Employment 2022 Comparisons

Malaysia has seen major changes and developments in employment law in the past 12 months. The most important of these are set out below. 

Amendments to the Employment Act

Amendments to the Employment Act 1955 (EA), which will take effect on 1 January 2023, include a provision on calculation of wages for an incomplete month’s work, new requirements for contractors for labour, introduction of paternity leave of seven days, increase in paid maternity leave from 60 days to 98, reduction in maximum working hours from 48 hours to 45 and new provisions on flexible working arrangements, discrimination and forced labour.

The scope of applicability of the EA has also been expanded vide the Employment (Amendment of First Schedule) Order 2022 (the “Amendment Order”) and will take effect on 1 January 2023 together with the new amendments. Moving forward, the EA will apply to any person who has entered into a contract of service, whereas pre-amendments, it only applied to employees who (i) earned wages of MYR2,000 and below, or (ii) regardless of wages earned, were engaged in manual labour, the supervision of manual labour, the operation of mechanically propelled vehicles, certain on-board capacities in a Malaysian-registered vessel and to domestic servants (domestic employees).

However, under the new amendments, the provisions of the EA that relate to payment for working on a rest day, overtime payments, statutory entitlement to shift allowances, payment for working on a public holiday and statutory entitlement to termination and lay-off benefits will not apply to employees whose wages exceed MYR4,000 a month unless they are engaged in manual labour, supervision of manual labour, the operation of mechanically propelled vehicles, certain on-board capacities in a vessel registered in Malaysia and as domestic employees.

The Minimum Wages Order 2022

The Minimum Wages Order 2022 was gazetted on 27 April 2022 and the minimum wage rate payable to an employee was increased to MYR1,500 per month or MYR7.21 per hour from 1 May 2022.

The Employees’ Social Security (Amendment) Bill 2022

The Dewan Rakyat (House of Representatives) of the Malaysian Parliament passed the Employees’ Social Security (Amendment) Bill 2022 on 21 July 2022 to amend the Employees’ Social Security Act 1969 and the Employment Insurance System (Amendment) Bill 2022 on 25 July 2022 to amend the Employment Insurance System Act 2017. Both Bills aim to increase the maximum limit of the insurable amount of wages from RMYR4,000 a month to MYR5,000 a month, resulting in better protection for employees. Both Bills still need to be presented to the Dewan Negara (Senate) and if passed, to the Yang di Pertuan Agong (the Malaysian constitutional monarch and head of state) for Royal Assent, whereafter the law will be gazetted and come into operation on a date to be appointed by the Minister of Human Resources by notification in the Gazette.

The Occupational Safety and Health (Amendment) Act 2022

The Occupational Safety and Health (Amendment) Act 2022 (OSHA) received the Royal Assent on 4 March 2022 and was gazetted on 16 March 2022, but has yet to come into force. The key amendments include the extension of the applicability of OSHA to all workplaces, new duties and responsibilities for employers, imposition of duties on principals, and an increase in penalties and liability of directors.

Based on current law applicable in 2022, there are generally two categories of employees in Malaysia, namely employees who fall within the ambit of the EA (“EA Employees”) and employees who do not (“Non-EA Employees”). Please refer to 1.1 Main Changes in the Past Year on the how employees are classified. These designations may encompass those who are employed on permanent, fixed-term or part-time contracts and include local workers, foreign workers or expatriates.

EA Employees are statutorily entitled to minimum terms and conditions of employment as prescribed under the EA. Such terms and conditions of employment include stipulations on work hours, days of work, overtime payments, protection from deduction of wages, public holidays, annual leave, sick leave and payment of termination benefits. Any term or condition in an employment contract entered into with an EA Employee which is less favourable than the stipulations under the EA will be void.

