In Malaysia, employers have a legal obligation to adhere to employment and labor laws throughout the hiring, managing, and termination processes. This includes obtaining foreign quota approval for foreign employees, granting leave entitlements, defining working hours, registering with the Employees Provident Fund, drafting employment contracts, and offering severance payments.
To assist you in navigating these essential legal requirements and responsibilities, we have prepared a comprehensive guide outlining key provisions that employers must be familiar with when engaging in the processes of hiring, managing, and terminating employees in Malaysia.
Employment contracts in Malaysia
In Malaysia, it is a legal requirement to formalize every employment that extends beyond one month through a written employment contract.
This contract must encompass essential aspects of the employment arrangement, including the workplace location, job description, wage rates, holiday entitlements, benefits, and any provisions aimed at safeguarding the employee’s health and well-being.
These employment contracts are regulated by the Employment Act of 1955 and must be retained by the employer for at least seven years after the contract’s termination date.
Hiring foreign employees
Companies intending to hire foreigners in Malaysia must obtain foreign quota approval from the Local Centre of Approval under the Ministry of Home Affairs.
Foreign nationals are eligible to work with Malaysian companies operating in industries like agriculture, construction, manufacturing, plantation, and services.
Employers need to be aware that specific positions are open for foreign workers, typically those that require high levels of skill or technical expertise that locals cannot fulfil. Some of these positions include top managerial roles for foreign companies in Malaysia, professional or mid-managerial positions, and highly skilled technical positions demanding significant experience.
After fulfilling the necessary requirements, employers must submit all required documents to the Immigration Department. Once foreign quota approval is obtained, employers must then proceed with the employment pass application, accompanied by a letter justifying the need for a foreign employee in the respective position. Upon approval, a letter endorsing the employment pass will be issued.
Termination of employment
Termination Notice:
As per section 12 of the Employment Act 1955, both employers and employees are required to provide notice of termination based on the following periods:
- Four weeks’ notice for employees employed for less than two years.
- Six weeks’ notice for employees employed between two to five years.
- Eight weeks’ notice for employees employed for more than five years.
Reasons for Termination:
Employers have the right to terminate an employee’s contract provided the termination is justified, conducted in good faith, and fair.
In cases where the dismissal is perceived as unfair, the matter may be brought before the court. To avoid any claims of unfair dismissal, the termination must be supported by just cause and excuse.
“Just cause and excuse” means that the employer must have valid reasons for terminating the employee. Such reasons may include:
- Major misconduct, such as theft, sexual harassment, and failure to adhere to safety protocols.
- Negligence in performing duties.
- Poor performance.
- Redundancy and business closure.
- Retirement.
- Death of the employee.
- Breach of contract.
- Termination at the end of the probation period.
- Expiration of a fixed-term contract.
- Employee’s mental disorders.
- Bankruptcy of the employer.
- Commission of a criminal offense by the employee.
- Absence from work for more than two consecutive days without leave or reasonable excuse.
Severance payment
Employees who have completed less than two years of service are eligible for 10 days’ wage for each year served.
Those with two to five years of employment are entitled to 15 days’ wage for each year completed, while employees with five years or more are entitled to 20 days’ wage for each year served.
However, severance pay is not applicable to employees who are dismissed due to misconduct, voluntarily terminate their contract, or retire.