Malaysia Employment Act 1955 for Foreign Employers 2026: The Complete HR Compliance Guide — Post-2022 Coverage, the RM4,000 Line, 45-Hour Week, 98-Day Maternity, RM1,700 Minimum Wage, Termination Benefits and the HRD Corp Levy

A newly incorporated Malaysian subsidiary usually hires its first local employee within weeks of getting the company number — and almost always issues that person the same offer letter template the parent company uses at home. That is the trap. In Malaysia the Employment Act 1955 (Act 265) sets a floor of statutory minimums, and any contract term less favourable than the Act is void to the extent of the shortfall. The employee still gets the statutory entitlement; the employer simply discovers the gap later, usually at the Labour Department counter or in a dismissal claim. Since the Employment (Amendment) Act 2022 took effect on 1 January 2023, that floor is both higher and much wider: normal working hours dropped from 48 to 45 per week, maternity leave rose to 98 days, paternity leave became statutory, and — the change most foreign employers miss — every employee is now covered regardless of salary. This guide sets out the compliance baseline a foreign-owned company must meet from its first hire.

What the Act is, where it applies, and who it now covers

The Employment Act 1955 is Malaysia's primary employment statute, administered by the Labour Department (Jabatan Tenaga Kerja Semenanjung Malaysia, JTKSM) under the Ministry of Human Resources. It governs the substantive terms of the employment relationship — the contract, working hours, leave, notice and termination benefits.

Territorially, it covers Peninsular Malaysia and the Federal Territory of Labuan. Sabah and Sarawak are not covered — they operate under their own Labour Ordinances, similar in architecture but different in detail, so a company incorporating in Kuala Lumpur and later opening a branch in Kota Kinabalu cannot simply extend the same HR handbook. Foreign employers frequently assume a single national labour code exists. It does not.

Note also what the Act is not. Unfair dismissal sits under the Industrial Relations Act 1967; statutory payroll contributions come from the EPF, SOCSO and EIS legislation. Act 265 is the entitlement floor, and the full compliance picture is assembled from several statutes at once.

Who is covered now: the 2022 expansion and the RM4,000 line. Before 2023, the Act's protection was drawn by a wage threshold — broadly, employees earning up to RM2,000 a month, plus certain manual and transport categories regardless of wage. Executives, managers and well-paid professionals fell outside it entirely.

The amended First Schedule changed this completely: all employees are now covered, regardless of salary level. A country manager on RM25,000 a month is an "employee" under Act 265 in the same way a warehouse assistant on RM1,800 is. Written-contract requirements, leave, maternity and paternity, flexible working, sexual-harassment and forced-labour protections apply across the board.

What remains wage-limited is a specific and narrow set of monetary provisions, capped at RM4,000 per month:

• Overtime under section 60A.
• Rest-day and public-holiday premium pay.
• Shift allowance.
• Termination, lay-off and retirement benefits under section 60J.

An employee earning above RM4,000 a month is covered by the Act generally but has no statutory right to overtime pay, rest-day premiums or statutory retrenchment benefits — unless the contract grants them, or unless the employee falls into a manual-labour category that qualifies irrespective of wage. Foreign employers go wrong in both directions here: some assume high earners are outside the Act altogether and skip the contract and leave obligations; others assume everyone is entitled to overtime and build a payroll cost the law does not require.

The written contract: what must be in it

A written contract of service is mandatory for any engagement exceeding one month. A verbal offer, a WhatsApp confirmation or an unsigned draft does not satisfy the Act. A compliant Malaysian contract should specify:

• Job title, duties and place of work.
• Wages — basic salary, pay period and date of payment. Wages must be paid no later than the seventh day after the end of the wage period.
• Normal working hours and rest day, consistent with the 45-hour ceiling.
• Leave entitlements — annual, sick, hospitalisation and public holidays, at or above statutory minimums.
• Notice period and the manner of termination by either party.
• Any probation period, and how it is confirmed or extended.
• Deductions authorised by law, and any allowances or bonuses.

Where the contract is silent on notice, the statutory minimum periods apply automatically — usually less favourable to the employer than a well-drafted clause would have been.

Separately, the employer must keep an employee register with prescribed particulars for each employee and retain it for inspection. An employer who cannot produce contracts, wage records and the register is already in breach before any substantive issue is examined. For a company running HR out of a head office abroad, the practical point is that the records must exist in Malaysia, in a form an inspector can read.

