Hire in Malaysia

The registration of work rules is not required. However, it is a recommended practice to establish and implement work rules, company policies, procedures, employee handbooks, etc. These should all be duly acknowledged by employees during the acceptance of an employment offer.

There is no legal requirement in Malaysia to put an employee on probation before they are hired. However, this is recommended as a best practice for hiring in the country. There is also no fixed minimum or maximum probationary period that needs to be imposed. However, a probationary period in the range of three to six months is common. It is a recommended business practice to apply a three-month period for non-executive and non-management employees. For executives and management level employees, it should be a six-month period.

The purpose of instituting a probationary period is to protect the employer in the event an employee covered by the EA brings a complaint of dismissal without justification or excuse. In recent years, the ability for employees to lodge a complaint of dismissal without justification or excuse has led to a series of case law on the legality of termination of employment. If the EAt states there is a probationary clause for the employee, then the confirmation letter or extension letter must be distributed.

Examples of termination include termination for misconduct and termination for redundancy. However, courts will consider the genuine nature of redundancy dismissals and the seriousness of misconduct (e.g. habitual neglect of responsibilities, fraud, dishonesty, etc.) with a high degree of scrutiny. Hence, as a recommended practice, employers should carefully document misconduct. This way, they can furnish evidence and support dismissals prior to any termination decisions. The EA doesn’t distinguish between probationers and confirmed employees. However, case law does provide that there is no “automatic confirmation” as a probationer who has not received a confirmation letter is still a probationer – even if the probationary period has ended and the employer continued to engage the employee.

A probationer will enjoy the same rights as a confirmed employee in Malaysia. Therefore, a probationer’s service must not be terminated without justification or excuse. A probationer continues to be a probationer even at the expiration of the probationary period, if his or her services had neither been terminated nor confirmed at the end of the period.

Retrenchment benefit:

• 10 days wages for employment less than two years
• 15 days wages for employment more than two years but less than five years
• 20 days wages for employment more than five years

The best practice for severance pay is to follow the EA.

Standard working hours must not exceed eight hours in one day or 45 hours in one week. If an employee earns below MYR 4,000 per month, he or she will be eligible for overtime and follow provisions of the EA (maximum 104 hours). If an employee earns more than MYR 4,000 per month, overtime pay will depend on company policy per the contract. For EA employees, overtime should be paid according to when the overtime happened.

• Normal working days: This is to be compensated at 1.5x times the hourly rate of pay.
• Rest days: If the duration does not exceed half the normal hours to work, the employee receives half day’s wages at the ordinary rate of pay. If the duration is more than half but does not exceed the normal hours of work, they are entitled to one day’s wages at the ordinary rate of pay. The rate goes up to 2x the hourly rate of pay if the time exceeds normal hours.
• Public holidays: Work performed on these days are compensated at 2x the hourly rate of pay for the first eight hours. After eight hours is exceeded, this goes up to 3x the hourly rate of pay.

According to the EA, notice periods depend on the employee’s length of service:

• Less than two years: four weeks
• Two to five years: six weeks
• Five years or more: eight weeks

It is always better to provide more than two months of advance notice.

• Termination is generally very difficult in Malaysia.
• Terminating employees without valid reason can constitute unfair dismissal.
• Valid reasons for termination include but are not limited to poor performance and misconduct.
• Employers can decide on the notice period required and have this agreed in the contract of employment.
• In cases where the contract is silent on the length of notice period, the notice must not be less than the following statutory amounts depending on the employee’s length of service:
  • Less than two years: four weeks
  • Two to five years: six weeks
  • Five years or more: eight weeks.
• Court case due to unfair dismissal can lead to a mandatory payment of 24 months’ salary

Employers can include non-compete clauses in employment contracts, but they must meet the exceptions outlined in the Contracts Act 1950. The enforceability of these clauses depends on the reasonableness of their terms, considering geographical limits, duration, and business nature. Employers should avoid restricting general knowledge and skills, but can prohibit the use of confidential information and client lists. Balancing their interests with employee rights is crucial when formulating non-compete clauses.

