A Business Owner’s Guide to Employment Law in Malaysia: 12 Critical Points
- Chow Ping
- 13 hours ago
- 6 min read
Malaysian employment law is straightforward in theory.
But in practice? Ha!
The Employment Act 1955 sets clear rules about wages, working hours, leave, termination, and employee protections.
Yet every year, businesses face Labour Department complaints, unfair dismissal claims, and penalties — often for violations they didn't even know they were committing.
Whether you're hiring your first employee or managing a team of 50, understanding these 12 fundamental rules can save you from expensive mistakes and legal headaches:
1. The Employment Act doesn't apply uniformly to all employees. Coverage depends on your salary and type of work.
Who Gets Full Protection?
Employees earning RM4,000 or less per month get full EA protection, including:
Working hours limits and overtime rates
Rest days and public holidays
Annual leave, sick leave, paternity leave
Termination notice periods and benefits
Payment of wages provisions
All other EA protections
What About Higher Earners?
Employees earning MORE than RM4,000 per month are still covered by MOST of the EA, including:
Rest days
Working hours regulations
Annual leave, sick leave, paternity leave
Public holidays
Payment of wages provisions
But they're excluded from:
Certain premium payment rates (for working on rest days/public holidays)
Termination and lay-off benefits under Section 60J
Special Categories With Different Rules
Certain employees have Part XII excluded entirely (rest days, working hours, leave entitlements), regardless of salary:
Manual laborers
Vehicle operators/maintainers
Supervisors of manual laborers
Vessel crew (with specific conditions)
Domestic servants
These categories follow different regulations specific to their industries.
2. Working Hours Have Hard Limits According to the Employment Law
The law sets strict limits on working hours.
Maximum working hours:
45 hours per week (reduced from 48 in 2023)
8 hours per day maximum
Cannot work more than 5 consecutive hours without a 30-minute break
Cannot spread work across more than 10 hours in one day
Rest days:
One full rest day per week
Payment for rest day work depends on hours worked:
Up to half of normal hours = 1 day's wages
More than half but not exceeding normal hours = 2 days' wages
Exceeding normal hours = at least 2x hourly rate
Overtime:
Must pay at least 1.5x hourly rate for regular overtime
2x hourly rate for overtime on rest days
3x hourly rate for overtime on public holidays
Even if your employee volunteers to work longer hours, you're still breaking the law if you allow it.
3. Leave Entitlements Are Non-Negotiable
Annual Leave
1-2 years: 8 days
2-5 years: 12 days
5+ years: 16 days
Sick Leave (Without Hospitalization)
Less than 2 years: 14 days
2-5 years: 18 days
5+ years: 22 days
Hospitalization Leave
60 days per year if hospitalization is necessary (separate from sick leave above).
Maternity Leave
98 consecutive days of paid leave (extended from 60 days in 2023).
Employees qualify if they've:
Worked at least 90 days in the nine months before childbirth, AND
Been employed within four months before childbirth
Paternity Leave
7 consecutive days of paid leave (introduced in 2023). Must be legally married to the mother.
Public Holidays
11 gazetted public holidays minimum, including:
National Day
Birthday of Yang di-Pertuan Agong
State Ruler's Birthday/Federal Territory Day
Workers' Day
Malaysia Day
Work on public holiday: 2 days' wages plus holiday pay (regardless of hours worked)
Overtime on public holiday: 3x hourly rate
4. Wages Must Be Paid Within 7 Days
Pay your employees no later than the 7th day after the last day of the wage period.
If your wage period ends on the 31st, salaries must be paid by the 7th of the following month.
What Counts as "Wages"?
Wages = basic pay + cash payments for work done.
Wages do NOT include allowances, expense reimbursements, retirement benefits, or retrenchment payments.
Since 2023, wages must be paid through a financial institution (bank transfer) unless exempted.
5. Probation Doesn't Mean "Fire Freely"
Many employers think they can terminate probationers anytime without explanation. Wrong.
The reality:
No automatic confirmation when probation ends
You still need valid grounds to terminate
Employment contract MUST be in writing if period exceeds one month
Treat probationers fairly. Document performance issues. Follow proper procedures.
6. You Cannot Terminate Pregnant Employees (With Very Few Exceptions)
Section 41A makes it an offence to terminate a pregnant employee or an employee suffering from pregnancy-related illness.