Working hours, overtime and rest days

The 2022 amendment reduced maximum normal working hours from 48 to 45 hours per week. This is the most commonly overlooked change, because many foreign employers imported a six-day, eight-hour schedule that was lawful before 2023 and is now over the ceiling. Within that limit, an employee generally may not be required to work more than eight hours in one day, or a continuous stretch exceeding five hours without a rest period of at least 30 minutes.

Work beyond normal hours is overtime, paid — for employees within the RM4,000 cap — at statutory multiples of the ordinary hourly rate:

• 1.5× the hourly rate for overtime on a normal working day.
• 2× for work on a rest day.
• 3× for work on a public holiday.

Every employee is entitled to at least one whole rest day per week. Rest days and public holidays carry distinct premium rates, so payroll configured for a single "weekend rate" will under- or over-pay. Because these premiums are wage-capped, apply the RM4,000 test per employee rather than switching overtime on or off company-wide.

Leave entitlements in full

Leave is where the Act is most prescriptive and where imported handbooks most often fall short. Annual and paid sick leave both scale with length of service; hospitalisation leave is a separate, larger allowance. Maternity and paternity leave were both changed by the 2022 amendment.

Maternity leave rose from 60 to 98 days under the 2022 amendment, aligning Malaysia with ILO Convention 183. Paid maternity allowance requires that the employee was employed at least 90 days in the 9 months immediately before confinement and has fewer than five surviving children. Sick leave requires certification by a registered medical practitioner or dental surgeon. One point is frequently mis-stated by payroll vendors still working from pre-2023 material: the 2022 amendment removed the old rule that the 60 days of hospitalisation leave were inclusive of ordinary sick leave. Since 1 January 2023 the two are separate — an employee with five years' service can take 22 days of ordinary paid sick leave and up to 60 days of paid hospitalisation leave in the same calendar year. Handbooks that still say "inclusive" are understating the entitlement and are unenforceable to that extent.

Paternity leave is new and statutory — 7 consecutive days, not working days. The conditions are cumulative: the employee must be married to the mother, have been employed at least 12 months, and must notify the employer at least 30 days before the expected confinement. Employers who treat paternity leave as a discretionary gesture rather than an entitlement are exposed, and those who leave the 30-day notice out of their leave policy find the entitlement claimed at short notice with no process to manage it.

Minimum wage: the RM1,700 rollout is complete

The national minimum wage is set by ministerial order rather than by the Employment Act, but it applies to essentially every employer and is enforced by the same Labour Department. Under the Minimum Wages Order 2024, the rate is RM1,700 per month. The rollout was staged, and that staging is now finished:

• From 1 February 2025 — employers with five or more employees, plus professional-services employers classified under MASCO regardless of headcount.
• From 1 August 2025 — all remaining employers, including micro-enterprises with fewer than five employees.

There are no remaining deferments or transition periods. A newly incorporated company hiring two or three staff has no small-business exemption to rely on — that window closed on 1 August 2025. Note also that the minimum is a basic wage floor: structuring a package as RM1,400 basic plus RM300 "allowance" does not comply.

Flexible working, harassment and forced labour: the new duties

The 2022 amendment added employee-protection duties with no equivalent in many home-country handbooks. They are procedural rather than monetary, which is exactly why they get skipped.

Flexible Working Arrangements (sections 60P–60Q). An employee has a statutory right to apply in writing for a change to their hours, days or place of work. The employer must reply in writing within 60 days, either approving the application or stating the grounds for refusal. Read this correctly: it is a right to ask, not a right to receive. An employer may lawfully refuse — but may not lawfully ignore. Silence past 60 days is the breach, not the refusal, and the clock starts on receipt, so the request-and-response process has to exist before the first request arrives.

Sexual harassment. Employers must display a conspicuous notice at the workplace raising awareness of sexual harassment, and must inquire into any complaint made. The notice is a physical, visible obligation — a clause buried in a handbook does not discharge it — and the duty to investigate means the company needs a named person and a documented procedure.

Forced labour (section 90B). It is now an offence for an employer to threaten, deceive or force an employee into any activity the employee has not consented to. Introduced against the background of international scrutiny of Malaysian supply chains, it has teeth. Practices normalised elsewhere — retaining passports, compelling unagreed overtime, tying wages to conditions the employee never accepted — fall squarely within its language. Companies employing foreign workers should read this alongside the permit and levy regime; see our guide to the foreign worker permit (PLKS), levy and FWCMS system.

Termination: notice, benefits and the unfair-dismissal risk

Termination is where foreign employers face the largest and least anticipated exposure, because two separate regimes operate at once. The first is the Employment Act, which sets minimum notice periods — applying to either party — where the contract does not specify them, and termination and lay-off benefits for employees within the section 60J wage cap under the Employment (Termination and Lay-Off Benefits) Regulations 1980.

