Ever since gaining independence in 1957, Malaysia has steadily grown its economy into one of the largest in Southeast Asia. In the first half of 2023, it was able to attract almost USD28.4 billion of approved investments in services, manufacturing, and primary sectors, according to the Malaysian Investment Development Authority.
Given this significant economic growth, more and more businesses are looking to establish their presence in the country. But while running a business in Malaysia presents a ton of opportunities, there are also a fair set of challenges that come with it.
Employers will need to navigate a complex set of labour laws and regulations, primarily governed by the Employment Act of 1955. This important piece of legislation oversees various aspects of employment, including payroll, working hours, holidays, rest periods, overtime, and other conditions of employment.
In this guide, we’re going to break down all the labour laws that can impact your business operations in Malaysia. Understanding these laws is crucial to ensuring a productive and legally sound work environment.
This article covers:
- What are Malaysia’s Time Management Laws?
- What are the Hiring, Working & Dismissal Laws in Malaysia?
- Malaysia Payment Laws
- Malaysia Overtime Laws
- Malaysia Time Off/Break Laws
- What are Malaysia Leave, Vacation, and Holiday Laws?
- What are Malaysia’s Child Labour Laws?
What are Malaysia’s Time Management Laws?
When it comes to time management, Malaysia has various laws in place to help ensure workers are appropriately paid for the amount of time they work. One of the country’s principal legislations shaping employee time management is the Employment Act of 1955.
Initially, the Employment Act of 1955 only applied to employees earning less than RM2,000 per month or those in specific jobs like manual labour, supervising manual labour, operating vehicles, certain vessel work, or domestic service. Now, the Employment Act of 1955 protects all employees in Malaysia.
This Act sets clear guidelines, limiting an employee’s normal working hours to not more than 45 hours per week. Daily work hours also aren’t allowed to go beyond 12 hours on any given day, including overtime hours.
When an employee does work overtime, they should be compensated for not less than 1.5x the hourly rate of pay for any time worked beyond regular working hours (maximum 8 hours per day or 45 hours per week). If it’s a paid public holiday, the overtime pay increases to 3x the employee’s hourly rate.
Employees will need to record employee work hours for accurate compensation. The choice of how employers do this, whether it’s through manual timesheets or automated time trackers, will be up to them.
Other crucial standards on employee minimum wage, overtime, and breaks, can be seen in the table below:
Malaysia Minimum Wage
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Malaysia Overtime
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Malaysia Breaks
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Employers in Malaysia are required to maintain a wage ledger at each workplace. This ledger must include details on how wages are calculated, the total wages paid, and any additional information mandated by ministry regulations. These records must be preserved for a period of 3-5 years to ensure transparency and adherence to employment laws. Other tax-related records are to be kept for a period of 7 years.
What are the Hiring, Working & Dismissal Laws in Malaysia?
Hiring in Malaysia is regulated by laws promoting equal opportunities and fair treatment. Although there are no specific workplace discrimination laws, Article 8 of the Federal Constitution ensures equal opportunities for all Malaysians regardless of religion, race, descent, place of birth, or gender. This framework supports a balanced employment distribution among different ethnic groups.
It’s important to note that to work legally in Malaysia, individuals must either be Malaysian citizens or permanent residents. Foreign nationals will need a valid work permit or visa, which varies based on factors like job category, salary, and education level.
Once a worker has been employed beyond the one-month probationary period, their employment must be formalised with a written contract. This contract should outline important details about the employment arrangement including:
- Job description
- Nature of work
- Compensation packages
- Benefits and other aspects related to the employee’s health and safety
- Working hours
- Leave entitlements
- Conditions for termination
Having a well-drafted contract is essential to prevent potential disputes in the future, ensuring clarity and fairness for both employers and employees.
Aside from a written contract, workers will also need to be classified correctly, whether as employees or independent contractors.
The challenging thing about worker classification in Malaysia is that it’s not straightforward and varies case by case. The Industrial Court assesses each situation individually, considering factors like the type of work, level of employer control, duration of employment, contract terms, and how the worker is treated compared to other employees.
It’s important to get worker classification right because it carries significant legal and financial implications. Employees are entitled to statutory protections and benefits, such as minimum wage, overtime pay, and social security, which are not typically available to independent contractors. You don’t want to risk misclassification because it can come with some pretty hefty fines, ranging from MYR 200 to MYR 20,000 and/or imprisonment for a term of up to six months.
Under the Industrial Relations Act 1967, employees are shielded from unfair dismissal, and employers must show valid reasons for termination. The Act also prohibits terminations that discriminate against protected groups. Advance notice when terminating an employee is required, with the required notice period depending on the duration of employment.
| Length of termination notice | Years of service |
| Four weeks | Employed for less than two years |
| Six weeks | Employed between two to five years |
| Eight weeks | Employed for longer than five years |
What Are the Key Labour Laws in Malaysia?
