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:
Monthly gross rate of payTotal number of working days in the month 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.
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.
5 days or less a week
Contractual hours are up to 9 hours a day or 48 hours a week
More than 5 days a week
Contractual hours are up to 8 hours a day or 48 hours a week
5 days or less a week
Contractual hours are up to 9 hours a day or 48 hours a week
More than 5 days 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 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.
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.
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.
Overtime pay
Overtime work refers to any work done beyond normal working hours (excluding break times). Under the Employment Act, employees earning RM 2,000 or below are entitled to overtime pay. For those earning above this threshold, the right to overtime is governed by the terms of the employment contract. The overtime rate payable is 1.5 times the employee’s hourly rate of pay for work done on a normal day, 2 times on a rest day, and 3 times on a public holiday.
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 pay52 × 44 For daily-rated employees, the calculation is:
Daily pay at the basic rateWorking 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:
If work is done
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
1 day’s salary
2 days’ salary
2 days’ salary + overtime pay
If work is done
At the employer’s request
For up to half normal daily working hours
1 day’s salary
For more than half normal daily working hours
2 days’ salary
Beyond normal daily working hours
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.
