How is Payroll Calculated in Malaysia?
In Malaysia, the Employment Act of 1995 sets the stage for most employment relationships, detailing what employers and employees can expect from each other. The Act applies to most employees, but if your staff earn more than RM4,000 per month, certain provisions—like overtime pay for weekends, public holidays, and shift work—won’t apply to them.
If you employ gig workers or contractors, be aware that the Act still protects them under certain conditions. If they’re working under your supervision, using your tools, or their work is essential to your business, they could be classified as employees under the law. This means they would be entitled to similar rights as full-time staff.
It’s important for employers to note that the Employment Act does not extend to Sabah and Sarawak, which follow their own Labour Ordinances.
What is The Employment Act?
The Employment Act in Malaysia is the primary law governing employment relationships, particularly focusing on employee rights and payroll. It outlines the rules for paying wages and covers most employees engaged under a contract of service, including both local and foreign workers. Whether someone is working full-time, part-time, or on a temporary or contract basis, the Act applies. It also encompasses employees paid hourly, daily, monthly, or based on the amount of work completed.
However, certain groups are excluded from the Act. These exceptions include domestic workers, public sector employees, and seafarers. While the Employment Act offers protection for the majority of workers in Malaysia, these specific groups follow different regulations set by their respective governing bodies.
Salary and Payments
Under Malaysia's Employment Act 1955, employers are required to pay wages at least once a month, ensuring employees receive timely compensation. The Act mandates that wages must be paid no later than 7 days after the end of the wage period. "Wages" under the Act refer to any remuneration for work done under a contract of service, including overtime, bonuses, and other benefits related to employment.
However, there are certain exclusions that are not considered part of wages. These include the value of housing, utility allowances, and other accommodations provided by the employer, contributions to the Employees Provident Fund (EPF), travel allowances, expense reimbursements, gratuities, and termination benefits like retrenchment payments.
In Malaysia, wage structures can vary depending on the employment arrangement:- Daily wages: These are usually paid to workers engaged in manual labor or who are employed on an ad-hoc or part-time basis. Daily wages are calculated either on the gross rate, which includes basic pay and any allowances or entitlements, or based on a specific rate for overtime or work done on public holidays or rest days.
- Monthly wages: Employees paid monthly are usually on a salaried basis, where their wages are distributed evenly across the year. This type of payment is more common for full-time employees, including those in administrative or managerial roles.
Malaysia's wage regulations also ensure that employers provide itemized pay slips and maintain proper documentation, helping to ensure transparency and compliance with local labor laws. This clear structure helps protect employee rights while maintaining employer accountability. Monthly and daily salary: definitions and calculation
In Malaysia, employers can choose to pay their employees either on a daily or monthly basis. Here’s how salary calculations are typically handled:
Daily Wages
When calculating daily wages, it’s important to distinguish between the gross rate and the basic rate. The gross rate includes items such as paid public holidays, annual leave, sick leave, and salary deductions, while the basic rate applies to work done on rest days or public holidays.
Monthly wages
For employees paid on a monthly basis, the "month" refers to any calendar month. If an employee doesn't work the full month, their salary is adjusted accordingly. In Malaysia, the formula to calculate pay for an incomplete month is:
How an incomplete month pay is calculated:
Monthly gross rate of pay
Total number of working days in the month
x
Number of days actually worked
If you take no-pay leave
If your full-time monthly-rated employees take unpaid leave during the month, it will count as an incomplete month of work. In this case, you’ll need to prorate their salary based on the number of days they actually worked during that month.
Definitions
When the number of hours worked in the day is 4 or less (under Malaysian law).
When the number of hours worked in the day is more than 4.
Where an employee:
Starts work after the first day of the month.
Leaves employment before the last day of the month.
Takes no-pay leave of one or more days during the month.
Is on reservist training during the month (if applicable under military leave provisions in Malaysia).
Monthly gross rate of pay
Total amount of money including allowances, payable for one month's work. This excludes:
- 额外支付（加班费、奖金、津贴）。
- 工作中产生的特殊费用报销。
- 生产力奖励支付。
- 差旅、餐饮和住宿津贴。
Total no. of working days in the month
This excludes rest days and non-working days but includes public holidays. For employees with fixed rest days on Sundays or non-working days on Saturdays, the total number of working days per month can vary.
This includes public holidays, paid hospitalization leave, and annual leave, if entitled.
When the number of hours worked in the day is 4 or less (under Malaysian law).
When the number of hours worked in the day is more than 4.
Where an employee:
- Starts work after the first day of the month
- Leaves employment before the last day of the month
- Takes no-pay leave of one or more days during the month
- Is on reservist training during the month (if applicable under military leave provisions in Malaysia)
Monthly gross rate of pay
Total amount of money including allowances, payable for one month's work. This excludes:
- Additional payments (overtime, bonus, allowances)
- Reimbursement of special expenses incurred during employment
- Productivity incentive payments
- Travel, food, and housing allowances
Total no. of working days in the month
This excludes rest days and non-working days but includes public holidays. For employees with fixed rest days on Sundays or non-working days on Saturdays, the total number of working days per month can vary.