The terms and conditions of a Non-EA Employee’s employment contract is largely subject to contract and negotiation between parties barring some compulsory requirements under other employment-related statutes (including but not limited to maternity protection, minimum wages, statutory social contributions and minimum retirement age). Although Non-EA Employees are not legally entitled to the minimum terms and conditions of employment as prescribed under the EA (except maternity protection and provisions on sexual harassment), Non-EA Employees are usually offered the same, if not better, terms and conditions of employment as a matter of good labour practice. However, with the coming into force of the Amendment Order, Non-EA Employees will soon be able to enjoy the minimum statutory requirements under the EA beginning 1 January 2023 unless ineligible. Please refer to 1.1 Main Changes in the Past Year on how eligibility is defined.

Permanent, fixed-term or part-time employment contracts may be entered into with either or both local or foreign employees in Malaysia.

Typically, all employment contracts are produced in writing but need not be in any specific language. EA Employees are statutorily required to be provided with written employment contracts in respect of employment relationships lasting for more than one month.

However, the lack of a written employment contract does not by itself invalidate an employment relationship or the contractual terms.

Maximum Working Hours

Limitations on working hours are only currently statutorily applicable to EA Employees. The limitations are as follows:

• not more than eight hours a day or more than 48 hours a week, or more than five consecutive hours without a break of at least 30 minutes; and
• one whole day of rest each week (rest day).

The new amendments to the EA reduce the maximum working hours for employees from 48 hours to 45 hours and, as a result of the Amendment Order, would be applicable to any person who enters into a contract of service.

Shift Work

There are separate maximum work hours rules for EA Employees engaged in work which by reason of its nature requires it to be carried on continuously or continually, by two or more shifts; ie, shift work. The work hours of these EA Employees may exceed eight hours in a day or 48 hours in a week provided that the average number of hours worked over any period of three weeks is not more than 48 hours per week. A shift worker may not be made to work for more than 12 hours a day.

Under the new amendments to the EA, the applicability of the provision on shift work extends to any person who enters into a contract of service However, employees whose wages are above MYR4,000 will not be statutorily entitled to shift allowance unless eligible.

Flexible Working Arrangement

There are currently no specific laws on flexible working in Malaysia and the same is subject to contract between employer and employee. However, under the new amendments to the EA, an employee may apply in writing to their employer for a flexible working arrangement to vary their hours, days or place of work. Upon 60 days from the date such application is received, the employer shall inform the employee in writing of their approval or refusal of the application. In the case of a refusal, the employer shall state the grounds for refusal. There is, however, no provision to challenge an employer’s refusal or the grounds on which the decision is made.

Overtime

Only EA employees are currently entitled by law to overtime pay. Overtime pay for a monthly paid EA employee is calculated as follows:

• for any work carried out in excess of normal hours of work on a normal day of work – not less than one-and-a-half times the hourly rate of pay;
• for any work carried out in excess of the normal hours of work on a rest day – not less than twice the hourly rate of pay; and
• for any work carried out in excess of the normal hours of work on a public holiday – not less than three times the hourly rate of pay.

Under the new amendments to the EA, any person who enters into a contract of service will be entitled by law to overtime pay as described above unless ineligible.

Work on a Rest Day

Currently, only EA Employees are entitled to additional rates of pay for work performed on a rest day as follows:

• for any period of work that does not exceed half the normal hours of work – half the ordinary rate of pay for work done on that day;
• for any period of work that is more than half but that does not exceed the normal hours of work – one day’s wages at the ordinary rate of pay for work done on that day.

Under the new amendments to the EA, any person who enters into a contract of service will be entitled to additional rates of pay for work performed on a rest day as described above, unless ineligible.

Work on a Public Holiday

An EA Employee is entitled to additional rates of pay for working on a public holiday as follows: in addition to the day’s wages, two days’ wages at the ordinary rate of pay, regardless of whether the period of work done on that day is less than the normal hours of work.

Under the new amendments to the EA, any person who enters into a contract of service will be entitled to additional rates of pay for working on a public holiday as described above, unless ineligible.

Part-Time Employees

The Employment (Part-Time Employees) Regulations 2010 which are applicable to part-time EA Employees provide that the normal hours of work of a part-time employee shall be 70% of the normal hours of work of a full-time employee. Where the normal hours of work of a full-time employee cannot be ascertained, they shall be deemed to be eight hours in one day or 48 hours in one week.

