A Complete Guide to the Employment (Amendment) Act, 2022, in Malaysia

Explore the key changes under the Malaysia Employment Amendment Act, delve into the implications of these changes for both employers and employees, and discover how HR Technology can help in complying with the changes.

A Brief Overview of the Employment Act, 1955 in Malaysia

The Employment Act 1955 is a piece of labor legislation in Malaysia that sets out the minimum terms and conditions of employment for most categories of workers in the country. The Employment Act of 1955 regulates employment law in Malaysia. It outlines the minimum benefits that Malaysian workers are expected to receive.

Any provisions in an employment contract that offer less favorable benefits than those specified by the Employment Act are deemed invalid and unenforceable, and the minimum benefits under the Employment Act take precedence. The act applies to all employees who are engaged under a contract of service, regardless of their occupation, trade, or industry.

The Employment Act provides basic employment protection to workers, such as regulating working hours, overtime pay, annual leave, sick leave, and termination of employment. The act also covers issues related to the employment of women, including maternity leave and restrictions on night shifts. Since it was first passed, the Employment Act has been changed several times, with the most recent change being in 2022. The goal of the changes is to improve and update the country's employment laws, so that workers are better protected, and the act fits with the current economy and the changing needs of the Malaysian labor market.

The Challenges Facing the Labor Market in Malaysia

Malaysia's objectives for structural reforms needed to place a high priority on the labor markets and related policies. There are several practices that needed to be reformed, considering the evolution of the world of work. Let’s look at some of the major challenges in the Malaysia labor market:

• A large proportion of employees are vulnerable to losing their jobs as only approximately half the workers are protected by employment-based social security programs.
• The lack of a comprehensive unemployment insurance program puts workers at a disadvantage, discourages mobility, and reduces their ability to bargain for better pay and working conditions.
• Despite recent progress, female labor market participation is still 10-15% behind peer-group averages, mainly due to the lack of affordable childcare options and cultural expectations that men should be the primary breadwinners.
• There was a need to address unequal compensation for equal work and provide more generous and gender-neutral parental leave options.
• As a pandemic alleviation tool, the government has been promoting flexible work and providing tax incentives to employers, but changing entrenched habits has proven to be difficult.
• With youth unemployment being over seven times higher than that of workers in their middle years, youth unemployment is also a significant issue. In addition, more than a third of all workers with tertiary educations hold occupations that are under their level of expertise.

Learn More: 7 Flexible Work Arrangement (FWA) Trends in Malaysia

The Need for and Importance of the Employment Amendment Act, 2022

The Employment Act of 1955 needed to be updated, considering changes in the cost of living, the value of the currency, and some of the challenges described in the previous section. The Employment (Amendment) Bill 2021 was passed by the Dewan Negara on March 30, 2022. This is the upper house of parliament in Malaysia. The changes made to the Bill are based on Malaysia's commitment to follow international labor law standards and practices as required by the Trans-Pacific Partnership, the Malaysia-United States Labor Consistency Plan, and the International Labor Organization (ILO). Earlier set to come into effect on Sep. 01, 2022, the amended Act came into force on Jan. 01, 2023, following an announcement by Datuk Seri Saravanan Murugan, the Minister of Human Resources in Malaysia.

The Employment Amendment Act of 2022 aims to improve and update the legal framework for employment in the country. The changes aim to provide better protection for workers and to address issues such as fair treatment, minimum wage, and working hours. The amendments also aim to align the act with current economic conditions and to reflect the evolving needs of the labor market in Malaysia.

Learn More: 11 Key Amendments to the Malaysian Employment Act, 1955: Implications for 2023 and Beyond

Significant Changes Under the Employment Amendment Act, 2022

The Malaysia Employment Amendment Act has brought about several changes to the country's labor laws, with a focus on ensuring fair and equitable treatment of employees. These changes have wide-ranging implications for both employers and employees in Malaysia. Let’s look at some of the most significant changes introduced by the Act.

1. Increased coverage under ‘employees’

With the introduction of the new amendment, all employees are covered under the Act, no matter how much they are paid. This section of the Act has arguably been long overdue for change. Until now, the Employment Act 1955 only covered two specific categories of employees. These included employees who:

• Regardless of occupation, made less than RM2,000 per month
• Regardless of pay, performed certain vocations, including manual labor, supervised manual laborers, or drove mechanically propelled vehicles.