The Only Three Exceptions
You can ONLY terminate for:
Wilful breach of contract
Misconduct (under Section 14)
Closure of business
The Burden of Proof Is on YOU
If you terminate a pregnant employee, YOU must prove the termination wasn't pregnancy-related.
Even with documented performance issues, if she's pregnant, you need rock-solid documentation to prove pregnancy wasn't a factor.
Get legal counsel before terminating any pregnant employee.
7. Termination Has Strict Notice Requirements
Notice periods based on employment length:
Length of Employment | Notice Period |
Less than 2 years | 4 weeks |
2 to 5 years | 6 weeks |
5 years or more | 8 weeks |
Payment in Lieu of Notice
Pay their salary for the notice period and have them leave immediately.
Termination Without Notice
Only for deliberate contract breach or misconduct. You need proof.
Termination Benefits
Employees earning up to RM4,000 and employed for 12+ months get:
Length of Employment | Compensation |
Less than 2 years | 10 days' wages per year |
2 to 5 years | 15 days' wages per year |
5+ years | 20 days' wages per year |
8. Statutory Contributions Are Mandatory (For Everyone)
Regardless of whether your employees fall under the EA, you must make these statutory contributions:
EPF (Employees Provident Fund Act 1991) - Retirement savings
SOCSO (Employees Social Security Act 1969) - Social security protection
EIS (Employment Insurance System Act 2017) - Unemployment insurance
PCB (Income Tax Act 1967) - Monthly tax deduction
Trade Union Subscription (if requested in writing by employee)
The first four aren't optional. If you employ people in Malaysia, these contributions are mandatory under their respective laws.
Trade union subscriptions are only deducted if an employee requests it in writing.
9. Some Contract Terms Are Automatically Void
Terms Less Favorable Than EA = Void
Any term less favorable than what the EA provides is automatically void and replaced by EA provisions.
Example: Your contract says 5 days annual leave. EA says 8 days for their tenure. Result: Employee gets 8 days.
Restrictions on Trade Unions = Void
Section 8 prohibits any contract term restricting an employee's right to join, participate in, or associate with trade unions.
Restraint of Trade Clauses
Under Section 28 of the Contracts Act 1950, any agreement restraining someone from exercising a lawful profession, trade, or business is void.
That non-compete clause? Probably unenforceable.
More Favorable Terms Are Fine
You CAN offer terms MORE favorable than the EA. The EA sets the floor, not the ceiling.
10. Sexual Harassment Protections Apply to Everyone
Sexual harassment protections under Sections 81A-81G apply to ALL employees in Malaysia.
When you receive a complaint of sexual harassment, you must inquire into it using the manner prescribed by the Minister.
If you decide not to inquire, inform the complainant of your refusal and reasons within 30 days.
Penalty: Up to RM50,000 fine.
Create a clear sexual harassment policy. Train your HR team. Respond promptly to complaints.
11. The 2023 Amendments Changed the Game
Key changes:
Extended Maternity Leave: 60 days → 98 days
New Paternity Leave: 7 consecutive days
Flexible Work Arrangements: Employees can apply in writing. You must respond within 60 days with reasons if rejecting.
Reduced Working Hours: 48 hours/week → 45 hours/week
Expanded Coverage: More employees now fall under EA protection.
If your HR policies were last updated in 2022 or earlier, schedule a review.
12. Getting It Wrong Can Cost You More Than Money
Financial Penalties
Most EA offences: Up to RM50,000 per violation
Foreign domestic employee violations: Up to RM50,000
Priority of Wages
In liquidation or bankruptcy, employee wages take priority over almost all other debts.
Unfair Dismissal Claims
Filed within 60 days. If court finds in employee's favor:
Reinstatement (rare but possible)
Compensation (typically one month's salary per year of service)
Back wages (up to 24 months)
Get Your Employment Practices Right From Day One
The Employment Act covers a lot of ground, and we've only scratched the surface. There are nuances, exceptions, and industry-specific considerations that can affect how these rules apply to your business.
That's where professional legal and HR consultation makes the difference.
We'll help you navigate the complexities, avoid costly mistakes, and build employment practices that protect both you and your employees.
WhatsApp us now to find out more:
Comments