A part-time employee who is required to work beyond their normal hours of work is entitled to overtime pay as follows:

• not less than their hourly rate of pay for each hour or part thereof that exceeds their normal hours of work but does not exceed the normal hours of work of a full-time employee employed in a similar capacity in the same enterprise; and
• not less than one-and-a-half times the hourly rate of pay of the part-time employee for each hour or part thereof that exceeds the normal hours of work of a full-time employee employed in a similar capacity in the same enterprise.

A part-time employee shall be entitled to a rest day each week if they work five days or more with total working hours of not less than 20 hours a week.

A part-time employee who is required to work their normal hours of work on a rest day is entitled to pay as follows:

• not less than two days’ wages at the ordinary rate of pay they are entitled to for that day;
• for work beyond their normal hours of work – not less than one-and-a-half times their hourly rate of pay for each hour or part thereof; and
• for work beyond the normal hours of work of a full-time employee employed in a similar capacity in the same enterprise – not less than twice their hourly rate of pay for each hour or part thereof.

Additional payments will also apply if a part-time employee is required to work their normal hours of work or overtime on any public holiday.

Insofar as part-time Non-EA Employees are concerned, working hours are currently subject to contract between employer and employee.

The Minimum Wages Order 2022 provides that from 1 May 2022, the minimum wage rate payable to an employee is MYR1,500 per month or MYR7.21 per hour.

For employers who employ fewer than five employees (other than an employer who carries out a professional activity classified under the Malaysia Standard Classification of Occupations as published officially by the Ministry of Human Resources), the new minimum wage will only apply from 1 January 2023.

Until then, the current minimum wage will be maintained:

• MYR1,200 per month or MYR5.77 per hour for places of employment within a city council or municipal council area as stipulated under the Minimum Wages Order; and
• MYR1,100 per month or MYR5.29 per hour for places of employment other than the said city council or municipal council area.

Bonuses and increments are subject to contract between employer and employee.

The EA prescribes leave entitlement applicable to EA Employees as set out below.

Public Holidays

EA Employees are entitled to 11 days of public holidays, five of which shall be as follows:

• National Day (the anniversary of Malaysia’s independence);
• the birthday of the Yang di-Pertuan Agong;
• the birthday of the Ruler or the Yang di-Pertua Negeri, as the case may be, of the state in which the EA Employee works or Federal Territory Day,
• Workers’ Day; and
• Malaysia Day.

Employers may decide on the remaining six days of public holiday to be given and are required to inform their EA Employees of what these public holidays will be in advance on an annual basis.

Non-EA Employees are not currently statutorily entitled to paid public holidays and the same is subject to contract. However, as part of standard market practice, Non-EA Employees are usually given all gazetted federal and state public holidays as paid holidays. In fact, it is not uncommon for employers to provide all gazetted federal and state public holidays as paid holidays to all their employees, including EA Employees.

Under the new amendments to the EA, any person who enters into a contract of service irrespective of their wages will be statutorily entitled to the minimum number of public holidays as described above.

Annual Leave

EA Employees are entitled to paid annual leave over 12 months of continuous service as follows:

• 8 days if the EA Employee has been in employment for a period of less than two years;
• 12 days if the EA Employee has been in employment for a period of two years or more but less than five years; and
• 16 days if the EA Employee has been in employment for a period of five years or more.

Non-EA Employees are not currently statutorily entitled to paid annual leave and the same is subject to contract. However, as part of standard market practice, it is not uncommon for employers to provide the minimum requirements of annual leave under the EA, if not better, to their Non-EA Employees.

Under the new amendments to the EA, any persons who enters into a contract of service irrespective of their wages will be statutorily entitled to minimum annual leave as described above.

Sick Leave

EA Employees are currently entitled to the following sick leave:

• 14 days if the EA Employee has been in employment for a period of less than two years;
• 18 days if the EA Employee has been in employment for a period of two years or more but less than five years; and
• 22 days if the EA Employee has been in employment for a period of five years or more.