Notice may be paid in lieu. Termination benefits are payable on retrenchment, closure or lay-off — not on resignation, and not on dismissal for misconduct after due inquiry — and only within the RM4,000 section 60J cap unless the contract extends them.

The second regime produces the real cost. Under the Industrial Relations Act 1967, an employee dismissed without just cause or excuse may file a representation seeking reinstatement, and the matter can proceed to the Industrial Court. Malaysia is a security of tenure jurisdiction: there is no at-will employment. Paying the correct notice does not by itself make a dismissal lawful. The employer must show a valid reason — misconduct proven after a fair domestic inquiry, documented poor performance, or bona fide redundancy on correct selection principles — and that a fair procedure was followed.

This is the largest gap between Malaysian practice and what foreign parent companies expect. A head-office instruction to "pay two months and let him go" satisfies the Employment Act and can still produce an Industrial Court award of back wages and compensation in lieu of reinstatement. Documentation built during employment — performance records, warning letters, inquiry minutes — is the only real defence, and it cannot be manufactured after the decision.

HRD Corp levy and payroll-adjacent obligations

The Employment Act is not the whole employer burden. Several other statutes attach at defined headcount or wage triggers, and one is routinely missed by growing subsidiaries. The HRD Corp training levy, imposed under the Pembangunan Sumber Manusia Berhad Act 2001, works as follows:

• Employers with 10 or more Malaysian employees are required to register and pay 1% of monthly wages plus fixed allowances.
• Employers with 5 to 9 Malaysian employees may register optionally, at 0.5%.

The penalties are real. Non-payment carries a fine of up to RM20,000 and/or imprisonment of up to 2 years. Failure to respond to a registration notice within 30 days can be compounded up to RM2,000, and arrears attract 10% annual interest. The levy counts Malaysian employees only, so a mixed local and expatriate workforce has to be counted carefully rather than by total headcount.

Alongside HRD Corp, the mandatory payroll contributions — EPF, SOCSO, EIS and monthly tax deduction (PCB) — attach from the first employee; see our EPF, SOCSO, EIS and PCB employer payroll guide. Where the company is also hiring expatriates, the Employment Pass regime carries its own salary thresholds and succession-plan requirements — see our guide to the Employment Pass, NEEP salary thresholds and Dependent Pass rules.

A compliance checklist before the first hire

Employment compliance in Malaysia is not difficult, but it is unforgiving of assumptions. This sequence takes a new Sdn Bhd to a defensible HR baseline:

1. Confirm territory — Act 265 for Peninsular Malaysia and Labuan, the relevant Labour Ordinance for Sabah or Sarawak.
2. Issue a compliant written contract to every employee engaged for more than one month, reviewed against the statutory floor rather than the parent company's template.
3. Set hours within 45 per week, designate a weekly rest day, and configure overtime at 1.5×, 2× and 3× within the RM4,000 cap.
4. Load the leave table into payroll: annual and sick leave banded by service, 60 days' hospitalisation, 98 days' maternity, 7 days' paternity, 11 public holidays.
5. Verify every basic wage is at least RM1,700 a month. No size exemption remains.
6. Register EPF, SOCSO, EIS and PCB from the first employee, and monitor the HRD Corp threshold from employee 8 onward.
7. Display the sexual-harassment notice and appoint someone to receive and inquire into complaints.
8. Create the FWA process — request form and written-response template — so the 60-day obligation is met without improvisation.
9. Maintain the employee register and wage records in Malaysia, in inspectable form, and build the dismissal file as you go — performance records, warnings and inquiry minutes must predate any decision to terminate.

Getting the baseline right before the first offer letter

The pattern we see repeatedly is a foreign-owned Sdn Bhd that handled incorporation, licensing and banking carefully, then treated HR as an afterthought — home-country offer letter, 48-hour week, flat rate with no overtime configuration, and the HRD Corp levy discovered eighteen months and eleven employees later. None of these are hard problems at the outset, but all are expensive to unwind: statutory entitlements accrue from the date of engagement and cannot be waived retrospectively, even by agreement. ONEKEY BIZ builds this baseline as part of company setup, so employment contracts, payroll registration and the statutory calendar are aligned from day one rather than reconstructed after an inspection. If you are about to make your first Malaysian hire, talk to our team or review our legal and contract drafting service to make sure the offer letter you are about to send actually clears the floor.

This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.