Employment Act 1955 (Act 265) – Malaysian Labour Laws

The Employment Act 1955 is a vital piece of legislation in Malaysia that governs the conditions of employment for workers. It sets out the rights and obligations of both employers and employees. The Act was enacted on 1st June 1955 (F.M. Ordinance No. 38 of 1955) and has since undergone several amendments to keep up with the evolving needs of the workforce. The most recent amendment to the Employment Act in Malaysia was made in 2022, which came into effect on 1st January 2023. These changes include increasing the salary threshold for coverage under the Act, extending maternity leave, introducing paternity leave, and implementing provisions to address sexual harassment in the workplace.

Objective

The objective of the Employment Act 1955 is to provide a comprehensive framework for regulating various aspects of employment, including terms and conditions, benefits, and protections for employees. The Act plays a crucial role in protecting the rights of employees and ensuring fair treatment in the workplace. It also ensures that employees receive fair and reasonable terms and conditions of employment. This includes provisions for working hours, rest days, overtime pay, public holidays, and annual leave. In addition, the Employment Act 1955 also sets guidelines for termination of employment, including notice periods and severance pay. Thus, The Employment Act 1955 also plays a crucial role in promoting social justice and protecting vulnerable groups, such as women and young workers.

The Importance of the Employment Act 1955

• regulates relations between employers and employees;
• legislates various terms and conditions of employment;
• set out the minimum terms and conditions that employer and employee can agree upon*; and
• penalties for non-compliance.

*If an employer and employee agree on terms and conditions which are BELOW the minimum standard set out in the EA, then such agreement is INVALID. All provisions in the contract that does not follow the minimum standard will be automatically replaced by the minimum standards set by the EA.

Employment Act 1955: Application

The Employment Act 1955 covers various categories of employees, including those in the private sector earning less than a certain salary threshold. However, It must be noted here that Employment Act 1955 applies only to West Malaysia and Federal Territories, including Labuan. Employers and Employees in Sabah & Sarawak are governed by different set of laws, namely Sabah Labour Ordinance [Cap. 67] and The Labour Ordinance (Sarawak Cap 76) [Refer diagram below].

 

Sub-section 1(2) stated:
“This Act shall apply to West Malaysia and the Federal Territories (including FT Labuan) only”.

Scope of Coverage

This is very important as the Employment Act 1955 (EA) and the Labour Ordinance of Sabah & Sarawak apply only to certain categories of employees. As for the EA, it is crucial to check Section 2 of the EA which defines the word ‘employee‘.

Section 2 – Interpretation:

“employee” means any person or class of persons –

(a) included in any category in the First Schedule to the extent specified therein; or

(b) in respect of whom the Minister makes an order under subsection (3) or section 2A;

Now refer to the First Schedule of the EA below:

The Employment (Amendment) Act 2022 came into force on 1st January 2023. With effect from that date, the Minister of Human Resources amended the First Schedule and increased the scope of the Act from persons earning not more than RM 2,000 (previously) to all persons engaged under a contract of service. This was indeed a quantum leap benefiting all employees in the country. Nonetheless, the interests of employers were safeguarded by limiting entitlement to payments for overtime work on rest days and public holidays, and termination benefits to those earning up to RM 4,000 [Refer to Schedule 1 above, in the right column]. One of the greatest benefits that all employees, irrespective of salary, will enjoy is access to the Labour Court.

Definition of Wages

Since employees earning more than RM4,000 are excluded from several benefits provided under the EA, it is important to look at the definition of ‘wages‘ under the Act. For the purposes of the First Schedule, “wages” means wages as defined in section 2 but shall not include any payment by way of commissions, subsistence allowance, and overtime payment (Section 3 of the First Schedule).

Under section 2 of the Employment Act 1955, the term “wages” means basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but does not include —

Manual Labour

Manual labourers are entitled to all benefits under the Act, irrespective of the amount they earn in a month, as long as they are employed under a contract of service. The First Schedule provides some explanations on who is categorised under manual labour. Refer below:

However, the Employment Act does not provide a clear definition of what constitutes manual labour. Hence, it is up to the court to interpret the meaning of this term. The leading case for this is Colgate Palmolive (M) Sdn Bhd v Cheong Foo Weng & 12 Ors (and Another Appeal) [2002] 2 AMR 2107. The court in this case defines manual labour as:

Manual labour involves physical exertion as opposed to mental/intellectual effort. Thus it is not manual labour if “the real labour involved is labour of the brain and intelligence”. Whilst all manual labour would entail some manual work, it cannot be readily assumed that the person performing the manual work is a manual labourer and further it cannot also be accepted that the person is in law “engaged in manual labour“. The test to determine whether or not a person is “engaged in manual labour” is: “what is the substantial/dominant purpose of the employment, to the exclusion of the matters which are incidental or accessory to the employment”. It is therefore essential to determine whether the work in question is purely physical in nature, as opposed to work which has a physical/manual content but which is really dependent upon acquired skill, knowledge or experience.

