Employment Act Amendments: Updated Leave and Overtime Rules

The Employment Act 1955 amendments that took effect on 1 January 2023 represent the most significant changes to Malaysian labour law in decades. These amendments expanded the Act's coverage from employees earning RM2,000 or below to all employees regardless of salary (for core protections), introduced flexible work arrangements, extended maternity leave, and updated overtime provisions. For SME owners employing even one person, understanding these changes is not optional: non-compliance carries fines of up to RM50,000 per offence. This guide covers the specific changes that affect your business operations.

Expanded Coverage: Who the Act Now Protects

Before the amendments, the Employment Act fully applied only to employees earning RM2,000 or less per month (raised to RM4,000 from 2012), plus manual labourers regardless of salary. The amendments expanded coverage:

Full coverage (all provisions apply): Employees earning RM4,000 or less per month

Core protections (regardless of salary): All employees are now covered for:

• Maternity protection
• Sexual harassment provisions
• Termination and lay-off benefits
• Working hours and rest day provisions
• Overtime limits
• Flexible work arrangement requests

This means a manager earning RM8,000 per month is now covered by core Employment Act protections that previously did not apply to their salary level.

Leave Entitlements: What Has Changed

Maternity Leave

The most significant change: maternity leave was extended from 60 consecutive days to 98 consecutive days (approximately 14 weeks). This aligns Malaysia with the International Labour Organization's Maternity Protection Convention recommendation.

• Duration: 98 consecutive days
• Maternity allowance: Paid at the employee's ordinary rate of pay for the 98 days
• Eligibility: Female employees who have worked for the employer for at least 90 days in the 9 months before confinement
• Maximum claim: For up to 5 surviving children

For a small business, 98 days of paid leave is a significant financial commitment. At a RM3,000 monthly salary, the cost is approximately RM9,800. However, this is a legal obligation. Failure to provide maternity leave or maternity allowance is an offence.

Paternity Leave (New)

Fathers are now entitled to 7 consecutive days of paid paternity leave. This is a new provision that did not exist in the pre-amendment Act.

• Duration: 7 consecutive days
• Eligibility: Male employees married to the mother, employed for at least 12 months, who have notified the employer at least 30 days before the expected confinement
• Maximum claim: For up to 5 surviving children

Annual Leave

Unchanged by the amendments but worth noting for compliance:

Years of Service	Minimum Annual Leave
Less than 2 years	8 days
2 to less than 5 years	12 days
5 years or more	16 days

Sick Leave

Also unchanged:

Years of Service	Sick Leave (Non-Hospitalization)	Hospitalization Leave
Less than 2 years	14 days	60 days
2 to less than 5 years	18 days	60 days
5 years or more	22 days	60 days

Hospitalization leave is inclusive of non-hospitalization sick leave, not in addition to it.

Working Hours and Overtime

Maximum Working Hours

The maximum working hours were reduced from 48 hours per week to 45 hours per week. This applies to all employees earning RM4,000 or less.

For a standard 6-day work week: maximum 7.5 hours per day For a standard 5-day work week: maximum 9 hours per day

Overtime Rates

Overtime compensation rates remain:

Circumstance	Rate
Normal working day (beyond normal hours)	1.5x hourly rate
Rest day (first 8 hours)	1.0x hourly rate
Rest day (beyond 8 hours)	2.0x hourly rate
Public holiday	2.0x hourly rate
Public holiday (beyond normal hours)	3.0x hourly rate

Maximum overtime: 104 hours per month (unchanged).

The hourly rate is calculated as: monthly salary / 26 / normal daily working hours.

Flexible Work Arrangements (New)

Employees can now formally request flexible work arrangements from their employer. This includes:

• Changes to working hours
• Changes to working days
• Changes to place of work (including working from home)

The employer must respond to the request within 60 days. The employer can refuse the request but must provide written reasons for the refusal.

This provision does not guarantee flexible work: it creates a right to request and an obligation for the employer to consider and respond. Refusals based on legitimate business grounds (the role requires physical presence, operational requirements, client-facing nature of the work) are valid.

