The Malaysia Employment Act, also known as Employment Act 1955 (EA), plays a significant role in Malaysian employment law. At the beginning of 2023 an amendment went into effect in response to changes in the cost of living, currency values, and other developments, to enhance employee protection in Malaysia. This amendment also included key changes to the First Schedule, which defines the categories of employees covered by the Malaysia Employment Act 1955.
With the implementation of the bill coming into effect in January 2023, there’s been wide-spread confusion on exactly what and how the changes should be implemented. Here, we’ll break down the important changes that HR managers in Malaysia should be aware of to remain in compliance with the Employment Act.
Key Amendments to the Malaysia Employment Act
1. Coverage Based on Wages
EA 1955 now covers all employees, regardless of their wages. Previously, the Act only applied to employees earning monthly salaries of RM2,000 or less, along with specific worker categories.
Amendments to the Act’s First Schedule mean that all employees, regardless of their salary, are now covered. However, those earning above RM4,000 per month are exempted from certain provisions, including:
- overtime rates for rest days
- overtime rates outside working hours
- allowances for shift-based work
- overtime on public holidays
- overtime for half working days on holidays.
This change provides legal protection to employees who were previously not covered by the Malaysia Employment Act.
2. Flexible Working Arrangements
The amended Malaysia Employment Act now includes provisions for flexible working arrangements, which are important in the post-pandemic business landscape. Under Section 60P and 60Q, employees can request flexible work arrangements in writing, and employers must respond within 60 days, providing reasons in case of rejection.
3. Maximum Working Hours
The maximum working hours for workers have been reduced from 48 hours per week to 45 hours per week, effective January 1, 2023, excluding meal breaks. This change aims to protect workers’ welfare and aligns with the International Labour Organization (ILO) Convention.
4. Increased Paid Parental Leave
Maternity leave entitlement for working mothers has increased from 60 days to 98 days post-delivery.
For the first time, the Act includes paid paternity leave of 7 consecutive days, subject to the following conditions:
- The male employee must be married to the mother in question
- He must have been employed by the same employer for at least 12 months
- He must notify the employer at least 30 days from expected confinement (or as early as possible)
5. Protection for Expectant Mothers
Pregnant mothers and those suffering from pregnancy-related illnesses are now protected against termination under the updated Malaysia Employment Act, with exceptions for:
- Breach of contract
- Business closure.
6. Protection for Gig Workers
A new section in the Malaysia Employment Act covers gig workers, providing them with protection even in the absence of a written contract, under the following conditions:
- Their manner of work is subject to the control or direction of another person
- Their hours of work are subject to the control or direction of another person
- They are provided with tools, materials or equipments by another person to execute work
- Their work constitutes an integral part of another person’s business
- Their work is performed solely for the benefit of another person, or where payment is made to them in return for work done by them at regular intervals
7. Sexual Harassment Awareness
Section 81H of the Malaysia Employment Act requires employers to display notices raising awareness about sexual harassment in the workplace.
8. Employment of Foreign Workers
Changes to Section 60K now require employers to obtain prior approval from the Director-General to hire foreign employees and notify the Director-General within 30 days if foreign employees are terminated. Previously, employers who hire foreign employees were required to inform the Director-General of new foreign employees along with details within 14 days of employment.
Frequently Asked Questions About the Malaysia Employment Act
What is considered “wages”?
To determine which employees qualify for wages up to RM4,000 per month, it is essential to understand the specific definition of “wages” under the Malaysia Employment Act. According to the EA, “wages” include basic wages and all cash payments to an employee for their work under the contract of service. However, it does not include the following:
- The value of housing, food, fuel, light, water, medical care, approved amenities, or services provided by the employer.
- Contributions made by the employer to pension funds, provident funds, superannuation schemes, and other similar funds for the employee’s benefit.
- Traveling allowances or concessions.
- Payments to cover special expenses related to the employee’s job.
- Gratuity paid upon discharge or retirement.