Total no. of days actually worked in the month
This includes public holidays, paid hospitalization leave, and annual leave, if entitled.
Basic rate of pay
For calculating pay for work on a rest day or public holiday.
Wage adjustments and increments entitled to under a contract of service.
Where an employee:
Starts work after the first day of the month.
Leaves employment before the last day of the month.
Takes no-pay leave of one or more days during the month.
Is on reservist training during the month (if applicable under military leave provisions in Malaysia).
Monthly gross rate of pay
Total amount of money including allowances, payable for one month's work. This excludes:
Additional payments (overtime, bonus, allowances).
Reimbursement of special expenses incurred during employment.
Productivity incentive payments.
Travel, food, and housing allowances.
Total no. of working days in the month
This excludes rest days and non-working days but includes public holidays. For employees with fixed rest days on Sundays or non-working days on Saturdays, the total number of working days per month can vary.
Basic rate of pay excludes:
- Overtime payments, bonus payments, and annual wage supplements (AWS).
- Reimbursement of special expenses incurred during employment.
- Productivity incentive payments.
- Any allowance.
For calculating pay for work on a rest day or public holiday.
Wage adjustments and increments entitled to under a contract of service.
Basic rate of pay excludes:
- Overtime payments, bonus payments, and annual wage supplements (AWS)
- Reimbursement of special expenses incurred during employment
- Productivity incentive payments
- Any allowance
How it is calculated
For a monthly-rated employee, the basic rate of pay for 1 day is calculated as follows:
12 × Monthly basic rate of pay
52 x Average number of days worked per week
Gross rate of pay
For calculating:
- Salary in lieu of notice of termination of service.
- Salary in lieu of annual leave.
- Salary deduction for unauthorized absence from work.
- Paid public holidays.
- Approved paid leave, including annual leave, hospitalization leave, and maternity leave.
Gross rate of pay includes all allowances the employee is entitled to under a contract of service
Where an employee:
Starts work after the first day of the month.
Leaves employment before the last day of the month.
Takes no-pay leave of one or more days during the month.
Is on reservist training during the month (if applicable under military leave provisions in Malaysia).
Monthly gross rate of pay
Total amount of money including allowances, payable for one month's work. This excludes:
Additional payments (overtime, bonus, allowances).
Reimbursement of special expenses incurred during employment.
Productivity incentive payments.
Travel, food, and housing allowances.
Total no. of working days in the month
This excludes rest days and non-working days but includes public holidays. For employees with fixed rest days on Sundays or non-working days on Saturdays, the total number of working days per month can vary.
Gross rate of pay excludes:
- Overtime payments, bonus payments, and annual wage supplements (AWS).
- Reimbursement of special expenses incurred during employment.
- Productivity incentive payments.
- Travel, food, and housing allowances.
For calculating:
- Salary in lieu of notice of termination of service
- Salary in lieu of annual leave
- Salary deduction for unauthorized absence from work
- Paid public holidays
- Approved paid leave, including annual leave, hospitalization leave, and maternity leave
Gross rate of pay includes all allowances the employee is entitled to under a contract of service
Gross rate of pay excludes:
- Overtime payments, bonus payments, and annual wage supplements (AWS)
- Reimbursement of special expenses incurred during employment
- Productivity incentive payments.
- Travel, food, and housing allowances
How it is calculated
For a monthly-rated employee, the gross rate of pay for 1 day is calculated as follows:
12 × Monthly gross rate of pay
52 x Average number of days worked per week
Hours of work, overtime and rest day
If your employees are covered under Part IV of the Employment Act, their working hours are regulated, and they’re entitled to breaks, overtime pay, and rest days.
Who is covered
The guidelines for work hours in Malaysia apply to employees under the Employment Act 1955. However, managers, executives, and domestic workers are excluded from the Act. The work hours and conditions for those not covered will depend on their individual employment contracts.
Definitions
Week: A continuous 7-day period from Monday to Sunday.
Hours of Work: The time when your employees are expected to carry out their job responsibilities. This does not include rest or meal breaks. Keep in mind that employers are not required to pay for rest or meal times.
Break times
Employees should not work for more than 5 continuous hours without a break. For roles requiring continuous work for up to 8 hours, a meal break of at least 30 minutes should be provided.
Normal hours of work
Contractual working hours in Malaysia must be clearly laid out in the employment contract. Most employees are entitled to work no more than 8 hours a day or 48 hours a week. However, employees can work beyond these hours if they receive overtime pay.