There are many laws that govern employment in Malaysia. It can be hard to keep track of them all. To help you stay compliant, here’s a breakdown of the main sources of employment law in Malaysia:
- The Employment Act of 1955 (EA): The Employment Act of 1955 (EA) outlines the basic terms and conditions for private sector employees. It covers key areas such as working hours, rest days, public holidays, and overtime pay, aiming to protect employee rights.
- Industrial Relations Act 1967 (IRA): The Industrial Relations Act 1967 regulates the relationship between employers and employees. It establishes a framework for the organisation and operation of trade unions and aims to promote peaceful dispute resolution.
- Occupational Safety and Health Act 1994 (OSHA): The Occupational Safety and Health Act 1994 is dedicated to preventing workplace accidents and illnesses. It requires employers to create a safe and healthy work environment by providing the necessary training and equipment. The Act also specifies the responsibilities of employers and employees in maintaining safety, including hazard identification and risk management.
- Employees Provident Fund Act 1991 (EPFA): The Employees Provident Fund Act 1991 aims to secure the financial future of employees post-retirement. It established the Employees Provident Fund (EPF), where both employers and employees contribute a portion of the employee’s monthly salary to build a retirement savings fund.
- The Employees’ Social Security Act 1969 (SOCSO): The Employees’ Social Security Act 1969 provides a safety net for employees by protecting against accidents, occupational diseases, and disabilities. Employers and employees both contribute to a social security fund, which is used to offer financial assistance and support to employees facing work-related challenges and emergencies.
- Minimum Retirement Age Act 2012 (MRAA): The Minimum Retirement Age Act 2012 aims to prevent age discrimination and promote fairness in the workplace. It sets the minimum retirement age at 60 years, ensuring that employers cannot force employees to retire before reaching this age, except under specific legal conditions.
Malaysia Payment Laws
What is the Minimum Wage in Malaysia?
In May 2022, Malaysia raised its National Minimum Wage by 25%, increasing it from RM1,200 to RM1,500 per month. The minimum daily wage, on the other hand, differs depending on the number of days worked each week, as follows:
- RM57.69 for employees working a six-day week
- RM69.23 for employees working a five-day week
- RM86.54 for employees working a four-day week
For employees who are paid hourly, the Minimum Wages Order 2022 set the minimum wage rate at RM7.21 per hour.
Who Does Malaysia’s National Minimum Wage Apply to?
The minimum wages set by the Minimum Wages Order 2022 are consistent across all regions, states, and cities throughout the country. There are some exemptions to the National Minimum Wage though.
Domestic workers, such as maids, cooks, guards, gardeners, and personal drivers, as well as apprentices in training for at least two years, are excluded from the minimum wage order.
Is there a Penalty for Failing to Pay Minimum Wage in Malaysia?
Not adhering to Malaysia’s minimum wage standards is a violation of Section 23 of the National Wages Consultative Council Act 2011, and those found guilty could face fines of up to RM10,000 per employee.
What is the Payment Due Date in Malaysia?
Employers in Malaysia must pay salaries within seven days after the end of each wage period. Overtime pay is due by the end of the next wage period. The normal wage period is one month, but contracts may set different periods as long as they do not exceed a month.
Salaries include the basic wage and any other agreed cash payments but do not cover things like travel expenses, deductions, bonuses, accommodation, or other costs.
Are Payslips Required in Malaysia?
In Malaysia, every employee must receive a payslip whenever they get paid. The payslip must contain the following information:
- Full name of the employee
- Identification details
- Gender
- Citizenship status
- Terms of wage payment
- Payment amount
- Date of payment
- Details of any extra payments
- Deductions made
- Information about the employer
- Date when the payslip was issued
Allowed Payment Methods for Malaysia Employers
Malaysia does not enforce a specific payment method for salary disbursement. Employers can choose from different methods like bank transfers, checks, or digital payment systems, provided that payments are made within the agreed time frame. It is important for employers to ensure that the payment method they use allows for proper record-keeping and follows the payment terms outlined in employment agreements.
What are Pay Deduction Laws in Malaysia?
Wage deductions in Malaysia are controlled by the Employment Act. Employers can make deductions as specified in the Act, and deductions requested in writing by employees are permitted. For other deductions, employers need approval from the Director-General of Labour (DGL).
Section 24 of the Employment Act mandates that deductions cannot be made without explicit provisions. The Act specifies the circumstances for lawful deductions in Sections 24(2) to (6). Certain deductions, like overpayment recovery, indemnity, and wage advances, do not require an employee’s request. However, deductions for trade union payments or employer business shares require written consent from the employee.
What are the Applicable Payroll Taxes in Malaysia?
