Important Employment Laws in Malaysia

When it comes to setting up business in Malaysia, employers need to ensure compliance with local employment and labour laws, which can be found in:

  • The Employment Act of 1955 (applicable to peninsular Malaysia and the territory of Labuan)
  • The Industrial Relations Act of 1967, with Sabah and Sarawak have their own specific Labor Ordinances
  • The Employment Provident Fund Act 1991 and the Employment (Termination and Lay-Off Benefits) Regulations 1980

Depending on jurisdiction and type of business, businesses might also need to look into:

  • The Employee’s’ Social Security Act of 1969
  • Trade Unions Act of 1959
  • Workmen’s Compensation Act of 1952, the Factories and Machinery Act of 1968
  • The Occupational Safety and Health Act of 1994

To ensure full compliance with employment laws, it is advisable to get a lawyer to look over a company’s hiring procedures and practices.

Employment Act: A Summary

Employers should at least have a basic grasp of the Employment Act 1955, which covers most of the regulations pertaining to employees including:

  • Remuneration structure
  • Minimum hours worked
  • Overtime pay
  • Public holidays and rest periods

In the Employment Act 1955, several basic laws have been set such as:

  • The minimum entitlements of employees (for manual labour or wages not more than RM2,000 a month)
  • Employees cannot be made to work more than five consecutive hours without a rest period of at least 30 minutes, or work more than a ten hour spread over a single day
  • They can also not be compelled to work more than 48 hours a week
  • Part-time employees will be specifically regulated by the Employment Part-Time
  • Regulations

As for other employees, they will be governed by their respective employment contracts.

Amendments to the Employment Act

Several amendments were made to the Employment Act 1955 that came into effect on 1 April 2012. These include:

  • National minimum wage set at RM900 per month in peninsular Malaysia and RM800 in Sabah, Sarawak and the Federal Territory of Labuan
  • Wage threshold that would determine whether the EA applies to a non-manual worker was raised from RM1,500 to RM2,000
  • A new regime to handle sexual harassment complaints
  • An extension of maternity leave entitlements including making it an offence to fire women while on maternity. The law also mandates maternity leave and entitlements to all female employees regardless of pay grade
  • Employers of foreign employees must notify the Director General within 30 days of terminating a foreign employee or if a foreigner absconds from the workplace
  • Liabilities under the Employment Act will now also be extended to individual directors as well as other officers in a firm
  • Employees are entitled to an extra day of pay on “Malaysia Day”, held on September 16 each year to commemorate the establishment of the Malaysian Federation in 1963

Particular Nuances of Malaysian Employment Law

Employers will also need to take note of the following nuances of the Malaysian Employment Law. These include:

  • Non-competition clauses are not enforceable if they cover post-employment periods. This is because Malaysian courts have declared them void for being in restraint of trade, thus ex-employees cannot be legally prevented from joining a competitor
  • Employers can include clauses to prevent ex-employees from sharing their confidential and proprietary information with competitors
  • The establishment of work rules and policies is left up to the employer and this includes probationary periods
  • The need to be diligent where matters of dismissal are concerned to prevent employees from lodging complaints of dismissal “without just cause or excuse”
  • Employers need to properly document instances of negligence or misconduct to support termination decisions

Taking the time to ensure your business complies with local laws might seem tedious at first but will help protect your business’ interests in future.

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