Employment laws in Malaysia

Malaysia’s workforce drives its economy considerably. The country has a carefully constructed legal framework governing the relationship between employees and employers in the workplace. 

The cornerstone of this framework is the Employment Act 1955. The Act sets out clear guidelines on wages, working hours, termination, probation, leave entitlements, and more. 

There have been landmark revisions, and its amendments have modernized these laws to sync better with Malaysia’s diverse and dynamic workforce. 

Employees and employers must have a clear understanding of the employment laws in Malaysia for compliance and a better workplace experience. 

Payoneer Workforce Management offers a streamlined approach to managing employment contracts in Malaysia, including the probation period, working hours, minimum wages, overtime laws, employee rights, and more. It also assists you in navigating labor law compliance in Malaysia. 

Key employment laws in Malaysia

Here are some important elements that are covered by the employment laws in Malaysia:

The Employment Act 1955

• The Employment Act 1955 primarily governs the employment landscape in Malaysia. 
• Key regulations under this Act cover a 45-hour work week, minimum national wage at RM 1700 per month, 98 days of maternity leave, protection against unjust dismissal, mandatory EPF/SOCSO contributions, and more. 

Among other labor laws in Malaysia, some of the prominent laws are:

• Industrial Relations Act 1967 – Governs employer-employee relations, unfair dismissal disputes, and trade unions. 
• Employees’ Social Security Act 1969 – Provides social security protection to employees in certain contingencies and makes provisions for certain other matters in relation to it. 
• Employees Provident Fund Act 1991 – Includes norms about a savings scheme for employees to retire with financial security.
  • The contribution rates are as follows:
    • Employer contribution: 13% (if salary is ≤ RM5,000) or 12% (if salary is > RM5,000)
    • Employee contribution: 11%

Employers have to register and deduct monthly contributions for all employees under a service contract. 

A workforce management platform in Malaysia can support you with engaging local talent and managing payroll, localized employment contracts, benefits, and more.

Contract employment laws in Malaysia

Employment contracts in Malaysia are governed by the Employment Act 1955 (Act 265). 

Typically, an employer is required to share a written employment contract if the employment is expected to last more than one month or involves tasks expected to exceed one month.

Types of contract 

The common contract types in Malaysia include:

• Permanent contracts: These are for full-time employment contracts with no fixed end date. These contracts offer benefits, long-term stability, and protection against unjust dismissal. 
• Fixed-term contracts: As the name suggests, these contracts have a fixed start and end date. These contracts are usually for seasonal work, specific projects, or to cover temporary staff absences. 
• Independent contractor/Freelance agreement: Independent contractors and freelancers are not classified as employees. They are self-employed professionals, managing their own contributions and taxes.  

Essential contract terms

Employment contracts in Malaysia must contain the following details:

• Duration of employment contract
• Name of employer and employee
• Wages
• Working hours
• Overtime
• Public holiday
• Annual leave
• Deductions
• Sick leave
• Termination with notice periods, and more. 

Minimum wage in Malaysia

• The minimum wage for employees in Malaysia is set at RM 1, 700 per month. 
• The minimum wage for an Employment Pass (in case of expats) is RM 15,000 per month. 

Working hours in Malaysia 

• Working hours in Malaysia are not more than 45 hours per week. Hours worked beyond these are considered overtime. 

According to overtime laws in Malaysia, overtime is allowed in the country. However, the total number of overtime hours is limited to 104 hours per month. Here are the details of overtime work and the respective entitlements:

Probation period 

There is no statutory mandate for a probation period in Malaysia. However, the general practice is to place employees on probation for 3 to 6 months. 