Malaysia has several payroll taxes that can be applicable to employers and employees if they fit certain criteria. Here’s a look at the main ones:
- Corporate Income Tax Rate: For year assessment 2023, the standard corporate income tax rate for resident companies in Malaysia is 24%. For small and medium-sized enterprises (SMEs) with a paid-up capital of RM2.5 million or less, the tax rate is 15% on the first RM150,000 of taxable income, 17% for income amounting to RM150,001 to RM600,000, with the remaining income taxed at 24%.
- Individual Income Tax: Individual income tax rates in Malaysia are progressive, ranging from 1% to 30% based on income levels. Non-resident individuals are taxed at a flat rate of 30%.
- Employee Provident Fund (EPF): The EPF is a mandatory retirement savings scheme for Malaysian employees. Employers contribute 12% to 13% of an employee’s monthly salary, while employees contribute 11%.
- Social Security Organization (SOCSO): SOCSO provides social security protection to employees. The maximum employer contribution is 1.25%
- Employment Insurance System (EIS): The EIS aims to provide financial assistance to employees who lose their jobs. Both employers and employees contribute 0.2% of the employee’s monthly salary to the EIS fund.
Learn more about running payroll in Malaysia through this Malaysian Payroll Overview.
Malaysia Overtime Laws
Overtime regulations in Malaysia fall under the Employment Act 1955, which has been updated multiple times to strengthen worker protections and clarify employer responsibilities. The latest revision in 2022 extended the maximum allowable weekly work hours and broadened overtime eligibility, among other modifications.
How Much is Overtime Pay in Malaysia?
Employees who work overtime are entitled to extra compensation at a rate of at least 1.5 times their standard hourly wage.
Overtime applies to any work beyond the regular hours, which are capped at 8 hours per day or 45 hours per week. With the current minimum hourly wage set at RM7.21, the overtime rate would be RM10.815 per hour.
When employees work on their designated rest days, they are entitled to receive overtime pay at a rate of 2 times their usual hourly wage.
For work performed during paid public holidays, the overtime pay rate increases to three times the employee’s usual hourly rate.
What Constitutes Overtime in Malaysia?
Overtime work refers to tasks completed outside of the standard working hours set by the Employment Act 1955. This includes any work done after regular business hours, on weekends, during public holidays, or beyond the agreed schedule between the employer and employee.
Is there an Overtime Limit in Malaysia?
The maximum number of overtime hours an employee can work per month is 104 hours. However, hours worked on rest days, public holidays, or substituted paid holidays do not count towards this limit. Additionally, no employer is allowed to require an employee to work more than 12 hours in a single day, including overtime.
Who is Exempted from Overtime Pay in Malaysia?
Not every employee is entitled to overtime pay. There are specific exemptions based on income and industry.
- Employees with a Monthly Salary Over RM4,000
Under the latest changes to the Employment Act 1955, only employees earning less than RM4,000 per month are entitled to receive overtime pay. Employees whose monthly salaries exceed RM4,000 are generally not eligible for overtime compensation for extra hours worked.
- Workers in Specific Industries
Certain industries in Malaysia have their own regulations for overtime pay. For employees working in sectors like banking and finance, insurance, hotel and catering, and road transport, the industry-specific rules govern their eligibility for overtime pay, regardless of their salary level.
Malaysia Time Off/Break Laws
In Malaysia, employees who work more than 5 consecutive hours must be given at least a 30-minute unpaid break. For work periods of less than 5 hours, employers can provide shorter breaks as long as these breaks do not interrupt the continuous work period.
For employees on an 8-hour workday, they are entitled to a minimum of 45 minutes of unpaid rest time for meals and breaks throughout the day.
Each week, employees are entitled to one full day of rest, which the employer will determine. For shift workers, a continuous period of at least 30 hours can already constitute a rest day.
If employees are required to work on their rest day, they must be paid at least twice their daily wage.
These regulations do not cover periods of maternity leave, sick leave, or temporary disablement. Employers may apply to adjust the rest day to another day within the same month, provided that the rest day is still granted.
What are Malaysia Leave, Vacation, and Holiday Laws?
In Malaysia, laws concerning leave, vacation, and holidays are established to ensure employees get appropriate time off for rest and personal needs. The Employment Act 1955 details various leave benefits such as public holidays, paid leave, sick leave, maternity leave, and optional leave options.
If employees have exhausted their available leave and need to be absent for personal reasons, they can request unpaid leave, which is subject to the employer’s approval.
These leave entitlements typically apply to employees earning less than RM2,000 a month or those involved in manual labour. For employees with higher incomes and non-manual jobs, leave entitlements are often defined by their employment agreements.
Malaysia Public Holidays
Employees in Malaysia are entitled to eleven paid public holidays each year. Additionally, the government may declare extra public holidays for special occasions, such as the one on July 30, 2019, to mark the coronation of Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah.