After the Employment (Amendment) Act 2022, the provisions of the Act will be applicable to anybody who has signed an employment or service contract. Certain elements, however, would only be applicable to a specific class of workers earning RM4,000 and lower. These include:

• Section 60(3): Overtime rates for employees working on rest days
• Section 60A(3): Overtime rates outside working hours
• Section 60C(2A): Allowance for shift-based work
• Section 60D(3): Overtime on public holidays
• Section 60D(4): Overtime for half working days on holidays
• Section 60J: Termination, lay-offs, retirement benefits

2. Reduction in maximum working hours

As of January 1, 2023, this maximum number has been lowered to 45 hours per week (not including mealtimes). Previously, workers in Malaysia could work a maximum of 48 hours per week

3. Protection of women in the workplace

The new amendment has introduced certain provisions to ensure the protection of women, especially working mothers in the workplace. These include:

• The maternity leave allotment, which has been increased from 60 to 90 days.
• With her employer's permission, a woman can go back to work at any time during her maternity leave if a registered medical practitioner says she is fit to do so, regardless of the duration of maternity leave.
• If a female employee is pregnant or sick because of her pregnancy, her employer can't fire her or give her a notice of termination of employment unless she did something wrong, broke the contract of service on purpose, or the business shut down.
• If a pregnant female worker is fired for any of the reasons listed above, it is the employer's job to prove that the firing has nothing to do with her pregnancy or an illness caused by pregnancy.
• The Amendment Act has repealed Part VIII, which forbade an employer from requiring any female employee to work nights (between the hours of 7 p.m. and 5 a.m. in any industrial or agricultural venture) or to start the day without 11 hours of rest or to hire women for any underground labor. In essence, this would enable women to work evening and night shifts.

4. Paternity Leave

The amendment includes a provision for paid paternity leave. This marks a turning point in Malaysian employment law as working fathers will now be entitled to 7 days of paid paternity leave that must be taken consecutively.

Married male employees will qualify for paternity leave if they have worked for the same employer for at least a year prior to the start of the paternity leave and if they provide the employer 30 days' notice from the due date of the anticipated pregnancy or as soon as possible after the birth.

5. Flexible Working Arrangements (FWA)

As a result of the amendments to the EA, employees in Malaysia who desire FWAs may submit an application to their respective employers. Applications for FWAs must be submitted in writing and may include requests to alter working hours, working days, as well as the location of employment. These also include arrangements like work-from-home, part-time work, job-sharing, shift swapping, staggered working hours, and so on. Employers would have to respond to the employee's request in writing within 60 days and, if necessary, provide an explanation for any rejections.

Learn More: Flexible Work Arrangement Updates for Malaysia 

6. Sick leaves

Changes have also been made to sick leaves by getting rid of the rule that says the total number of sick leave and hospital stays can't add up to more than 60 days. This will give employees 60 days of sick leave if they need to stay in the hospital, in addition to their normal sick leave allotment.

7. Assumption of employment

According to the Bill, if an employee does not have a written contract of service, they are deemed to be an employee in any proceeding for an offense under the Act if:

• Their manner of work is subject to the supervision or control of another person.
• Their working hours are under the supervision or control of another person.
• They receive tools, supplies, or equipment from another individual to do a task.
• Their work is a crucial component of another person's enterprise.
• Their effort is made purely for another person's profit.
• They receive compensation for the task they perform on a regular basis, and this compensation makes up most of their income.

On the other hand, when the positions are reversed, one is assumed to be the employer.

8. Employment and termination of foreign workers

With the amendment, employers who want to hire foreign workers must now get permission from the Director-General first. If approval is not obtained within 14 days in the prescribed manner, it may result in a fine of up to RM 100,000, up to five years in prison, or both.

Employers must also intimate the Director-General within 30 days if or when they terminate the employment of a foreign worker (or in the case of expiry of employment pass, repatriation, or deportation). If a foreign employee is absconding, i.e., quits without telling their employer, the employer has 14 days to inform the Director General.