If hospitalisation is necessary, an EA employee is entitled to 60 days of hospitalisation leave in each calendar year, provided the total number of days of paid hospitalisation and sick leave in a calendar year to which the employee is entitled does not exceed 60 days in aggregate.

Non-EA Employees are not currently statutorily entitled to paid sick leave and hospitalisation leave and the same is subject to contract. However, it is not uncommon for employers to provide the minimum requirements of sick leave and hospitalisation leave under the EA, if not better, to their Non-EA Employees.

However, under the new amendments to the EA, any person who enters into a contract of service will be entitled to minimum sick leave in each calendar year as described above. Such amendments also entail a separation between minimum sick leave applicable in the event of hospitalisation and non-hospitalisation. 

Maternity and Paternity Leave

The EA prescribes that maternity protection under the EA is applicable to all female employees regardless of salary earned. The current maternity protection is 60 days of paid leave, provided that:

• the female employee has been employed by the employer for a period of, or periods amounting in the aggregate to, not less than ninety days during the nine months immediately before her confinement; and
• the female employee has been employed by the employer at any time in the four months immediately before her confinement.

However, under the new amendments to the EA, the paid maternity leave period will be extended from 60 days to 98 days. In addition, a female employee may, with the consent of her employer, commence work at any time during her maternity leave if she has been certified fit to resume work by a registered medical practitioner, regardless of whether she is entitled to receive maternity allowance.

The new amendments further introduce restrictions on termination of a pregnant female employee, where if a female employee is pregnant or is suffering from an illness arising out of her pregnancy, her employer may not terminate her employment or give her notice of termination of employment except on the grounds of wilful breach of a condition of the contract of service, misconduct, or closure of the employer’s business. The employer bears the burden of proving that the female employee’s termination from employment was not premised on the grounds of her pregnancy or an illness arising out of her pregnancy.

There is currently no paternity leave entitlement under the EA. However, under the new amendments to the EA, a married male employee will be entitled to seven days of paternity leave for each confinement for up to five confinement periods, irrespective of the number of spouses (Muslim men are entitled to marry up to four wives under local law), subject to the employee being employed for at least 12 months and having informed his employer at least 30 days before the expected confinement or as early as possible after the birth.

Malaysian law does not provide any entitlement for childcare and infant care leave and the same is subject to contract for EA and Non-EA Employees alike.

Employers may also choose to provide additional employment benefits to their EA and Non-EA Employees even if the same is not prescribed under law, such as medical or health insurance, travel allowances, shift allowances, other various allowances, long service benefits and incentive plans.

Other Typical Employment Contract Clauses

It is common to also include post-termination obligation clauses, intellectual property protection clauses and confidentiality clauses in employment contracts in respect of both EA and Non-EA Employees alike.

Non-competition clauses are not enforceable in Malaysia as the same offends Section 28 of the Contracts Act 1950.

Non-solicitation clauses are enforceable in Malaysia but are subject to proof.

The Personal Data Protection Act 2012 (PDPA) imposes obligations on employers who process personal data to comply with the Personal Data Protection Principles set out in the PDPA. Among other obligations, the employer is required to inform the data subject (the employee) of the personal data that is being processed and obtain the consent of the data subject in most situations where data is collected, processed or disclosed. Consent must be explicitly obtained if sensitive personal data is being processed. The employee also has a right to access and correct their data.

For the purposes of the PDPA, “personal data” is broadly defined as any information that relates directly or indirectly to a data subject, who is identified or identifiable from that information. “Sensitive personal data” is defined as any personal data consisting of information as to the physical or mental health or condition of a data subject, their political opinions, their religious beliefs or other beliefs of a similar nature, and the commission or alleged commission by them of any offence.