Employers are obligated to provide leave on public holidays, but if the business requires work on such days, they must compensate with paid leave on another day. If a public holiday coincides with an employee’s sick leave or annual leave, the employer must reschedule the leave for another day.
Employees who work on public holidays are entitled to receive holiday pay plus an additional 200% of their regular pay rate, regardless of the actual hours worked on the holiday.
Annual Leave
Malaysian employees are eligible for paid annual leave according to their length of service as follows:
- 1 to 2 years of employment: 8 days of paid leave annually
- 2 to 5 years of employment: 12 days of paid leave annually
- More than 5 years of employment: 16 days of paid leave annually
Employees with less than a year of service do not receive paid leave, except when resigning from the company, in which case leave is prorated. Employees who are absent without permission are not entitled to paid annual leave.
Parental Leave
In Malaysia, both maternity and paternity leave benefits are provided for employees under the law.
Female employees are entitled to 98 consecutive days of maternity leave, an increase from the previous 60 days due to the Employment (Amendment) Bill 2021, which became effective on January 1, 2023. This benefit is available to all female employees who have worked with their employer for at least 4 months before their due date. Maternity leave can be taken up to 30 days before the expected delivery.
The duration of paternity leave, on the other hand, can vary depending on the employer, though the Employment Act of 1955 mandates a minimum of 7 days of paid leave. Some employers offer up to 30 days of paid paternity leave. To be eligible, the employee must:
- Be married to the expectant mother.
- Have been employed for the last 12 months.
- Provide at least 30 days’ notice to the employer before the due date.
Sick Leave
In Malaysia, employees receive paid sick leave based on their length of employment. Those who have been employed for 1 to 2 years are entitled to 14 days of paid sick leave each year. Employees with 2 to 5 years of service can take 18 days of sick leave annually, while those with over 5 years of service can take up to 22 days of sick leave per year.
Additionally, employees may take up to 60 working days of hospitalisation leave per year if they need to be admitted to the hospital. This leave is different from sick leave and requires certification from a registered medical practitioner, officer, or dental surgeon.
Study Leave
In Malaysia, employees may receive study leave for short courses that benefit the organisation or for exams that lead to career-enhancing certifications. Although there is no legal requirement for study leave, many employers offer it to support their employees’ professional development.
Emergency Leave
Although there is no legal provision for emergency leave in Malaysia, many employers offer two to three days per year for such instances. Beyond this, employees may need to take unpaid leave or have it deducted from their annual leave. This leave is appropriate for unexpected situations, such as dealing with a sick family member or other urgent personal matters.
What are Malaysia’s Child labour Laws?
The Children and Young Persons (Employment) Act 1966 is the primary law regulating the employment of minors in Malaysia. This Act defines a “child” as an individual below the age of fifteen and a “young person” as someone aged fifteen or older but below eighteen. Key provisions of the Act include:
- Minimum Age for Employment: The minimum age for admission to light work is set at 13 years.
- Employment Restrictions: Children under 15 and young persons aged 15 to below 18 cannot engage in any form of labour or employment unless under proper permission and supervision.
- Prohibited Work: Both children and young persons are not allowed to perform hazardous jobs as listed in the Fourth Schedule of the Act. This includes tasks involving chemical hazards or dangerous machinery. However, young persons can engage in such work if they are under personal supervision during an apprenticeship or vocational training.
Child Labour Work Hours and Conditions
Work Hours for Children:
- Cannot work more than 6 days a week.
- Prohibited from working between 8 pm and 7 am, except in public entertainment.
- Cannot work for more than 3 consecutive hours without a break of at least thirty minutes.
- Limited to a maximum of 6 working hours a day, or 7 hours if they attend school.
Work Hours for Young Persons:
- Cannot work more than 6 days a week.
- Prohibited from working between 8 pm and 6 am, except in specific activities like public entertainment or agriculture, or under the personal supervision of a parent or guardian.
- Cannot work for more than 4 consecutive hours without a break.
- Limited to a maximum of 7 working hours a day, or 8 hours if they attend school.
Penalties for Child Labor Violations
Violations of the Children and Young Persons (Employment) Act can result in severe penalties. Those convicted may face up to 2 years in prison, a fine of up to RM50,000, or both. Repeat offenders could face up to 5 years in prison, a fine of up to RM100,000, or both.
Other Related Child Labor Laws
- Factories and Machinery Act of 1967: Prohibits child labour in factory environments and the handling of factory machinery and electronics.
- Occupational Safety and Health Act of 1994: Ensures safe working conditions, indirectly affecting the employment of minors.
- Electricity Supply Act of 1990: Regulates safety in the electricity supply industry, preventing the employment of underage labour.
- Mining Industry Regulations: Strictly forbid the employment of children or underage labour in the mining industry.
These laws collectively ensure the protection of minors from exploitation and hazardous work environments in Malaysia.
Important Cautionary Note
This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.