9. Calculation of wages for an incomplete month’s work

The Amendment Act added a new section with the formula for figuring out an employee's pay when they haven't worked for a full month:

(Monthly Wages/No. of days of the particular wage period) X No. of days eligible in the wage period

10. Payment of wages

Wages must be paid through Approved Issuers of a Designated Payment Instrument. The word "bank" is changed to "financial institution" by the Amendment Act where the term “financial institution” includes a licensed bank, licensed Islamic bank, and prescribed institution. A financial institution is an approved issuer of a designated payment instrument, such as an e-wallet, used to pay wages.

Employers may pay employees wages by cash or by cheque if a written request is submitted by an employee and has been approved by the Director-General (labor office).

11. Apprenticeship contracts

Apprenticeship contracts can now be between 6 and 24 months long. Before, they had to be at least 2 years long. These contracts are what are called "contracts of service."

12. Overtime

The Employment Act of 1955 says that "overtime" is work done beyond the normal number of hours per day. According to the updated First Schedule of the Employment Act of 1955, people who make more than RM4,000 a month are not legally entitled to overtime pay.

As a result, overtime pay for employees who work more than their normal hours of work would only be applicable to:

• Employees who earn RM4,000 or less
• Employees who perform manual labor, such as artisan or apprentice work
• Employees who operate and maintain mechanically propelled vehicles used to transport passengers, goods, or other things
• Employees who are in charge of other employees

The act recognizes overtime as:

• Overtime beyond normal working hours
• Overtime during a non-working day
• Overtime during a public holiday

If an employee who earns less than RM4,000 worked in excess of 45 hours per week, they will be considered for overtime work. They shall be entitled to a premium equal to 1.5 times the hourly rate of pay.

13. Forced labor

According to the amendment, it is unlawful for any employer to intimidate, lie to, or coerce an employee into doing labor or prevent them from leaving the workplace. Employers who commit this offense face a maximum punishment of RM100,000, a maximum sentence of 2 years in prison, or both.

14. Notice of sexual harassment

The amendment has raised the fine from RM10,000 to RM50,000 for employers who don't look into claims of sexual harassment. Employers must now also post a notice to raise awareness about sexual harassment in the workplace.

15. Workplace discrimination

The Director General has the power to look into and decide on disputes between employers and employees about discrimination in the workplace. Also, the Director General can give an order when it's necessary.

If an employer doesn't follow any order from the Director General, they are breaking the law and can be fined up to RM50,000 if they are found guilty. In the case of a continuing offence, the employer will have to pay a fine of up to RM1,000 per day for as long as the offence goes on after being found guilty.

16. Court order for payments due to employees

The Amendment Act gives the Court the authority to force employers to make any payments owed to employees in connection with a court conviction. The employee may ask the court to issue a warrant to levy the employer's property for payments due and owed to them through property distress and sale or by a fine authorized under the Criminal Process Code if the employer refuses to abide by the court's ruling.

17. General penalty

The general fine for breaking the Act or any subsidiary laws made under the Act for which there was no penalty before has been raised from RM10,000 to RM50,000.

Learn More: Flexible Work Arrangement Policy in Malaysia: Types of Flexible Work Arrangements

What Will Be the Impact of the Employment Amendment Act?

The Malaysia Employment Amendment Act has been a significant update to the country's labor laws. With the introduction of several changes to areas such as employee rights, working hours, and leave entitlements, among others, the act has had a considerable impact on both employers and employees in Malaysia. Let’s explore the effects of the Employment Amendment Act, 2022, and highlight its potential impact on the country's workforce.

 1. Increased applicability of employee rights

This statutory provision is now available to employees who were not previously covered by the Act (such as those making more than RM2,000 per month). This group of workers had to rely only on the provisions of their employment contracts formerly, which caused some confusion for both employers and employees. With the new coverage amendments made to the Act, all employees are now covered, regardless of their income or line of work. The provision encompasses elements like paid time off, paid sick time, legal deductions, wage periods, when and how wages are paid, etc. The law will give a wider range of employees the right to overtime pay and pay for work done on days off and public holidays.

2. Protection for gig workers

Since the revisions also declare that there is a presumption of employment so long as there is control over work demands, schedules, and duties that must be delivered, this also applies to people who operate in the gig economy. As a result, the Act now protects home-based data entry teams, freelancers, and ride-hailing drivers who work at set times and rates. The Employment Act now fully protects the entire workforce, allowing them to use it to resolve management-personnel disputes such as the non-payment of salaries, the failure to deduct income taxes and provident fund payments, and the exploitation of overtime hours and rates.

