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Malaysia: Amendments to the Employment Act to be effective as of 1 January 2023

published on 12 September 2022 | reading time approx. 8 minutes

In late August, the Malaysian government announced that it will defer the implementation of the amended Employment Act 1955 from 1 September 2022 to 1 January 1 2023. The Human Resources Minister, after initially confirming by way of Gazette Notification [P.U.(B) 368/2022] that the Employment (Amendment) Act 2022 (“the Amendment Act”) and The Employment (Amendment of First Schedule Order 2022 [P.U.(A) 262/2022] (“Amendment Order”) will come into operation on 1 September 2022, has now stated that the decision to defer the implementation was made after discussions with industry players and stakeholders, including Chambers of Commerce.

We would like to highlight some of the salient changes made to the Act through the Amendment Act and the Amendment Order. It is currently not clear whether and to what extent the deferral might be used for content adjustments of the Amendment Act, or whether it simply has the purpose to allow employers to better prepare themselves for the new regulations. Points that are currently known and of interest for employers include the following:

Scope of employees covered under the Amendment Act

Prior to the Amendment Act ,with a few exceptions, the Employment Act 1955 (“ACT”), only applies to employees mentioned in the First Schedule of the Act (in a nutshell, these are employees whose wages do not exceed RM2,000 a month and/or employees involved in manual labor.) Provisions such as maternity protection and protection against sexual harassment under the Act do apply regardless whether the employee falls under the First Schedule or not.

The passing of the Bill has led to some confusion as the Bill deletes sections under the Act which provide maternity protection to all female employees regardless of salary, and sexual harassment provisions which apply to all employees regardless of salary – but does not make any amendments to the First Schedule. This would result in employees earning above RM2,000 a month not being entitled to maternity leave, or to protection under the sexual harassment provisions.

The Ministry of Human Resources has assured that subject to certain conditions all employees, regardless of wages, will be protected under the Act, and this has now been reflected in the Amendment Order.

Calculation of wages for an incomplete month

The Act introduces the below formula for calculating wages where an employee has not worked a full month:

Wage for partial worked month = (Monthly wages : Number of days in particular wage period) x Number of days eligible in the wage period

The Amendment Act does not explain how the “number of days in the particular period” has to be calculated. Under the Act, monthly wages are currently calculated by using a denominator of 26 days to represent the number of days which an employee is required to work in any given month.

Extension of maternity leave and Restriction on termination of pregnant employees

The following changes in relation to pregnancy and maternity protection for employees have been introduced under the Amendment Act:

The paid maternity leave period has been extended from 60 days to 98 days;
A female employee may, with the consent of her employer, commence work at any time during the maternity leave if she has been certified fit to resume work by a registered medical practitioner, regardless of whether she is entitled to receive maternity allowance; and
Where a female employee is pregnant or is suffering from an illness resulting from her pregnancy, her employer is prohibited from terminating her employment or giving her a notice of termination of employment except on the grounds of:
- willful breach of a condition of the contract of service;
- misconduct; or
- closure of the employer’s business.

In case a pregnant female employee is terminated based on the above grounds, it is the employer´s responsibility to prove that the termination is actually not related to her pregnancy or an illness resulting from the pregnancy.

The Amendment Act does neither specify “illness resulting from her pregnancy”, nor does it elaborate whether the illness is limited to physical conditions.

Paternity leave

The Amendment Act provides for a married male employee to take up to seven consecutive days of paid paternity leave for each confinement, up to five confinements, irrespective of the number of spouses.

The married male employee shall be entitled to the above paternity leave subject to the following:

the male employee has been employed by the same employer for at least 12 months immediately preceding the commencement of paternity leave; and
he notified his employer of his spouse’s pregnancy at least 30 days from the expected confinement or as early as possible after the birth.

Sexual harassment

The amendments require an employer to, at all times, conspicuously exhibit a notice to raise awareness on sexual harassment at the place of employment.

The fine an employer is liable to pay for failure to, amongst others, inquire into complaints of sexual harassment will be increased from RM10,000 to RM50,000.

Reduction on working hours

The maximum working hours for employees will be reduced from 48 hours to 45 hours per week.

Flexible working arrangements

Employees can apply for flexible working arrangement, depending on the suitability of the working hours or work place. However, there is no legal obligation on the employer to grant this request. If the employer is to reject the request, they are required to provide grounds of refusal within 60 days of the application.

Discrimination

The Director General has the authority to investigate and decide disputes on discrimination in employment between employer and employee. Furthermore, the Director General has the power to make an order where necessary.

An employer who fails to comply with any order of the Director General commits an offence, and shall, on conviction, be liable to a fine not exceeding RM50,000. In the case of a continuous offence, the employer shall be liable to a daily fine not exceeding RM1,000 for each day the offence continues after conviction.

