Everyone deserves to get paid fairly for their work, so proper calculation of overtime pay is key to cultivating a just and harmonious work atmosphere.
Though it may seem daunting, our group of payroll experts at PayrollPanda – led by Isabelle Sterboul, a PWC-trained Chartered Accountant with an MA from the University of Oxford – have constructed this guide to simplify the process of calculating overtime into three steps, alongside a detailed example to ensure you fully understand the ins and outs of paying overtime in Malaysia.
Step 1 – Check Eligibility and Specify Working Hours
The Employment Act 1955 (‘EA’), sets out the basic standards for different employment areas such as salary and overtime computation, working hours, leave benefits, and termination protocols.
Work hours
Overtime refers to the number of hours of work carried out in excess of the normal work hours per day. These normal work hours are agreed upon in the employment contract. However, they can’t exceed certain limits (note that this does not apply to domestic workers):
- Not more than five consecutive hours without at least a thirty-minute break;
- Not more than eight hours in a day;
- Not exceeding a ten-hour spread over the period in a day;
- Not more than forty-five hours in a week.
But watch out; you should be aware that there is a maximum limit for overtime work. According to the Employment (Limitation of Overtime Work) Regulations 1980, Malaysian employees are restricted to working a maximum of one hundred and four hours of overtime in a single month. This averages to around three and a half hours of overtime per day per calendar month, emphasising the importance of diligently monitoring employees’ working hours.
Eligibility
Under the First Schedule of the EA, employees who earn RM 4,000 per month or less, or who, regardless of their wages, fit any one of the categories below, qualify for overtime compensation:
- Workers involved in manual labor.
- Individuals operating or maintaining mechanically-propelled vehicles.
- Employees overseeing manual laborers.
- Individuals engaged in any vessel registered in Malaysia.
Domestic employees do not qualify for overtime. For employees not covered under the overtime provisions of the EA, any overtime pay is determined based on the relevant terms outlined in their employment contracts.
Step 2 – Maintain Work Schedules and Accurate Timekeeping
Maintaining a structured work schedule and accurate timekeeping are necessary to ensure correct overtime calculations.
Utilising an employee time tracker allows you to not only track time spent on projects and ensure you’re paying employees fairly, but you can also set work schedules and automate overtime calculations. If you are using PayrollPanda to automate your payroll, you can use a free time clock system like Jibble, which integrates with PayrollPanda, to streamline the payroll process.
Step 3 – Calculate Overtime
Let’s delve into what the EA dictates for overtime entitlements. But first, to define some terms:
- Wages: For this purpose, wages means any basic wages and any other payments except: travel allowances, annual bonuses, incentives, overtime, termination or retirement pay, employer pension contributions, expense claims, and the value of accommodation or services provided by the employer.
- A day’s wages: What your employees are paid daily. You calculate this by dividing their monthly wages as defined above by 26, although you can optionally divide by the number of days they actually work (e.g. 22 work days for employees working 5 days a week), as long as the daily rate results in a more favourable rate than the daily rate based on 26 fixed days.
- Hourly rate: To calculate the hourly rate you are paying your employees, divide the daily rate as described above by the number of hours they normally work in a day, as specified in their employment contract.
Alright, now that’s clarified, we’ll detail the different categories of overtime in Malaysia. They are all subject to statutory contributions except EPF unless stated otherwise.
- Normal Overtime: If, on a working day, your employee works more than the normal working hours specified in their contract, they receive at least 1.5x their normal hourly rate of pay.
- Rest Day Overtime: You are legally required to give one rest day a week. If your employees have more than one day off, then the rest day would be the last off day in the week. So if your employee has Saturday and Sunday off, then Sunday is the legal rest day. If your employee works on a Saturday, that should fall under normal overtime.
For employees on a monthly wage: Where work is half or less than half of the normal hours of work in a day: half a day’s wages. Where work is more than half: a day’s wages.
For employees on a daily wage: Where work is half or less than half of the normal hours of work in a day: a day’s wages. Where work is more than half: two days’ wages.