The PDPA requires the data subject (ie, the employee) to be provided with a notice in both Malay and English to be informed of certain matters relating to the processing of their personal data and/or sensitive personal data namely:

• that personal data of the data subject is being processed by or on behalf of the data user, and a description of the personal data;
• the purposes for which the personal data is being – or is to be – collected and further processed;
• any information available to the data user regarding the source of the personal data;
• their right to request access to and correction of the personal data and how to contact the data user with any inquiries or complaints in respect of the personal data;

• the class of third parties to whom the data user discloses or may disclose the personal data;
• the choices and means the data user offers the data subject for limiting the processing of personal data, including personal data relating to other persons who may be identified from that personal data;

• whether it is obligatory or voluntary for the data subject to supply the personal data; and
• where it is obligatory for the data subject to supply the personal data, the consequences for the data subject if they fail to do so.

Employers may employ foreign workers and expatriates as part of their work force subject to these employees obtaining and possessing valid work passes to enable their employment in Malaysia. There is currently no fixed limitation on the number of work passes which may be issued to an employer.

Expatriates may work in Malaysia pursuant to Employment Passes, Professional Visit Passes or a Resident Pass – Talent whereas foreign workers who perform low level labour (“Foreign Workers”) must obtain a Visit Pass (Temporary Employment) to work in Malaysia.

With effect from 1 January 2021, employers wishing to employ new expatriates are first required to advertise the vacancy (which is intended to be filled by the expatriate) for at least 30 days on the MYFutureJobs portal and conduct interview programmes in an effort to recruit local talent that fulfils the criteria of the vacancy. However, there are certain exceptions to this advertising requirement, including if the expatriate is to earn more than MYR15,000 or holds a “C-suite” position.

Foreign Workers may only be employed in certain sectors and may only be sourced from certain countries. 

Employers wishing to employ expatriates must first register themselves on the Expatriate Services Division portal. This may also entail companies increasing their paid up capital in order to be eligible to employ expatriates. 

Registered and recognised trade unions may enter into collective bargaining to conclude a collective agreement with the employer in order to achieve more favourable terms and conditions of employment on behalf of all employees falling within the scope of that agreement. 

Malaysian laws do not specifically provide for the existence of employee representative bodies. 

Only registered and recognised trade unions may enter into collective agreements with employers. Collective agreements must be in writing and signed by parties to the agreement. 

The collective agreement shall set out the terms of agreement between parties and must set out the following matters:

• the names of the parties to the agreement;
• the period in which the agreement shall continue to be in force, which shall not be less than three years from the date of commencement of the agreement;
• the procedure for termination and modification of the agreement; and
• the procedure for modification.

The terms of the collective bargaining agreement should not be less favourable than, or in contravention of any provision of, any written laws applicable to the class of workers under the collective bargaining agreement.

A signed copy of the collective agreement is to be jointly deposited by the parties to the registrar within one month from the date on which the agreement was entered into. The registrar will then bring it to the notice of the Industrial Court to take cognizance of the agreement and only upon such cognizance will the agreement come into force and be binding upon all parties, inclusive of those employees who were subsequently employed.

Under local law, notwithstanding the existence of a termination clause in an employment contract, an employee may only be terminated for just cause or excuse. “Just cause or excuse” is not defined by legislation. Generally, misconduct, poor performance and redundancy, amongst others, are accepted as a just cause or excuse for termination.

Notice of termination must be given if the termination is not owing to any misconduct, poor performance or breach of contract by the employee. Salary in lieu of notice may be paid.

Where a notice period is not specifically provided for in an employment contract in respect of EA Employees or where EA Employees will be retrenched, the employer is required to provide a minimum statutory notice period as follows:

• four weeks’ notice if the EA Employee has been so employed for less than two years on the date on which the notice is given;
• six weeks’ notice if the EA Employee has been so employed for two years or more but less than five years on such date;
• eight weeks’ notice if the EA Employee has been so employed for five years or more on such date.

Under the new amendments to the EA, the above minimum statutory notice period will apply to any person who enters into a contract of service.