3. Increased focus on workforce well-being

Reduction in maximum working hours, heightening workplace knowledge of sexual harassment and discriminatory practices, expanding sick and hospitalization leave etc. highlight the efforts to safeguard employees' welfare. The proposed changes focus on helping parents with maternity and paternity provisions. There is a marked emphasis on the need to enhance work-life balance and the general wellbeing of the workforce.

4. Increased costs for employers

According to Dr. Shankaran Nambiar, research director of the Malaysian Economic Research Institute, the amendment's implementation would result in higher operational costs for businesses. The Malaysian Employers’ Federation (MEF) has also noted that the modifications will result in a number of new expenses for employers, including a rise in the minimum wage from RM1,100 or RM1,200 per month to RM1,500 per month. According to the change, the monthly rate for overtime would rise from RM2,000 to RM4,000 per month. Further, it is being estimated that the new amendments are expected to increase labor cost by 6%.

What Are the Next Steps for HR?

The Employment (Amended) Act 2022 now applies to all employees, no matter how much they make or what they do for a living. This would include things like annual leave, sick leave, legal deductions, wage period, when and how wages are paid, etc. Also, under the amended Act, everyone in the company who has a contract of service is now considered an employee. These employees have the right to appeal if their FWA request is denied. Further, to comply with the Act, HR leaders will also have to make changes to policies on leave, sexual harassment, and discrimination, working hours, etc. HR leaders should take the following steps to make the change as smooth as possible:

• Look over their current employment contracts, employee handbooks, and policies to make sure they are in line with the law
• Talk to an expert on compliance
• Educate HR personnel and managers
• Engage lawyers to give just-in-time advice
• Sign up for law firms' newsletters to stay on top of the changes
• Set up a relevant policy, standard operating procedure (SOP), or terms and conditions for FWAs.

Learn More: 7 Ways to Prepare for Flexible Work Arrangements (FWA) in Malaysia

How HR Technology Can Help Make Compliance a Breeze

Complying with the many changes under the Employment Amendment Act can feel like a challenge, but it doesn’t have to. An end-to-end, highly configurable, and flexible HR tech solution can simplify compliance in the following ways:

1. Automated tracking and reporting

HR tech solutions can help organizations track and report on key data. By automating these processes, HR teams can ensure they are complying with the requirements of the amended Employment Act in a more efficient and accurate manner.

2. Self-service portals

Many HR tech solutions provide employees with self-service portals that allow them to view their personal data, update their information, and request leave or other benefits. These portals can help organizations comply with the changes related to annual leave, sick leave, and other benefits.

3. Compliance checks

HR tech solutions can perform compliance checks on various employment-related activities, such as hiring, termination, and contract renewal, to ensure they meet the requirements under the new Act. 

4. Customizable workflows

HR tech solutions can be customized to fit an organization's specific workflows, ensuring that all processes related to employee management are compliant with the reforms. Customizable workflows can help organizations stay up to date with changes to the act and adjust their HR practices as needed.

5. Automated compliance training

HR tech solutions can provide automated compliance training to employees and managers, ensuring that they are aware of the Employment Act's requirements and regulations. 

Ensure Full Compliance With Darwinbox!

An intuitive and flexible next gen HR Tech suite, Darwinbox can empower your organization to be compliant and change ready. Ensure a smooth transition with Darwinbox’s versatile and highly configurable HCM platform.

1. Built for Flexibility

Experience hassle-free configuration whether your organization is 100% remote, hybrid, or includes a combination of permanent staff, contractual workers, or gig workers. 

2. Seamlessly Integrated

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3. Secure

Ensure peace of mind with transparent audit trails, adaptation to compliance with applicable laws, and impenetrable data security. 

4. Highly configurable

Access a highly customizable control center that enables you to digitize your talent operations, set up custom workflows, and incorporate a service delivery layer.

5. Mobile-first

Whether it is logging hours, looking for employee data, or raising a ticket on the helpdesk, do it anytime, from anywhere, and faster.

Leap Into Flexibility With Darwinbox

With the Employment Amendment Act already in effect, ensuring that businesses are compliant with the changes under the law is critical. Make compliance seamless with Darwinbox’s intuitive and flexible HCM suite. Darwinbox can be your one-stop shop to experience increased HR efficiency, configurability, and agility.

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