A more straightforward approach can be found in the case of Syed Ibrahim Syed Mohd & Ors v ExxonMobil Exploration & Production Malaysia Inc [2014] MLRHU 1458. So long as more than half of the time an employee’s work involves manual labour, they are deemed an employee under the Employment Act, irrespective of their position, job scope, skills, knowledge, and salary. When an employee’s tasks are mostly done by hand, often repetitious in nature, carried out to specified instructions, and completed at specified intervals, they are considered engaged in manual labour.

Domestic Servant

Domestic Servant** means a person employed in connection with the work of a private dwelling-house and not in connection with any trade, business, or profession carried on by the employer in such dwelling-house and includes a cook, house-servant, butler, child’s nurse, valet, footman, gardener, washerman or washer-woman, watchman, groom and driver or cleaner of any vehicle licensed for private use; [Sec 2 of the EA]

Domestic Servants** do not enjoy protection of several provisions under  PART XII. Meaning, employers are not bound to pay them OT or give them paid annual leave. They also are deprived of other protections as well. Refer to the above table again.

Contract of Service

Under the EA, employee refer to those employed under contract of service. Differentiate it with ‘contract for service‘.

“Contract of Service” means any agreement, whether oral or in writing and whether express or implied, whereby one person agrees to employ another as an employee and that other agrees to serve his employer as an employee and includes an apprenticeship contract; [Section 2, EA]

Prior to the recent amendment to the Employment Act 1955, there was no guideline provided by the Act as to what type of employment falls under a contract of service. Hence, the court had to interpret its meaning, and this interpretation seems to have been adopted into the EA. A new section (Section 101C) was inserted into the Act and acts as guidance to determine whether an employee is employed under a contract of service or not. The new section aligns with the many decisions made by the court regarding the presumption of an employee and employer relationship under a contract of service.

Section 101C o the Employment Act 1955:

Presumption as to who is an employee and employer

101C. (1) In any proceeding for an offence under this Act, in the absence of a written contract of service relating to any category of employee under the First Schedule, it shall be presumed until the contrary is proved that a person is an employee —

Foreign Workers, Probationers & Apprentices

The Employment Act 1955 also covers foreign workers, and employees under probation including artisans and apprentices as long as they satisfy the criteria above.

So, please be careful! Before you deny your Indonesian workers their public holidays, do read the provisions in EA again.

Minimum Requirement Under Employment Act 1955

As stated above EA set minimum standard/requirement for an employment contract. When drafting an employment contract or setting up terms of employment, the employer cannot give the employee terms that are below than what is stated in the EA. Employers are not prohibited however to give better terms to their employees.

What are the minimum standards?

The minimum standard can be found in several provisions under the Employment Act 1955 and its Regulations made thereunder. Among the most important provisions are:-

• Hours of Work [Section 60A]
• Rest Day [Section 59]
• Notice of termination [Section 12]
• Wage period [Section 18]
• Holidays [Section 60D]
• Annual Leave [Section 60E]
• Sick Leave [Section 60F]

Working Hours

Section 60A of the Employment Act 1955 deals with hours of work or employees’ working hours as permitted by the Act. Sub-section 9 states that “For the purposes of this Part, ‘hours of work‘ means the time during which an employee is at the disposal of the employer and is not free to dispose of his own time and movements.” Additionally, all employees (including those on paid piece rate) shall not work more than the legal maximum hours; overtime hours are worked on a voluntary basis, and employees shall have at least one day off in seven.

Maximum Working Hours

Effective January 1, 2023, the maximum working hours per week have been reduced from 48 to 45. This applies to all employees covered under the EA 1955, regardless of whether they work shifts or not. [Section: 60A. (1) (d)]

Daily Working Hours

The daily working hours should not exceed 8 hours per day. It’s important to note that this excludes meal breaks [Section: 60A. (1) (b)]. However, an employee shall not be required to work for more than five consecutive hours without a period of leisure of not less than thirty minutes duration [Section: 60A. (1) (b)].

