Employment Law in Malaysia

An Expert's View about Dispute Resolution in Malaysia

Posted on: 21 Jun 2012

This article defines the nature of employment in Malaysia citing laws within contract of service by explaining the employer’s duty and revealing the mechanism for settling disputes.

Azmi & Associates: Article Submission to GlobalTrade.net For online publication: June 2012 EMPLOYMENT LAW IN MALAYSIA 1. Nature of Employment Law in Malaysia The law which governs the contractual relationship between employers and employees in Malaysia is generally the Employment Act 1955 ( EA 1955 ) Under this EA 1955, matters pertaining to contracts of service, hours of work, payment of wages, termination of service, leaves and rates of pay for work beyond normal hours of work are all prescribed. However, the EA 1955 is only limited to employees who receive wages not exceeding RM 2,000 per month and employees who engages in manual labor irrespective of their wages. For employees who earn more than RM 2,000, they are not confined by the Act and will on 1ly be bound to their contract of service. The contract of service will be governed by the Contracts Act 1950. 2. Nature of Contract of Service The contract may be on permanent, fixed term, temporary basis or an engagement in probation. Where the employment is for duration longer than one (1) month, a written contract of service must be entered where provisions regarding conditions of employment and the notice period required to terminate the contract of service must be included. 3. Termination of Contract Where any provision in the contract of service has been breached, an employer has the right to dismiss the employee. This may include misconduct on the part of the employee. According to the EA 1955, a contract of service is considered to have been broken when an employee has been absent from work for more than two (2) consecutive working days without obtaining proper leave from his employ 2er . i. Notice of Termination An employer who wishes to dismiss an employee must provide a notice of termination to such employee. The length of the notice should be according to the length as prescribed in the contract of service. In circumstances where the period of notice of termination is not specified in the contract of service, Section 12 of the EA 1955 prescribes the notice of period to be as follows: a. Less than two (2) years of service : Minimum of four (4) weeks; b. Two (2) years or more but less than five (5) years of service: Minimum of six (6) weeks; and 1 First Schedule Employment Act 1955 2 Section 15(2) Employment Act 1955 {00242463} Azmi & Associates: Article Submission to GlobalTrade.net For online publication: June 2012 c. Five (5) years of service or mo 3re : Minimum of eight (8) weeks. However, it is expressly mentioned in the EA 1955 where there is a willful breach by either party to a contract of service, the other party may terminate such 4 contract without providing any notification. ii. Concept of Termination for Convenience The concept of termination for convenience is not available in Malaysia. An employee only has the right to terminate the contract of service where an employer fails to pay wages within seven (7) days after the wages period or if the employer has breached any terms stipulated in the contract of serv 5ice . 4. Duty of Employer In Malaysia, the employer is obliged to make contributions to two (2) governmental bodies. i. Employees Provident Fund ( EPF ) The EPF is a compulsory savings scheme for employees which provide financial security for their retirement. Both the employers and employees will contribute an amount of money which will later be credited in the employee s account in the EPF. All employees in Malaysia who have reached the age of sixteen (16) and employed under a contract of service whether express or implied, and whether oral or in writing must be registered as a member of the Employees Provident Fund. The contribution rate is calculated based on the monthly wages of an employee. Current contribution rate is in accordance with wage received. For employees who receive wages below RM5,000 the portion of employee’s contribution is 11% of their monthly salary while the employer contributes 13%. For employees who receive wages exceeding RM5,000 the employee’s contribution of 11% remains, while the employer’s contribution is 12%6. ii. Social Security Organisation ( SOCSO ) The SOCSO provides social security protection by social insurance including medical and cash benefits, provision of artificial aids and rehabilitation to 3 Section 12 Employment Act 1955 4 Section 13(2) Employment Act 1955 5 Section 19 Employment Act 1955 6 http://www.kwsp.gov.my/ {00242463} Azmi & Associates: Article Submission to GlobalTrade.net For online publication: June 2012 employees to alleviate their sufferings and to provide financial guarantees and protection to their family. An employer who employs one or more employees is required to register and contribute monthly for all employees employed under a contract of service. Payment of contribution is essentially the employer s responsibility where the employer is empowered to make deductions from the employee s wages. The payment must be made not later than the last day of the following month. SOCSO administers two (2) social security schemes, namely; the Employment Injury Insurance Scheme and the Invalidity Pension Scheme. Under the Employment Insurance Injury Scheme, the employer will contribute at the rate of approximately 1.25% of the employee s wages. As for the Invalidity Pension Scheme, the contribution is shared equally by the employer and employee, wherein the total contribution is about 1% of the employee s wages, e.g. contribution for the month of June must be paid not later than 31 July of that year. Failure to contribute to the above will amount to an offence. 5. Trade Dispute Where there is an industrial dispute between the employers and their employees, the Industrial Relations Act 1967 acts as effective machinery for a speedy and equitable settlement. The Trade Union and the higher level of management will first make an effort to settle the dispute by employing the principles of equity and good conscience in their negotiations. If however, in spite of sincere efforts, a settlement is not possible, the dispute may be referred to the Industrial Court. i. Trade Union Trade Union in Malaysia could either be an in house union or a national union. The respective trade union will be governed by rules constituting the primary agreement between its fellow members and by the Trade Union Act 1959. One of the main objectives of a Trade Union in addition to protecting the interest of their members is to conduct collective bargaining between the employers and employees. Through this process a Collective Agreement will be concluded. The Trade Union may bargain for more wages, allowances, sick leave, annual leave, termination benefits, etc. {00242463} Azmi & Associates: Article Submission to GlobalTrade.net For online publication: June 2012 The Collective Agreement will be binding on the parties to the agreement including subsequent employers who had replaced the existing employers. Failure of the employer to comply with the Collective Agreement will give power to the respective Trade Union to promote or organise a legitimate industrial action including strikes, go-slows or boycotting. {00242463}
Posted: 21 June 2012