Work done during normal hours on a rest day is subject to EPF.
For work done on a rest day outside of normal working hours: 2x hourly rate of pay.
- Public Holiday Overtime: If working during normal working hours: 2 days’ worth of wages, regardless of the amount of time worked. This is subject to EPF.
Work outside of normal working hours: 3x hourly rate of pay
Let’s consider a scenario…
In the heart of Kuala Lumpur, BrightStar Solutions thrives with a dedicated 3-member team. Their normal work schedule as defined in their employment contracts is from 9 am to 5 pm, with a one-hour break from 12 to 1 pm.
- Fuelled by ambition, Ahmad is earning RM 4100 per month, working until 7 pm on weekdays.
- Mei Ling has a salary of RM 4000 per month, and, in addition to her normal working hours, she devotes Sundays from 10 am to 4 pm to her work – unwavering in her pursuit of excellence.
- Siti, a quiet achiever making RM 3200 per month, works an extra hour from 5 to 6 pm on weekdays and weekends. She further worked on a public holiday from 9 am to 7 pm to complete an urgent task, stopping only to take a lunch break from 12 to 1 pm.
Work schedule and timekeeping
Ahmad:
- Monday to Friday: 9 am to 7 pm, one hour off for lunch (2 hours overtime daily)
- Saturday and Sunday: Off
Mei Ling:
- Monday to Friday: Normal working hours
- Saturday: Off
- Sunday: 10 am to 4 pm with no break (6 hours overtime)
Siti:
- Monday to Friday: 9 am to 6 pm, one hour off for lunch (1 hour overtime daily)
- Saturday and Sunday: 5 to 6 pm (1 hour overtime daily)
- Public Holiday: 9 am to 7 pm, one hour off for lunch (9 hours overtime)
Overtime calculations
1. Daily rate of pay:
- Ahmad: RM 4100 / 26 = RM 157.69
- Mei Ling: RM 4000 / 26 = RM 153.85
- Siti: RM 3200 / 26 = RM 123.08
2. Hourly rate of pay:
- Ahmad: RM 157.69 / 7 = RM 22.53
- Mei Ling: RM 153.85 / 7 = RM 21.98
- Siti: RM 123.08 / 7 = RM 17.58
Overtime calculations
Ahmad:
- Ahmad earns over RM 4000 per month, so he is not eligible for overtime. Let’s hope he gets a bonus for his hard work.
Mei Ling:
- She works 10 am to 4pm on Sundays: Total 6 hours overtime per week, 1 hour of which was during her lunch break which is outside of normal working hours.
- Apply the rest day overtime for monthly-rated workers: 5 hours is more than half of the length of her work day so she is paid one day of wages for it.
- For the one hour worked during lunch on Sunday, she gets 2x her hourly pay.
- Weekly overtime: 1 day’s wage + 2 x 1 hour of wages
- = RM 153.85 + (2 x RM 21.98)
- = RM 197.81 per week
Siti:
- Works 5 to 6 pm on weekdays and Saturdays which means 6 hours of normal overtime per week, at 1.5x her hourly rate.
- Works 5 to 6 pm on Sundays which is her rest day and outside of normal working hours, so she gets 2x her hourly rate.
- Worked 9 am to 7 pm on a public holiday, taking her usual hour off for lunch, meaning she did 9 hours of overtime. 7 hours were during normal working hours for which she gets paid 2x her daily rate. For the extra 2 hours done outside normal working hours, she gets 3x her hourly rate.
- Weekly overtime: (6 hours at 1.5x rate) + (1 hour at 2x hourly rate) + (1 day at 2x daily wage) + (2 hours at 3x hourly wage)
- = (6 x 1.5 x RM 17.58) + (1 x 2 x RM 17.58) + (1 x 2 x RM 123.08) + ( 2 x 3 x RM 17.58)
- = RM 545.02 per week
That’s it! We’ve gone through everything you need to know to master the art of managing overtime.
We hope this helps streamline the process of calculating Malaysia overtime pay while fostering a culture of transparency and respect in the workplace.