It is pertinent to note that the amendments only extend to discrimination once the employment relationship has been entered into, and do not address discrimination as a basis for refusal of employment or non-employment. Hence, job seekers will not be able to rely on this provision as there is no employment relationship between an employer and job seekers, and as such this provision will not apply to protect job seekers from discrimination.

Sick Leave and Hospitalization Leave

The Amendment Act now entitles employees to 60 days of paid sick leave if hospitalization is necessary, in addition to 14 to 22 days (subject to the length of service) if hospitalization is not necessary.

Employment of foreign employees

An employer is now required to obtain the prior approval of the Director General before employing a foreign employee. Upon approval of the Director General, the employer shall furnish the Director General with the particulars of the foreign employee within 14 days.

Failure to do so constitutes an offence and on conviction, the employer shall be liable to a fine not exceeding RM 100,000, or to imprisonment for a term not exceeding five years, or both.

Previously, the employer was only required to furnish the Director General with particulars of the foreign employee within 14 days of their employment, and there was no requirement to obtain prior approval of the appointment of the foreign employee.

Termination of foreign employee

If the service of the foreign employee is terminated on the following grounds:

by the employer;
expiration of the employment pass issued by the Immigration Department of Malaysia; or
by reason of repatriation or deportation

the employer shall inform the Director General of the termination within 30 days of the termination. If the foreign employee terminates their service or absconds from their place of employment, the employer shall inform the Director General within 14 days of the termination or after the foreign employee’s absence.

Forced labour

It constitutes an offence by an employer to threaten, deceive or force an employee to do any activity, service or work, and to prevent said employee from proceeding beyond the place or area where such activity, service or work is done. Upon conviction, the employer shall be liable to a fine not exceeding RM100,000 or to imprisonment for a term not exceeding 2 years, or both.

General penalty under the Act

The general penalty for a contravention of the Act or any subsidiary legislation made under the Act in respect of which no penalty is provided, has been increased from a fine of RM10,000 to RM50,000.

Presumption as to who is an employee and an employer

Any proceedings for an offence under the Act, in the absence of a written contract of service relating to any category of employee under the First Schedule of the Act, shall be based on the presumption that a person is an employee:

If his manner of work is subject to the control or direction of another person;
If his hours of work are subject to the control or direction of another person;
If he is provided with tools, material or equipment by another person to execute work;
If his work constitutes an integral part of another person’s business;
If his work is performed solely for the benefit of another person; or
If payment is made to him in return for work done by him at regular intervals and such payment constitutes the majority of his income.

Amendment to the First Schedule

Prior to the amendments, the First Schedule of the Act limited the scope of application of the Act to the following categories of employees (“EA Employees”):

Employees whose monthly salary does not exceed RM2,000;
Employees who are engaged in manual labour, regardless of salary;
Employees engaged in the operation or maintenance of mechanically propelled vehicles;
Employees who supervise or oversee other employees engaged in manual labour;
Employees engaged in any capacity on a vessel (subject to certain other conditions);
Employees engaged as a domestic servant.

The Amendment Order amends the First Schedule to expand the scope of application of the Act to any person who has entered into a contract of service. However, sections 60(3), 60A(3), 60C(2A), 60D(3), 60D(4) and 60(J) of the Act (“EXCLUDED SECTIONS”) will not apply to employees whose wages exceed RM 4,000 a month, unless these employees fall within the ambit of EA Employees.

The Excluded Sections relate to working on a rest day, overtime payments, statutory entitlement to shift allowances, working on a public holiday and statutory entitlement to termination and layoff benefits.

Jurisdiction of the Director General

With the amendments to the First Schedule of the Act (see above), the Director General has the power to inquire into and decide any dispute between an employee and their employer without the limitation of a salary cap. Previously, the Director General was only entitled to inquire into complaints between employees and employers provided that the employees’ wages did not exceed RM5,000.

Conclusion

The much awaited amendments of the Act will provide higher protection for employees. The amendment appears necessary to be in line with international labor standards and practices under the Trans-Pacific Partnership Agreement, the Malaysia-United States Labor Consistency Plan and the International Labor Organization. That being said, the amended Act will impact employers in a significant manner.

Previously, only certain provisions of the Act would be applicable to employees that do not fall under the First Schedule, and the terms and conditions of the employment would be governed by the employment contract. However, with the expansion of the First Schedule, all employees regardless of salary earned or type of work performed will now enjoy added protection under the law.

Employers are strongly encouraged to revisit their employment governance, particularly the employee handbooks and employment contract to ensure compliance with the Amendment Act.