- Annual bonuses or any portion thereof.
Employers must fully comprehend this definition and the exclusions when determining which employees fall under the Malaysia Employment Act’s provisions.
How does the EA define “overtime”?
The Malaysia Employment Act defines “overtime” in two key sections:
- Section 60A(3)(b) of the EA defines overtime as the hours worked beyond the normal daily working hours. If work extends beyond ten hours after the initial spread over period, the entire duration from the end of the spread over period to the end of the workday is considered overtime.
- Section 60A(3)(c) of the EA specifies that “normal hours of work” are the hours mutually agreed upon by the employer and employee in their contract of service, which cannot exceed the limits set in Section 60A(1).
Based on these sections, overtime is any work done outside the hours stated in the employment contract. However, the hours in the contract are subject to the restrictions outlined in Section 60A(1), which now includes limits such as not working more than 5 consecutive hours without a 30-minute leisure break and not exceeding 45 hours in a week.
How to determine when employees are entitled to overtime payments?
Employees on a monthly wage are entitled to overtime payments in the following situations, along with the respective formulas/rates:
- Working more than the normal working hours on a regular workday: 1.5x the hourly rate of pay [Section 60A(3)(a)].
- Working on a rest day, with the work period not exceeding half the normal working hours: 0.5 times the ordinary rate of pay [Section 60(3)(b)(i)].
- Working on a rest day, with the work period exceeding half but not exceeding the normal working hours: One day’s wages at the ordinary rate of pay [Section 60(3)(b)(ii)].
- Working on a rest day beyond the normal hours of work: 2x the hourly rate of pay [Section 60(3)(c)].
- Working on a public holiday, with the work period not exceeding normal working hours: Two days’ wages at the ordinary rate of pay [Section 60D(3)(a)(i)].
- Working on a public holiday beyond the normal hours of work: 3x the hourly rate of pay [Section 60D(3)(aa)].
How to Calculate an employee’s “ordinary rate of pay” and “hourly rate of pay”
Overtime rates depend on the “ordinary rate of pay” and “hourly rate of pay,” which the Malaysia Employment Act defines. For employees paid on a monthly rate of pay:
- The “ordinary rate of pay” is their monthly wages divided by 26.
- The “hourly rate of pay” is the ordinary rate of pay divided by their normal daily working hours.
For example, if an employee’s monthly salary is RM3,900 and their employment contract requires them to work 8 hours a day, they would have:
- An ordinary rate of pay of RM150 (3900/26).
- An hourly rate of pay of RM18.75 (150/8).
To-Do List for HR Teams
Due to the recent amendments to the Malaysia Employment Act, employers who were not previously concerned with overtime payment regulations now need to take action. Here are some essential steps:
- Review all employee salaries to identify those covered by the revised Malaysia Employment Act and eligible for overtime payments, considering the “wages” definition mentioned earlier.
- Examine existing and future employment contracts to ensure clear specification of working hours for all employees, aligning with the EA’s working hour limits. These contractual hours will be used for calculating overtime payments.
- Establish a clear overtime policy to prevent unnecessary or excessive overtime claims.
- Implement a system for recording and calculating overtime work and payments, retaining records for at least 6 years.
Seamlessly Manage Employee Records and Payroll
HR managers have their hands full, and the recent amendments to the Malaysia Employment Act add yet another layer of responsibility to their already existing workload. Tracking and calculating hours, managing employee records, and administering payroll requires a clear, secure, and accurate system to ensure compliant and timely payouts for your employees.
Omni’s all-in-one HR solution helps make these tasks streamlined and free of manual error to reduce the administrative burden on HR. With secure and centralized employee records, HR teams can easily store, update, and communicate employee information across departments and with employees. Our payroll solutions make it easier than ever to calculate accurate employee payments and tax calculations through automation that saves time and reduces errors. And with automated payroll information synchronization, end of month processing becomes a streamlined and seamless effort.