• Companies in Malaysia usually only pay discretionary performance bonuses
• This is typically equivalent to at least one month’s salary.
• Bonus payment depends on the company’s performance, usually following the financial year end or during festive season

• No special tax rules. There are resident versus non-resident rates
• 30% of taxable income for non-resident rates. The tax calculations will be considered as resident if stay more than 182 days in Malaysia

Common job allowances can be offered in Malaysia, such as parking/petrol allowance, handphone allowance, etc.

These are generally subject to income tax. Basic salary and fixed allowances are taxable.

• Companies should at least cover the general practitioner consultation fees under the company’s medical benefit.
• Depending on the industry, companies may provide accident or life insurance to employees .
• Housing allowance, transport allowance, children school fee, return flight ticket are available for expats.

• In Malaysia, salary is paid once a month. This usually happens any time between the 25th day to the end of month. It must not be paid later than the start of the next pay cycle. A worker is to be paid within seven days following the last day of any wage period, usually a month.
• Payment method: Usually by interbank Giro directly to the employees’ bank accounts or by check.
• Payment is for the current month. Arrears are allowed for special cases (e.g. new joiners who missed payroll cutoff).
• The wages must be paid by end of the day on employee’s officially last day (Termination)

A payslip is usually made available online or in PDF. However, some companies may still give out carbon-sealed payslips.

Required information for the payslip includes but is not limited to the below:

• Company name and address
• Month of payslip
• Staff personal information (e.g. name, employment ID, position/designation, department, date of join, statutory membership numbers)
• Monthly earnings, allowances and deductions
• Year-to-date earnings, deductions and net pay
• Monthly employer’s statutory contributions
• YTD employer’s statutory contributions
• Disbursement details (e.g. employee’s bank account information)

• The use of timesheets will depend on the company.
• Scope: Aspects of effort required to deliver work will depend on the staff’s grade level.

The disbursement of overtime is available to EA employees and employees with agreed contractual terms. This could be a replacement for time off. The common rate for overtime during public holidays is triple the normal rate.

According to Section 60E of the Employment Act 1955, annual leave depends on length of service:

• Less than two years: eight days per 12 calendar months
• More than two years but less than five years: 12 days per 12 calendar months;
• More than five years: 16 days per 12 calendar months

Note: Companies can provide more than the above provision by Law.

Annual leave can be prorated if an employee has worked less than a full year in that calendar year

Some companies practice prorated or earned leave on a quarterly basis.

Approval from immediate superior before utilization of annual leave can be required.

Carry-over rule for unused leave: This will depend on company policy. Some employers do not allow for unused leave to carry forward. If the practice is allowed, the leave must be utilized within a specified period. Otherwise, it will be fortified.

Employers are required to pay out unused leave only in the case of termination or resignation.

If hospitalization is not required, the allowed time for sick leave depends on the employee’s length of service:

• Less than two years: 14 days
• More than two years but less than five years: 18 days
• More than five years: 22 days

The Amendment Act of 2022 provides a full 60 days of hospitalization leave in a calendar year on top of standard sick leave. The provision of sick leave remains unchanged.

A medical certificate is required for all occasions related to sick or medical leave.

• All female employees, including non-EA employees, are entitled to 98 consecutive days of paid maternity leave for the birth of up to five surviving children.
• Paternity leave: A married male employee is entitled to 7 days of paid paternity leave for each birth, up to 5 births (irrespective of the number of spouses).
  The male employee must have worked for the same company for at least 12 months before paternity leave can begin. He must also have told his employer about his wife’s pregnancy at least 30 days before she is due to give birth or as soon as possible after the baby is born.
• Maternity leave is granted upon giving birth or the 22nd week of pregnancy (in case of premature birth).

The following types of leave may be given at the discretion of the employer:

• Marriage leave
• Compassionate leave
• Examination leave

Trade unions are usually relevant to manufacturing and banks. There are no general requirements.