Hiring tech talent in Malaysia offers numerous benefits for organizations. The country's rich talent pool, technological infrastructure, and attractive business environment make it an appealing destination. However, it's equally important to understand and comply with the employment laws in Malaysia, ensuring a seamless contract of service experience for both employer and employee. In this comprehensive guide, we delve into the key aspects of employment laws in Malaysia, providing vital insights for tech individuals building remote or distributed teams.

Main Sources of Employment Law in Malaysia

When navigating the employment landscape in Malaysia, several statutory instruments form the legal backbone governing employment matters. The fundamental employment law in Malaysia - the Employment Act (EA) provides stipulations regarding employment terms and conditions such as basic wages, monthly minimum wage, annual leave, paid maternity leave, the minimum standards of working conditions in Malaysia, termination of employment contracts, and anti-discriminatory activities. Coupled with other employment regulations, these laws ensure that there is a structure for the protection of employees and for fostering a better employer-employee relationship in Malaysia.

The main sources of employment law in Malaysia are:

1. The Employment Act 1955 (EA): The EA is the fundamental legislative document relating to employment matters in Malaysia. It sets forth the minimum standards for working conditions and terms of service, which include normal working hours, employment contracts, wage payments, rest periods, and termination notices, amongst other things. It is noteworthy that the EA primarily applies to 'employees,' a term legally defined to include any person whose earnings do not exceed a certain monthly limit or are engaged in manual labor.
2. Industrial Relations Act 1967 (IRA): The IRA addresses matters concerning trade disputes, trade unions, and industrial court matters. It offers a framework for dispute resolution between employers and employees, such as cases of unfair dismissal. The IRA also governs the recognition of trade unions and collective agreements.
3. Occupational Safety and Health Act 1994 (OSHA): The OSHA provides for the regulation of workplace safety and health, aiming to prevent occupational accidents and diseases.
4. Employees Provident Fund Act 1991 (EPFA): The EPFA provides for compulsory contributions from employees and employers towards a retirement fund.
5. Employees’ Social Security Act 1969 (SOCSO): SOCSO outlines the social security scheme for employees, providing benefits to employees and their dependents in the event of employment-related accidents or occupational diseases.
6. Minimum Retirement Age Act 2012 (MRAA): The MRAA sets the minimum retirement age at 60 years for private sector employees, providing protection against age-based termination.

In addition to these primary sources, several other laws address specific employment-related areas, including data privacy regulations and maternity leave regulations.

Employment Contracts in Malaysia

Unlike other countries, the Malaysian Employment Act (EA) makes provision for employment contracts in the country. It states that every employment beyond a one-month probationary period has to be formalized via a written contract. Also, the employment contract in Malaysia must clearly outline features such as the employee's job description, nature of work, compensation packages, benefits, and other details that cover the employee's health and safety. It must also be duly signed by both parties.

A typical employment contract in Malaysia should include details such as:

• Nature of work: The employment contract must clearly outline the job description, responsibilities of the employee and their job title.
• Compensation package: The employment contract provided must highlight details about the employee's remuneration, such as bonuses, salary, benefits and other forms of payment for service rendered.
• Working Hours: Clear information about the expected work hours per day or week.
• Leave Entitlements: Details about annual leave, sick leave, and other forms of leave.
• Termination Clause: Conditions under which the contract can be terminated by either party.

Having a well-drafted contract can prevent potential disputes in the future. A Sample Letter of Agreement can be used as a reference for drafting these contracts.

However, no matter how comprehensive, employment contracts can't contravene Malaysia's employment laws. For instance, they can't provide less than the minimum rights and protections granted by the Employment Act 1955 and other relevant laws.

Key Provisions of The Employment Act

As a fundamental piece of Malaysian legislation, the Employment Act of 1955 makes provisions for the statutory rights of employees and governs the employment relationship between an employer and employee in Malaysia. It makes provisions for employment conditions such as leave policies, work hours, holidays, statutory compensation, etc. The following are some of the essential provisions of the Malaysian Employment Act.

Working hours

Since January 2023, the official regular work hours in Malaysia, according to the Employment Act, are eight hours daily and 45 hours per week. Also, according to Section 59 of the EA, employees in Malaysia are entitled to a paid rest day every week. This paid rest day is a whole day and is typically determined by the employer or organization.