Spread-over Period

The maximum spread-over period, which refers to the total time an employee spends at work, including breaks, cannot exceed 10 hours per day. This helps ensure employees have sufficient rest periods within a workday [Section: 60A. (1) (c)].

These are the general rules set by section 60A. It must be read together with the provisos of this section and other related sections.

Overtime

Number of hours of work carried out in excess of the normal hours of work per day is considered overtime [Section: 60A. (3) (b)]. Employers must obtain employee consent for overtime work, arrange the schedule properly, and compensate them accordingly. In certain circumstances, the employee may reject the request to do overtime. [Read HERE]

For any overtime work carried out in excess of the normal hours of work, the employee shall be paid at a rate not less than one and half times his hourly rate of pay irrespective of the basis on which his rate of pay is fixed [Section: 60A. (3) (a)].

Understanding the revised working hour regulations outlined in the amended EA 1955 is crucial for both employers and employees in Malaysia. Employers must adhere to these guidelines to ensure compliance with the law and protect employee rights. Employees should be aware of their limitations and entitlements regarding working hours and overtime work.

Rest Day

The Employment Act 1955 (EA 1955) guarantees employees in Malaysia the right to weekly rest days. Every employee covered under the EA 1955 is entitled to one rest day per week [Section: 59. (1)]. This means they are not obligated to work on a designated day each week. Note that the Act does not specify which day should be designated as the rest day. Employers have the discretion to determine the rest day in consultation with their employees, considering operational needs and employee preferences. In cases where an employee is allowed more than one rest day in a week, the last of such rest days shall be the rest day for him.

Proviso:

Employee who required to work during his rest day will be paid a higher rate as set out in the EA.

Public holidays

Public holidays in Malaysia offer a vibrant tapestry of cultural and religious observances, providing much-needed respite from the daily grind. Malaysia maintains a distinction between federal and state holidays. Federal holidays, like National Day and Labour Day, are observed nationwide, while state holidays, such as the birthday of the state ruler, vary across regions. Under the Employment Act 1955, employees are guaranteed a minimum of five fixed paid public holidays: National Day, Yang di-Pertuan Agong’s Birthday, birthday of the relevant state ruler/governor, Labour Day, and Malaysia Day [Section: 60D. (1)].

The Act also empowers employers to choose the remaining six paid public holidays from a gazetted list, offering greater flexibility in aligning holidays with regional or industry-specific needs. However, this discretion comes with the responsibility of providing transparent communication to employees before the start of each calendar year. This ensures clarity and avoids potential disputes regarding holiday entitlements.

Every employee shall be entitled to a paid holiday at his ordinary rate of pay on 11 gazetted public holidays in any one calendar year. An employee who is required to work on a paid holiday shall be paid a higher rate as set out in the EA.

Annual Leave

Annual leave is a crucial aspect of employment, allowing employees to recharge and maintain work-life balance. In Malaysia, the Employment Act 1955 governs various employment matters, including annual leave entitlements.

An employee shall be entitled to paid annual leave of:

• 8 days for every 12 months of continuous service with the same employer if he has been employed by that employer for a period of less than 2 years;
• 12 days for every 12 months of continuous service with the same employer if he has been employed by that employer for a period of 2 to 5 years;
• 16 days for every 12 months of continuous service with the same employer if he has been employed by that employer for a period of 5 years or more

The EA does not provide:-

1. Procedure to apply for the leave;
2. Provision for emergency leave;
3. The practice of carrying forward the unused leave.

Any employee who absents himself without permission, commits misconduct.

In a situation where the employee has applied for leave and then was rejected, at the end of the year the employer is required to pay the employee one day’s pay for every day due to him.

Sick Leave

Sick leave is a crucial employee benefit in Malaysia, allowing individuals time to recover from illness without financial worry. Under the The Employment Act 1955, specifically Section 60F, mandates minimum sick leave entitlements based on an employee’s service duration:

• Less than two years: 14 days per year
  Two to five years: 18 days per year
  More than five years: 22 days per year

It’s crucial to note that these are minimums, and employers can offer more generous sick leave policies exceeding these requirements.

A significant amendment came into effect on 1st January 2023, clarifying the distinction between sick leave and hospitalization leave. Previously, both were combined under the umbrella of “sick leave.” Now, employees requiring hospitalization are entitled to 60 days of separate hospitalization leave in addition to their regular sick leave entitlement. This amendment offers greater clarity and ensures employees receive adequate leave during extended hospital stays.