If you work
5 days or less a week
Your contractual hours of work are
Contractual hours are up to 9 hours a day or 48 hours a week
Your contractual hours of work are
Contractual hours are up to 8 hours a day or 48 hours a week
Your contractual hours of work are
Contractual hours are up to 9 hours a day or 48 hours a week
Contractual hours are up to 8 hours a day or 48 hours a week
For other work arrangements, your contractual hours of work are as follows:
If you work
Less than 48 hours every alternate week
Your contractual hours of work are
You are allowed to work up to 48 hours per week, with a maximum of 88 hours in any continuous two-week period.
- Example: Week 1 = 40 hours; Week 2 = 48 hours; Week 3 = 44 hours
If you work
Shifts of up to 12 hours a day
Your contractual hours of work are
Employees may work up to an average of 48 hours over a continuous three-week period.
- Example: Week 1 = 40 hours; Week 2 = 48 hours; Week 3 = 48 hours.
Your contractual hours of work are
Less than 48 hours every alternate week
You are allowed to work up to 48 hours per week, with a maximum of 88 hours in any continuous two-week period.
Example: Week 1 = 40 hours; Week 2 = 48 hours; Week 3 = 44 hours
Shifts of up to 12 hours a day
Employees may work up to an average of 48 hours over a continuous three-week period.
Example: Week 1 = 40 hours; Week 2 = 48 hours; Week 3 = 48 hours.
If your employees are not shift workers but agree to work up to 12 hours a day, you must ensure they do not exceed an average of 48 hours per week over any continuous three-week period.
加班工作是指超过正常工作时间（不含休息时间）的任何工作。《雇佣法》规定，月薪不超过 RM 2,000 的员工有权获得加班工资；超过此金额的员工加班报酬由雇佣合同规定。
How Overtime Pay is Calculated
Overtime pay is calculated as follows:
Hourly basic rate of pay × 1.5 × Number of overtime hours worked
For monthly-rated employees, the hourly basic rate of pay is calculated as:
12 × Monthly basic rate of pay
52 × 44
For daily-rated employees, the calculation is:
Daily pay at the basic rate
Working hours per day
Maximum hours of work
Employees are generally not allowed to work more than 12 hours a day, except under specific circumstances such as:- Urgent work requiring machinery or plant operations
- Accidents or threats of accidents
- Essential work for the community, defense, or security
An employee can only work up to 104 overtime hours in a month, unless exempted by the Director-General of Labour. Rest day
As an employer, you are required to provide your employees with one rest day per week. This must be a full day off and should be clearly communicated in advance.
For shift workers, the rest day may be staggered and could be less than 24 hours, depending on the shift pattern.
When rest day can fall
The employer decides which day the rest day will fall on. It could be any day of the week, not necessarily Sunday. If it is not Sunday, you must prepare a monthly roster to inform your employees of their rest days in advance.
How pay for work on a rest day is calculated
Payment for work on a rest day is calculated as follows:
For up to half normal daily working hours
At the employer’s request
For more than half normal daily working hours
At the employer’s request
Beyond normal daily working hours
At the employer’s request
2 days’ salary + overtime pay
For up to half normal daily working hours
For more than half normal daily working hours
Beyond normal daily working hours
At the employer’s request
2 days’ salary + overtime pay
Does payroll tax apply?
In Malaysia, employers are required to withhold taxes from their employees' salaries through the Monthly Tax Deduction (MTD) or Potongan Cukai Bulanan (PCB) system. This deduction is made on behalf of the Inland Revenue Board of Malaysia (LHDN) and ensures that employees meet their income tax obligations. Employees are responsible for filing their own annual tax returns to declare their income and ensure their taxes are fully paid.+
What are common salary deductions?
In Malaysia, the Employment Act regulates the types of deductions employers can make from an employee's salary. Employers may be required to make deductions due to a court order, or for reasons such as income tax, Employees Provident Fund (EPF), or Social Security Organisation (SOCSO) contributions.
However, salary deductions cannot exceed 50% of an employee’s monthly wages, with some exceptions for specific deductions.
Common reasons for allowable deductions include:
- Absence from work.
- Damage or loss of goods entrusted to the employee.
- Supplying accommodation, amenities, or services to the employee.
- Advances of wages.
- Contributions to EPF and SOCSO.
- Payments to a registered trade union or cooperative society.
Employers must get written approval from employees before making deductions, except for statutory deductions (such as EPF, SOCSO, and income tax). Public holidays and payroll
In Malaysia, full-time employees are entitled to 11 paid public holidays annually, of which 5 are compulsory under the Employment Act: Hari Merdeka (National Day), the Birthday of the Yang di-Pertuan Agong, the Birthday of the Ruler or Governor of the state, Labour Day, and Malaysia Day. Employers must observe these holidays, and employees are entitled to receive their normal wages for these days.
For part-time employees, they are also entitled to public holiday pay, but this is pro-rated based on the number of hours they work.
If an employee is required to work on a public holiday, they must be paid 2 times their normal daily rate of pay for the hours worked, in addition to the normal day's wage.
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