Overtime

According to Section 60A of the Employment Act 1955, any work carried out outside the official hours of work number must be classified as overtime. Accordingly, employees shall be paid nothing less than 1.5 times their regular hourly rate.

Statutory contributions

Malaysia's employers must make specific contributions regardless of the employee's type of employment. Common statutory contributions in Malaysia include the Employee's Provident Fund (EPF), Social Security Organization (SOCSO), and Employee Insurance System (EIS).

Wages and payment of salaries

According to Section 19 of the Employment Act 1955, employers in Malaysia must pay their employees wages and salaries by the 7th day after the last wage period day. The wage paid will typically exclude the statutory deductions according to the EA

Leave Rights in Malaysia

In Malaysia, the Employment Act 1955 provides comprehensive provisions for various types of leave, ensuring employees have the opportunity to rest, rejuvenate, and attend to personal matters while maintaining their employment status. These leave rights strike a healthy balance between work and personal life, a factor crucial to job satisfaction and productivity.

Paid Annual Leave

Under the Act, employees are entitled to paid annual leave. The number of days varies depending on the length of service. Employees with less than two years of service are entitled to a minimum of eight days. This increases to twelve days for employees who have served between two and five years. For those with over five years of service, the minimum paid leave is sixteen days. This progressive structure acknowledges and rewards the loyalty and commitment of long-serving employees.

Sick Leave

In terms of sick leave, the Act stipulates that employees are entitled to paid sick leave if they have been certified as unfit for work by a registered medical practitioner or by a dental surgeon. The Sick leave is paid in accordance with the employee's years of employment in the organization. for instance, if an employee has worked in an organization for less than two years, they are entitled to 14 days of paid sick leave in a year. If the employee's years of service are between two to five years, 18 days of paid sick leave is provided. In that same light, if an employee has worked for more than five years, they are entitled to 22 days of paid sick leave in a year.

Maternity Leave

Maternity leave is a significant provision in the Act. Female employees are entitled to a minimum of sixty consecutive days of maternity leave. This leave can be taken before or after the delivery but must include the day of childbirth. The Act also stipulates that female employees are entitled to maternity allowance during this period.

Other Leave Provisions

In addition to these primary leave types, the Act provides for other forms of leave such as public holidays, hospitalization leave, and compassionate leave. The specific provisions can vary and should be detailed in the individual employment contract.

Types of Workers Protected by The Employment Act 1955

According to the First Schedule of the Malaysia Employment Act, the following are the type of employees covered by the EA in Malaysia:

1. Employees whose wages are less than RM 2000 per month
2. Employees whose wages exceed RM 2000 per month but who either perform manual labor, operational maintenance of heavy machinery or supervise employees engaged in manual labor.

Misclassification of employees as independent contractors can lead to penalties, as discussed here.

Data Privacy in Malaysia

Data privacy is taken seriously in Malaysia, governed by the Personal Data Protection Act 2010 (PDPA). Employers are required to adhere to these regulations, which protect employees' personal data. Tech talents and remote teams should be aware of these obligations to avoid common legal troubles.

Ensure Compliance in Malaysia with Skuad

Maintaining compliance with the employment laws in Malaysia not only shields your organization from unnecessary penalties but also fosters a harmonious and productive work environment.

As a comprehensive Employer of Record platform, Skuad enables businesses to legally hire, onboard, and manage contractors and employees in more than 160 countries, including Malaysia. With Skuad, you can leave behind the worry of legal risks and penalties, as it assures your organization is perfectly in tune with the distinct laws and regulations of each country. Discover more about what Skuad can offer by scheduling a demo today.

FAQs

What are the common law duties of employers in Malaysia?

The common law of employers in Malaysia is a responsibility to care for and protect their employees by providing a safe place and system of work. It involves having the employers take intentional steps to ensure the health and safety of employees in the organization.

What is the law of discrimination at work in Malaysia?

Section 69F of the Malaysia Employment Act enables the labor department to inquire and mediate any dispute between employees and their employer regarding matters relating to discrimination in the workplace. If any party is found guilty, they are liable to a fine of about RM 50,000.