FREQUENTLY ASKED QUESTIONS:

Q: If an employee falls sick and gets an MC from the doctor when he is on annual leave, can the annual leave be substituted with the sick leave?

A: The annual leave is considered as not taken.

Q: Are employees entitled to paid sick leave when they had an accident?

A: Employees are not entitled to paid sick leave for the period in which they are entitled to disability compensation under the Workmen’s Compensation Act 1952 or the periodic payment for temporary disability under the SOCSO Act 1969.

Maternity Leave

Maternity leave is a crucial support system for new mothers in Malaysia, allowing them time to recover from childbirth and bond with their newborns. Prior to the 2022 amendment, Malaysian women were entitled to 60 days of paid maternity leave. However, effective 1st January 2023, the Employment Act now grants mothers 98 days of paid maternity leave, significantly extending the recovery and bonding period. This change aligns with international best practices and reflects the government’s commitment to supporting working mothers.

Mothers can choose to commence their leave 30 days before their expected due date or on the day following childbirth. This flexibility allows them to personalize their leave based on individual needs and medical advice. However, it’s essential to notify the employer at least 60 days prior to the expected confinement date to ensure smooth scheduling and workload management.

During their leave, mothers are entitled to a maternity allowance, typically calculated based on their average monthly salary. This allowance can be paid by either the employer or the Social Security Organization (SOCSO) depending on the employee’s eligibility criteria.

Termination of Contract

Under the EA, either party to a contract of service may at any time give a termination notice in writing, and the notice period shall not be less than:

• 4 weeks for employment less than 2 years;
• 6 weeks for employment between 2 to 5 years;
• 8 weeks for employment more than 5 year

For employer, it is still subject to the requirement under IRA.

Other provisions in the Employment Act 1955

There are many more important provisions in the Employment Act 1955 that can be read HERE.

Salary/Wages

One of the basic rights under the Employment Act is the salary or wages. It must be paid on time and in accordance with the Act’s provisions, with no deductions other than those lawfully permitted under the Act.

Note To Employees

If your employer fails to adhere to the minimum standard set by the EA, please make your complaint to the nearest Labour Department (Jabatan Tenaga Kerja). Nonetheless, it is always a good practice to meet your boss first and discuss the matter internally. In most cases, once the report has been made to the Labour Department, the relationship will turn sour and will affect the employee more than the employer. For unfair dismissal case, please report to the Industrial Relations Department within 60 days after the termination of your contract. Read more HERE (in BM).

The Minimum Wage

Minimum wage is not set under the EA 1955. It is regulated under a different set of law, namely The National Wages Consultative Council Act 2011 (Act 732). For full background on the Minimum Wage and implementation of Minimum Wage 2016, please refer to my paper published at Academia.Edu here: The Minimum Wage Order 2016.

As from 1 July 2023, the minimum wage rates payable to an employee throughout Malaysia are as follows:

For an employee who is not paid basic wages but is paid wages based only on piece rate, tonnage, task, trip or commission, the rate of monthly wages payable to that employee shall not be less than RM1,500.

Employees Provident Fund And Socso

Both are MANDATORY but are regulated under different laws. EPF is governed by the Employees Provident Fund Act 1991 and Socso by the Employees’ Social Security Act 1969. Employees who are unsure whether their employers have made the contribution should check with EPF and Socso.

As such any complaints regarding the above should not be made to the Department of Labour but directly to the EPF and Socso office.

Retirement Age

The minimum retirement age for public sector is currently 60 as set out by the The Minimum Retirement Age Act 2012 which was gazetted on 16 August 2012 and was enforced on 1 July 2013.

The Act states that the minimum retirement age of an employee shall be upon the employee attaining the age of 60 years. The employers may fix a retirement age for their employees which is higher than 60.

It is well settled that when there exist a ‘retirement age’ clause in a contract of employment, an employee’s contract may be terminated upon him reaching the specified retirement age.

So what happens if it is not stated in the contract?

This omission is often normally caused by the employer’s and employee’s failure to give thought to the latter’s retirement.

Without the clause, the employee may report for unfair dismissal if he is asked to retire upon reaching 60 years old. This is especially when the employer has no track record for retiring employees and retires an employee for the first time.

Read: Colgate Palmolive (M) Sdn. Bhd. v Yap Kok Foong [2001] 3 CLJ 9