Severance

Severance pay is currently only statutorily payable in respect of EA Employees as follows:

• 10 days’ wages for every year of employment if the EA Employee has been employed for a period of less than two years;
• 15 days’ wages for every year of employment the EA Employee has been employed for a period of two years or more but less than five years; and
• 20 days’ wages for every year of employment if the EA Employee has been employed for a period of five years or more.

Non-EA Employees are not statutorily entitled to severance benefits but case law dictates that, if the financial position of the employer permits it, and especially if the retrenchment exercise is carried out to increase efficiency and profits, fair and reasonable benefits should be made available. Currently, one month’s salary for each year of service is considered fair and reasonable.

If the employee’s contract of employment provides for more favourable severance pay to be made, the employer should comply with it.

However, under the new amendments to the EA, any person who enters into a contract of service is entitled to severance pay unless ineligible.

Procedure

Approval of a government agency is not required before a dismissal. However, depending on the grounds for dismissal, there are different procedural requirements. The Labour Department must be informed of any termination from employment due to retrenchment or closure of business by submitting a “PK Form”.

Summary dismissal is a dismissal without notice or payment in lieu of notice. Typically, summary dismissals apply in the following circumstances:

• if the employee is guilty of any default or misconduct in connection with or affecting the business of the employer;
• in the event of any breach or non-observance by the employee of the express or implied terms governing their employment including any directive issued by the employer from time to time;
• if the employee becomes a bankrupt or makes any composition or enters into any deed of arrangement with their creditors;
• if the employee is convicted of any criminal offence (other than an offence under road traffic legislation in Malaysia or elsewhere for which a fine or non-custodial penalty is imposed); or
• if the employee becomes of unsound mind.

In cases of summary dismissal due to misconduct, the best practice is to first perform an inquiry by carrying out investigations in a fair manner with no elements of duress, coercion or threat involved; this inquiry should also be properly documented. Based on the investigation, the employee will usually be issued with a “show cause letter” containing allegations of misconduct to which the employee is required to respond. Should the employee’s explanation of the allegations in the said letter be insufficient, an employer may decide to convene a domestic inquiry prior to dismissing the employee or levying other serious punishment. There is no prescribed method of carrying out a domestic inquiry but the same should be conducted in accordance with the rules of natural justice. A domestic inquiry is not statutorily or legally required, but may be contractually required if the employer’s policies provide for the same.

Employers and employees may agree to mutually separate by way of a mutual separation agreement to terminate the employment contract, where as part of the same, the employer offers some compensation in exchange for certain obligations by the employee, including a release of claims or waiver of rights.

Employers may also carry out voluntary separation schemes entailing a termination of employment in which employees are paid some form of compensation in exchange for certain obligations by the employee, including a release of claims or waiver of rights. This is often entered into to avoid mass retrenchments. As part the voluntary separation scheme, a selected group of employees may be invited to apply to be considered for the same. The employer has full discretion on who it wishes to select for the voluntary separation.

There are no specific protections against dismissal for particular categories of employees.

An employee who considers that they have been dismissed without just cause or excuse may file a representation for reinstatement under Section 20 of the Industrial Relations Act 1967. If the employee is successful, they may be awarded:

• up to 24 months’ last drawn salary in back wages; and
• reinstatement or, in lieu of reinstatement, one month’s last drawn salary for each year of service

All employees have a right to be treated fairly and with mutual trust and respect at the workplace and discrimination is not permissible. However, there are no specific statutes or laws that prohibit discrimination.

Employees who lodge a representation for reinstatement pursuant to Section 20 of the Industrial Relations Act 1967 will have their representation heard by the Industrial Court if conciliation cannot be reached between the parties. Employees have 60 days to file such a representation. Alternatively, employees may also file a civil claim for wrongful termination of the employment contract but any award of damages will be limited to the applicable notice period of termination. Civil courts may not award reinstatement.

Class action claims are not recognised in Malaysia. Employees may make claims only on an individual basis for unjust dismissal. However, the courts may hear the matters together.

Parties may agree to a private arbitration of employment disputes but these are very uncommon in Malaysia.

The Industrial Court does not award a prevailing employee/employer attorneys’ fees.