For service businesses where physical presence is essential (salons, clinics, workshops), the refusal ground is straightforward: the service requires the employee to be at the premises. However, administrative roles within service businesses may be eligible for some flexibility.

Termination, Layoff, and Retrenchment

Termination Benefits

All employees (regardless of salary) are now entitled to termination and lay-off benefits:

Years of Service	Benefit Per Year of Service
Less than 2 years	10 days' wages
2 to less than 5 years	15 days' wages
5 years or more	20 days' wages

Discrimination Protections (New)

The amendments introduced protections against employment discrimination. Employers may not discriminate in employment based on race, gender, religion, disability, or other protected characteristics. While the enforcement mechanisms are still developing, this provision establishes a legal foundation for discrimination claims.

What SME Owners Must Do

Step 1: Review Employment Contracts

Ensure all employment contracts reflect the updated provisions:

• 45-hour maximum work week
• 98-day maternity leave
• 7-day paternity leave
• Correct overtime rates
• Flexible work arrangement request process

Step 2: Update Payroll Systems

Verify your payroll correctly calculates:

• Overtime based on 45-hour weeks (not the old 48-hour threshold)
• Maternity allowance for 98 days
• Paternity leave pay

Step 3: Create a Flexible Work Request Process

Even if your business is primarily on-site, you need a formal process for receiving and responding to flexible work requests within the 60-day timeframe.

Step 4: Train Managers and Supervisors

Anyone who manages staff must understand the updated provisions, particularly around overtime limits, leave entitlements, and the new anti-discrimination protections.

Service businesses managing staff schedules through EzFlow can configure working hour limits and leave tracking to ensure automatic compliance with the 45-hour weekly maximum and correct leave allocations.

Datuk Shamsuddin Bardan, executive director of the Malaysian Employers Federation (MEF), commented at the 2024 National Labour Law Conference: "The Employment Act amendments require every employer, regardless of size, to review and update their employment practices. The most common compliance gap we see in SMEs is the failure to update employment contracts to reflect the new 45-hour work week and extended maternity provisions."

Frequently Asked Questions

Does the 45-hour work week apply to all employees?

The working hours provision applies to all employees earning RM4,000 or less per month. Employees earning above RM4,000 are covered by the contractual terms of their employment, which may specify different arrangements. However, best practice is to apply the 45-hour standard across all employees.

Can I refuse a flexible work arrangement request?

Yes, but you must respond in writing within 60 days and provide reasons for the refusal. Valid reasons include operational requirements, nature of the role, and inability to reorganize work among existing staff. The refusal must be genuine and not a blanket rejection of all requests.

How do I calculate overtime under the new 45-hour limit?

Any hours worked beyond 45 per week (for employees earning RM4,000 or less) are overtime hours and must be compensated at the prescribed rates. For a 5-day work week, normal hours are up to 9 per day and 45 per week. For a 6-day week, normal hours are up to 7.5 per day and 45 per week.

What are the penalties for non-compliance with the Employment Act?

Fines of up to RM50,000 per offence. Repeat offences can result in higher fines and imprisonment. The Labour Department conducts audits and can initiate prosecution based on employee complaints or routine inspections.

Does paternity leave apply to all fathers?

Paternity leave applies to male employees who are married to the mother, have worked for the employer for at least 12 months, and have notified the employer at least 30 days before the expected confinement. The entitlement covers up to 5 surviving children.

Key Takeaways

• The Employment Act 1955 amendments expanded core protections to all employees regardless of salary level.
• Maximum working hours reduced from 48 to 45 per week, affecting overtime calculations for all covered employees.
• Maternity leave extended from 60 to 98 consecutive days, a significant cost for SMEs that must be budgeted.
• New provisions include 7-day paternity leave, flexible work arrangement requests, and anti-discrimination protections.
• Non-compliance fines of up to RM50,000 per offence make updating employment contracts and payroll systems urgent for every employer.