The Employment Act 1955 is the primary legislation governing employment practices in Malaysia. It outlines the rights and responsibilities of both employers and employees, ensuring fair labour standards across industries. Recent amendments have further refined the Act to align with modern work arrangements, focusing on employee welfare and employer compliance.
For business owners, HR professionals, and managers, understanding the Employment Act 1955 is crucial in maintaining a compliant and productive workplace. This guide provides a practical breakdown of key employer obligations, covering contract terms, wages, leave entitlements, termination procedures, and workplace protections.
By staying informed and adhering to legal requirements, employers can foster a positive work environment while avoiding penalties for non-compliance.
Who is Covered Under the Employment Act 1955?
The Employment Act 1955 applies to certain categories of employees, primarily those earning a monthly salary of RM4,000 and below. However, recent amendments have expanded certain provisions to cover all employees, regardless of salary, particularly in areas like maternity benefits and sexual harassment protection.
Key Coverage Details:
- Employees earning RM4,000 and below: Fully covered under the Act, including provisions on working hours, overtime, rest days, and termination benefits.
- Employees earning above RM4,000: Some protections still apply, but other terms are subject to individual employment contracts.
- Certain provisions, such as overtime pay, do not apply to employees earning above RM4,000 per month.
- Foreign workers: The Act applies equally to both local and foreign employees, with additional compliance requirements for employers.
- Exemptions: Certain professionals, government employees, and domestic servants may not fall under the scope of the Act.
Employers must ensure that contracts and policies align with the Act’s provisions, as failing to comply can result in legal repercussions.
Core Employer Obligations Under the Employment Act 1955
1. Employment Contracts
A written employment contract is mandatory for employees covered under the Employment Act 1955. The contract should clearly outline:
- Job scope and responsibilities
- Salary and payment terms
- Working hours and overtime
- Leave entitlements
- Termination conditions
To prevent disputes, contracts should be clear, detailed, and legally compliant with the Act.
2. Wages & Overtime Regulations
To address rising living costs, the minimum wage has been increased to RM1,700, effective February 2025.
- Small businesses with fewer than five employees have until August 2025 to comply.
- Salary payments are made no later than the 7th day of the following month — delays may result in legal penalties.
- Wage deductions are only allowed for:
- EPF & SOCSO contributions
- Loan repayments with employee consent
While bonuses and incentives are not mandatory, many employers offer them to retain and motivate employees.
- Overtime pay applies for work beyond 45 hours per week. The rates are:
- 1.5x the hourly rate for overtime on normal working days.
- 2x for overtime on rest days.
- 3x for overtime on public holidays.
Failure to adhere to wage regulations under the Employment Act 1955 can lead to hefty fines or legal action.
3. Working Hours & Rest Days
Under the 2022 amendments, weekly working hours have been reduced from 48 to 45 hours to improve work-life balance. Employers must:
- Provide a minimum of 1 rest day per week.
- Ensure proper breaks and working hour limits for employees.
- Avoid excessive overtime beyond legal limits.
Flexible Working Arrangements
- Employees can now formally request flexible working arrangements (e.g., remote work or adjusted hours).
- The request must be made in writing, and employers must respond within 60 days, stating valid reasons for rejecting the request.
4. Leave Entitlements
Employees covered under the Employment Act 1955 are entitled to various types of leave:
- Annual Leave:
- 1-2 years of service: 8 days
- 2-5 years of service: 12 days
- More than 5 years: 16 days
- Public Holidays: Minimum 11 paid public holidays, including Malaysia Day and the King’s Birthday.
- Sick Leave & Hospitalisation Leave:
- 14-22 days of outpatient sick leave, depending on tenure.
- Up to 60 days of hospitalisation leave per year.
- Maternity & Paternity Leave:
- Maternity leave extended to 98 days (previously 60).
- 7 days of paid paternity leave for fathers.
Employers must strictly adhere to leave entitlements to avoid disputes or penalties.
Termination & Retrenchment Guidelines
1. Notice Period & Compensation
Termination must follow proper procedures under the Employment Act 1955. Employers must provide:
- Written notice based on contract terms.
- Less than 2 years: 4 weeks’ notice
- 2–5 years: 6 weeks’ notice
- More than 5 years: 8 weeks’ notice
- Employers must immediately pay final wages upon termination to avoid legal penalties.
2. Misconduct & Disciplinary Action
For dismissals due to misconduct, a domestic inquiry should be conducted before termination. Employers must:
- Issue a show cause letter explaining allegations.
- Allow employees to defend themselves in an inquiry.
- Make termination decisions based on fair evaluation.
3. Retrenchment & Redundancy
If businesses undergo downsizing, retrenchment procedures must comply with the Act:
- The Last-In, First-Out (LIFO) principle should be considered.
- Employees must receive proper retrenchment benefits.
- Authorities should be notified before mass layoffs.
Workplace Protections & Compliance
1. Sexual Harassment Prevention
Employers must take proactive steps to prevent and address sexual harassment in the workplace, including:
- Implementing a clear anti-harassment policy.
- Display notices about sexual harassment to promote awareness.
- Establish a formal process for employees to report harassment complaints.
- Conducting prompt investigations on complaints.
- Taking disciplinary action against perpetrators.
Failing to address workplace harassment can lead to legal penalties and reputational damage.
2. Equal Employment Rights
Discrimination based on gender, race, religion, or disability is prohibited. Employers should promote fair hiring practices and equal opportunities.
3. Employment of Foreign Workers
Employers hiring foreign workers must comply with additional regulations, including:
- Valid work permits and visas.
- Proper accommodation and wages.
- Compliance with levy and tax obligations.
Strict enforcement of foreign labour laws under the Employment Act 1955 helps prevent exploitation and legal risks.
4. Enhanced Social Protection: EPF & SOCSO
To strengthen employee financial security, new provisions now mandate:
- Compulsory EPF contributions for foreign workers.
- Higher salary ceilings for SOCSO & EIS contributions to provide better financial coverage.
These amendments aim to expand financial protection to a broader workforce.
Penalties & Risks of Non-Compliance
Failure to comply with the Employment Act 1955 can result in:
- Fines up to RM50,000 per offence.
- Legal disputes and employee claims.
- Reputational damage to the company.
Employers should conduct regular audits and review policies to ensure ongoing compliance.
How These Changes Impact Employers
While these updates enhance employee welfare, employers must also adapt:
- Policy Updates – HR policies, employment contracts, and payroll structures must be revised.
- Cost Adjustments – The higher minimum wage and EPF requirements may increase operational expenses.
- Workplace Flexibility – Employers must evaluate flexible work requests fairly and transparently.
Although some of these changes may pose short-term challenges, they foster a more engaged, motivated, and productive workforce, ultimately benefiting businesses in the long run.
Conclusion & Next Steps
Understanding the Employment Act 1955 is essential for employers to maintain fair workplace practices while avoiding legal pitfalls. As employment laws continue to evolve, businesses must stay updated on new amendments and best practices.
At MECA, we specialise in employment law compliance, legal advisory, and HR best practices. Our team can help your business navigate the complexities of the Employment Act 1955, ensuring smooth and lawful HR operations.
Need expert guidance? Contact MECA today to safeguard your business with professional employment law advisory.