Introduction to Employer’s Statutory Obligation in Malaysia
Malaysia is one of the most prosperous and economically powerful countries in Southeast Asia. Its economy has risen at a 6.4% yearly rate during the past half-century. Malaysia has quickly industrialised over the twentieth century, moving away from traditional agriculture and mining to contemporary commercial infrastructure. If you have (or plan to start) a business or firm in Malaysia, there are a few things you should be aware of, such as the Employer’s Statutory Obligations under the Employment Act.
Starting A Business in Malaysia
Malaysia is blessed with rich natural resources like gas, crude oil, palm oil, and timber. Since its independence in 1957, the nation has also been a player in car manufacturing, construction, and electronics, among other key sectors. It’s little wonder that foreign investment has been fairly good, supported by a government that aims to turn the country into one of the region’s major financial centres.
Malaysian Employment Law
Malaysia’s employment law is governed by the Employment Act 1955. It specifies the minimal benefits that employees in Malaysia should receive. Any language in an employment contract that provides less favourable benefits than those defined by the Employment Act will be considered null and unenforceable, and the minimum benefits provided by the Employment Act will supersede.
Below are some of the employer’s statutory obligations that are required by law.
- Statutory Salary Deductions
- Annual Leave
- Sick Leave
- Public Holidays
- Terminations of Employment
1. Statutory Deductions From An Employee’s Salary
All employers are required by law to deduct the following from each of their employees’ salaries:
- Monthly income tax deductions
- Employee contribution to EPF, also known as Employees Provident Fund
- Employee’s contribution to SOCSO, to social security organisations
- Employee contribution to EIS, also known as the Employment Insurance System contribution
Once you’ve made the following deductions as an employer, you’ll need to make sure that these contributions are deposited into your employees’ SOCSO and EPF accounts. As a result, it would be prudent to include these additional expenditures in your headcount and payroll budget.
Some scenarios may arise under the Employment Act that warrants additional deductions from your employee’s pay. For example:
- Overpayment of employee wages due to an error on the part of the employer. However, the deductions can be made only for the period of the preceding 3 months
- Deductions for payment instead of notice, for instance, when an employee resigns before serving the full notice of time as specified in the contract
- Deductions that are made to recover the payment of advance wages. However, no interest should be charged on the advances
- Deductions that are made to satisfy any other written law
Any employee may request that you, as an employer, make additional deductions from his or her compensation for the following reasons:
- Deductions to facilitate payments to co-operative or loan societies, trade unions for subscriptions or entrance fees, etc.
- Deductions for payments for shares that your company is selling, that your employee would want to purchase
2. Annual Leave
All employers are required to allow for paid annual leaves for their employees. The following are the minimal conditions for annual leave as established in the Employment Act:
- If an employee has worked for your company for fewer than 2 years, then they will be entitled to a total annual leave of 8 days.
- If an employee has worked for your company for more than 2 years, but less than 5 years, this employee will be entitled to a total annual leave of 12 days.
- If an employee has worked for your company for more than 5 years, this employee will be entitled to a total annual leave of 16 days.
3. Sick Leave
Sick leave for your employees should be handled as follows, in accordance with the Employment Act:
- Employees who have worked for your company for less than 2 years will be given a sick leave entitlement of 14 days
- For employees who have worked for your company for more than 2 years, but less than 5 years, their sick leave entitlement will be 18 days
- Employees who have worked for your company for more than 5 years will be given a sick entitlement of 22 days
Employees covered by the Employment Act shall be entitled to 60 days of hospitalisation leave each year if such occurrence necessitates so. However the 60 days will be reduced by the number of sick leave already taken in the calendar year.
4. Public Holidays
Every year, all employees covered by the Employment Act would be entitled to a minimum of 11 public holidays. The following five public holidays must be observed:
- National Day
- Birthday of Yang di-Pertuan Agong
- Birthday of Ruler of the Yang di-Pertua Negeri of the state in the which the employee works
- Labour day
- Malaysia day
The remaining 6 public holidays can be chosen from the list of gazette public holidays by the employer. Employers are also subjected to state holidays following local state laws of their operating addresses. For example, Good Friday is a public holiday observed only in the eastern states of Sabah & Sarawak where there is a significant Christian population. In contrast, the first day of the Muslim fasting month is a holiday only in Johore, Kedah, and Malacca.
5. Termination of Employees
Under Malaysia’s Employment Act, an employer needs to give a notice of termination in advance, regardless of whether these are the conditions of their contract. To fire your staff, you must give them a good reason and an explanation. This is applicable whether or not the employee is covered under the Employment Act.
If you don’t give your employees a good reason and an explanation, it could be deemed as unfair dismissal.
Starting and maintaining an enterprise in Malaysia can be a breeze when working with the right people. The company incorporation specialists at Ledgen can assist and ensure that you are on the right track in managing your obligations as an employer.
Over the years, Ledgen Group (formerly Ecovis Bizcorp) has successfully assisted thousands of clients with setting up their businesses. But we don’t just stop once your business is set up. Ledgen continues to support our clients by providing a comprehensive solution to them at every stage, within Malaysia to across regions in Asia and beyond.