Mandatory benefits

To adhere to the Labor Laws in Malaysia, you have to provide the following mandatory benefits to employees:

• Statutory social security contributions – Both employers and employees in Malaysia have to contribute a percentage of the employee’s monthly salary to the Employee Provident Fund. EFF for expats is mandatory. Employers contribute 2% of the expatriate’s monthly gross salary, while employees contribute 2% of their monthly gross salary. 
• Public health insurance – SOCSO, or ‘Perkeso’, is the statutory body in Malaysia offering social security coverage, including healthcare benefits for employees in the event of workplace-related injuries or disabilities. You have to make contributions to SOCSO depending on a percentage of your employees’ monthly wages. 
• Sick leave – Employees are entitled to sick leave in Malaysia. The tenure of service is a critical factor in ascertaining the statutory minimum mandate. If required, the employee is also entitled to 60 days of hospitalization leave in aggregate in each calendar year, along with the sick leave. Here is a breakdown of the sick leave in the country:

• Maternity leave -Pregnant employees in Malaysia are eligible for maternity leave of 90 days. The employees will be paid by the employer.
• Paternity leave – Legally married male employees are entitled to 7 consecutive days of paid paternity leave.
• Annual bonus – Paying annual bonuses to the employees is not mandated by the employment laws in Malaysia. 
• Annual leave and public holidays – The statutory annual leave is determined by the employee’s tenure of service in a particular company, which is 12 months of continuous service with the same employer. Here are the details:

Here is a list of such holidays in the country. 

• New Year’s Day
• Chinese New Year (Second Day)
• Hari Raya Puasa (Second Day)
• Labor Day
• Hari Raya Haji
• Vesak Day
• Birthday of SPB Yang di-Pertuan Agong
• Awal Muharram
• Maulidur Rasul
• Malaysia National Day
• Malaysia Day
• Deepavali
• Christmas Day

Termination​

Two acts regulate employment termination in Malaysia: 

• The Employment Act 1955 
• The Industrial Relations Act 1967. 

Employers can terminate employees in Malaysia on valid grounds. In case of unfair dismissal of employees, the employer will face severe legal consequences. 

Here are the details of termination laws in Malaysia:

Termination scenarios

Here are some scenarios where termination is common in Malaysia:

• Mutual agreement between the employer and the employee
• Employee resignation
• Termination during the probation period
• Termination by the employer based on performance issues, misconduct, redundancy, absence without leave, and more. 

Notice period in Malaysia 

• If the employment termination occurs within the probation period, the maximum notice period is 30 days. 
• If the termination takes place after the probation period, the notice period can be between 4 and 8 weeks. 
• If the contract doesn’t mention any notice period, the tenure of employment suggests the notice period. 

End of service benefit

Gratuity deductions are not mandatory in Malaysia. However, if they are deducted as per the employment agreement and contract, the employer will have to pay the amount to the employee on termination of service. 

Severance payable

Severance pay in Malaysia depends on the employment tenure of the employee. Here are the details:

Navigate employment laws in Malaysia with trusted support

Labor laws in Malaysia are strict, detailed, and complex. Labor law compliance in Malaysia is mandatory for employers and employees alike, as violations can lead to complications and penalties. 

Partnering with Payoneer Workforce Management helps navigate employment laws in Malaysia seamlessly. It offers support with onboarding and termination, employment contracts, benefits administration, and much more. 

Book a demo right now!

FAQs

1. How many hours can an employee legally work per day in Malaysia?

Under the Employment Act 1955 (Amendment 2022), employees in Malaysia cannot work for more than 8 hours per day or 45 hours per week. Any work beyond this limit is overtime. The employer must compensate the employee for the extra work hours at a minimum of 1.5 times the hourly pay. 

2. What contributions are employers required to make under EPF?

Employers must contribute to the Employees Provident Fund (EPF) for Malaysian employees. Presently, employers contribute 13% of an employee’s monthly salary (for salaries below RM 5,000) or 12% for higher earners. Employees contribute 11%. These savings contribute to long-term retirement savings. 

3. What are the rules around employment termination in Malaysia?

For employment termination, employers have to provide a notice of termination as stated in the employment contract. If there are no specified notice periods, employees have to serve a minimum notice period, according to the Employment Act 1955. There is also severance pay depending on the employment tenure of the employee.