the agreement between the two parties, which can be referred to in case of any disputes or misunderstandings.

In terms of wage payments, employers are required to pay their employees within seven days following the last day of the wage period.

In addition, the termination of employment under the EA requires either notice or payment in lieu of notice. The length of the notice period depends on the employee's tenure, with longer-serving employees generally entitled to longer notice periods.

Employment Contributions From Both Employer and Employee

Employees Provident Fund (EPF) Contribution

The EPF Act 1991 necessitates Malaysian employers contribute a portion of their employees' wages towards a retirement savings scheme.

The current statutory rate for employer contributions is 12% for employees earning more than RM5,000 per month and 13% for those earning less. Employees are also required to contribute 11% of their monthly wages, irrespective of their wage bracket.

These contributions are mandatory for employees below the age of 60 and voluntary for those above.

Social Security (SOCSO) Contribution

In addition to the EPF, Malaysian employment law, under the Employees' Social Security Act 1969, mandates contributions to SOCSO from both employers and employees.

SOCSO provides social security protection to employees in the event of work-related accidents and illnesses.

The contribution rate varies depending on the employee's wages but is generally 1.75% of the employee's wages by the employer and 0.5% by the employee.

However, unlike the EPF, SOCSO contributions are capped at a salary of RM5,000 per month.

The full table of the contribution rate can be viewed at the PERKESO website right here.

Work Schedules and Rest Days

The standard working hours are typically set at eight hours per day, and an employee is expected not to work more than 45 hours a week.

If an individual exceeds these prescribed hours, they should receive overtime compensation, which is calculated at one and a half times their standard hourly wage.

In addition, it is mandatory to give employees at least a 30-minute break after five consecutive working hours.

Should an employee be required to work on their rest day, they must be compensated at a rate not less than twice their daily pay rate.

Leave Entitlements

Leave entitlement encompasses a range of employee time off, such as annual, sick, and maternity leave.

Employees are granted the right to paid sick leave, the length of which is determined by their duration of employment. The maximum duration of sick leave is capped at 60 days per annum.

In the event of hospitalisation, employees are also granted sick leave under the condition that this is certified by a recognised medical practitioner.

Female employees are given a maternity leave period of 60 consecutive days, which is fully paid. This provision supports the well-being of working mothers and ensures that they have sufficient time to recover post-childbirth and to care for their newborns.

Lastly, employees are entitled to time off for 11 gazetted public holidays. These include Malaysia Day and the Birthday of Yang-Dipertuan Agong. This provision ensures that employees can participate in national celebrations and enjoy time off to rest and recuperate.

Hiring Foreigners

Companies hiring foreign employees must first secure foreign quota approval from the Immigration Department. The process involves compliance with certain rules and guidelines to maintain a balanced workforce.

Furthermore, not all positions within an organisation are open to foreign employees.

The company must carefully scrutinise the positions available, which necessitates close cooperation between human resources and management to determine the suitability of foreign employees for specific roles.

Procedure For Foreign Employment Hiring

Before a foreign employee can be officially hired, companies are required to submit the necessary documentation to the Immigration Department. This includes obtaining an employment pass letter of approval, which serves as an official authorisation for foreign employment.

The positions open to foreign employees generally span top managerial, professional or mid-managerial, and highly skilled technical roles. These roles often require specific skill sets or expertise that may be scarce in the local job market, hence the necessity for foreign hiring.

Once all the prerequisites are met, the final step involves submitting the employment pass application.

Accompanied by a letter outlining the need for a foreign employee, this application serves to justify the hiring decision. It provides an opportunity for the company to detail the unique skills, expertise or qualifications the foreign candidate brings to the table, thereby substantiating the decision to employ them.

This process demonstrates a company's commitment to transparency and adherence to prescribed foreign employment regulations.

Recent Amendments and Changes To Take Note From the Malaysian Employment Law

1. Changes to Working Hours

Under the Employment Act Amendment in 2022, there has been a notable change in the maximum working hours per week for employees in Malaysia.

Previously, the standard maximum working hours per week were set at 48 hours. However, the recent amendment has reduced this to 45 hours.

2. Flexible Work Arrangement

The amended Act includes a section providing flexible working arrangements under Sections 60P and 60Q.

The flexible working arrangement, as provided in the Employment Act (EA) of Malaysia, gives employees more control over their working hours, enabling them to balance their personal and work commitments effectively.

3. Discrimination in Employment Against Female Employees

a. Protection Against Termination

Pregnant female employees and those with pregnancy-related illnesses are now protected against termination, except for specific reasons.

This means that employers cannot terminate the employment of pregnant employees without valid reasons unrelated to their pregnancy or illness.

b. Increased Maternity Leave

The amended Act extends maternity leave from 60 to 98 days for new mothers.

c. Introduction of Paid Paternity Leave

The amended Act introduces paid paternity leave for the first time. According to Subsection 60FA, fathers can take seven consecutive days of leave after their child is born.

To qualify for paternity leave, fathers must be married to the mother, have at least 12 months of employment, and give their employers 30 days' notice.

4. Rights for Foreign Workers

In the past, employers had a requirement to notify the Director-General regarding new foreign employees within a 14-day period.

Under the 2023 amendment, employers must obtain prior approval from the Director-General to hire foreign employees. This entails seeking permission before employing any foreign workers.

Additionally, employers must notify the Director-General within 30 days when foreign employees are terminated. This ensures that the relevant authorities are kept informed about changes in the employment status of foreign workers.

5. Sexual Harassment Awareness

Under the amendments made to the Employment Act Malaysia, there is an increased emphasis on sexual harassment awareness in the workplace.

Section 81H of the amended Act now requires employers to display a notice raising awareness about sexual harassment.

The notice should include information about what constitutes sexual harassment, examples of prohibited conduct, and the consequences of engaging in such behaviour. It should also include details on how employees can report incidents of sexual harassment, including the contact information for relevant personnel or departments within the organisation.

This amendment aims to ensure that employees are aware of their rights and are empowered to take action if they experience or witness sexual harassment.

6. The Amendment Applies to All Employees

As mentioned earlier, previously, the Employment Act only covered employees earning RM2,000 and below. However, the amendments now ensure that all employees, regardless of salary, are protected under the Act.

This means previously uncovered employees who earned above RM2,000 per month can now rely on statutory law for their rights and entitlements.

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