Sign up for our FREE webinar on integrating global HCMs with your Asia payroll! Taking place on 7 March 2024.
Malaysia is one of ASEAN’s hottest markets and offers a multitude of opportunities for businesses.
In recent years, the Malaysian government has put increasing emphasis on enhancing employee protection in the country. For instance, the latest amendments to the Employment Action, put into effect in January 2023, extended its coverage to more employees in the country. Businesses are expected to comply with new regulations related to overtime pay, among others. Additionally, the business policy proposed by The Malaysia Budget 2024, i.e., “Bajet 2024” offers more incentives and opportunities for business owners. In order to take full advantage and stay compliant, businesses need to be vigilant when it comes to hiring, visa application, and payroll management. For many growth-oriented businesses, overtime pay can make up a huge part of business expenses in Malaysia, and overtime calculation can be time-consuming and complicated. Here’s a quick guide on understanding and calculating overtime pay rates in Malaysia.
Malaysia Law On Overtime
The key legislation in Malaysia related to employment matters is the Employment Act 1995 or EA 1995. According to the latest amendment, which has been in effect since 1 January 2023, the EA will apply to all employees irrespective of wages, with some specific sections not applying to employees earning more than RM4,000/month. According to the labour law in Malaysia:
- Workers can work up to 45 hours per week (excluding meal time) per week. Any work performed beyond that is considered overtime.
- The maximum overtime allowed is 104 hours per calendar month; that equals around 4 hours every day.
- For non-shift workers on an 8-hour day (excluding breaks), 5 days per week, the overtime limit remains at the maximum of 4 hours per day on the working days.
- The employer may require shift workers to work for more than 8 hours daily or more than 45 hours weekly. However, the average number of hours worked over any period of 3 weeks shall not exceed 45 hours per week.
- There should be a rest period of 30 minutes for every five hours of work.
- Malaysian labour law states that the overtime pay rate on a working day shall be no less than one and a half (1.5) times the hourly rate of pay.
What Constitutes Overtime Work?
A simple definition of overtime work in Malaysia is the number of hours worked beyond normal working hours. This can mean more than 8 hours of work in one day or over 45 hours in a week. However, it is important to note that as per Malaysia’s Employment Regulations 1980, there is a limit to how much overtime work can be done. Employees can only work overtime for 104 hours in one month. On average, this translates to 4 hours of overtime work per day.
Penalty For No or Late Overtime Payment
Through the amendment of the Employment Act 1955 in 2023, employers who fail to comply to the changes can receive a general fine of up to RM50,000 1. This could apply to employers who refuse to pay overtime wages or who pay at a lower rate. Poor payroll management in Malaysia can bring cost consequences and is detrimental to your corporate branding. For companies who do not have an experienced, local and dedicated payroll team, you can avoid being penalised by outsourcing your payroll to someone professional.
Read more: Malaysia Company Registration Guide
Overtime Rate Calculation in Malaysia
Overtime rate in Malaysia depends on many factors, including:
- Whether an employee’s pay is monthly rated or daily rated
- Whether the employee worked on normal days, public holidays, or rest days.
Overtime Calculation in Malaysia: Normal Days
For normal working days, an employee should be paid at a rate of 1.5 times their hourly rate for overtime work. This is applicable whether the employees are paid on a daily rate or on a monthly basis.
- First, calculate the daily ordinary rate of pay by dividing the monthly salary by 26.
- Then divide the ordinary rate by the number of normal work hours to get the hourly pay rate.
- Finally, calculate overtime pay by multiplying the hourly rate by 1.5 and then multiply this figure by the overtime hours.
- If the monthly salary is RM 1600,
- the normal working hours are 8 hours and
- overtime work is 10 hours.
Example of Overtime Rate in Malaysia Calculation:
Ordinary Rate = Monthly Salary / 26
- RM 1600 / 26 = RM 61. 53
Hourly Pay = Daily Rate of Pay / Normal Working Hours
- RM 61.5 / 8 = RM 7.6
Overtime Pay = Hourly Rate X Overtime Hours X 1.5
- RM 7.6 x 10 x 1.5 = RM 114
Overtime Calculation in Malaysia: Rest Days
Every employee, under the Employment Act, is allowed one rest day a week at a minimum. If there is more than one rest day for an employee, the last day is considered the rest day to calculate overtime pay.
For employees on monthly pay, half of the ordinary pay rate has to be paid for a rest day’s work if the work hours do not exceed half of their normal work hours. If the work hours on a rest day exceed half of the normal work hours, a full day’s pay has to be paid.
Example of Rest Days Calculations of Overtime Rate in Malaysia:
Monthly Salary = RM 1200,
Normal Work Hours = 8 Hours and;
Overtime Hours on A Rest Day= 3 Hours (Not Exceeding Normal Work Hours),
Calculate the Ordinary Daily Rate by Dividing Monthly Salary (RM 1200) By Working Days (26) = RM 46.15. As per the regulation, the employee has to be paid half the ordinary rate when the work hours on a rest day are below the normal working hours. (46.15/2 =RM 23. 07).
Employees on hourly or daily pay are entitled to a day’s wages if their work hours on a rest day do not exceed half the normal work hours. If the employee’s work hours on a rest day are more than half of the normal hours (but do not exceed normal working hours), they have to be paid two days’ wages. Any overtime work that is in excess of normal working hours needs to be paid at twice the hourly rate of the employee. This applies, regardless of whether the remuneration is on a daily or monthly basis.
Calculation of Overtime Rate in Malaysia: Public Holidays
If employees work overtime on a public holiday (not exceeding normal working hours), they need to be paid two days’ pay at ordinary rates. This applies whether the employee is on hourly, daily, or monthly payments.
If an employee’s working hours on a public holiday exceeds their normal working hours, they have to be paid three times their ordinary hourly rate.
Read more: Top 5 Reasons to do Business in Malaysia
Take Your HR To the Next Level by Digitalising Your Payroll!
Keeping track of overtime pay in Malaysia can be challenging for HR professionals and employers, regardless of the size of the company. If your business has multiple offices in other countries, such as Vietnam or Singapore, the complexities of payroll can multiply and become more challenging.
By outsourcing your payroll to a trusted partner, you can skip these complications and focus on business growth! Links has been providing HR services in the APAC region for over 20 years. Learn how we can help streamline your business operations by contacting us now!
*Please use the information as a general guide, please contact us for more information.
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In this webinar, Scott Thomson, Group Managing Director and Lynette Liew, APAC Senior Business Development Manager at Links International, will walk you through the key areas of payroll integrations. The team will also be happy to answer any questions you have on integration during the Q&A session.
What To Expect in This Webinar:
- Why clients should set up a HCM-payroll integration
- Benefits of HCM + payroll integrations
- Options/solutions for integrating with global HCMs such as Workday, SAP/SuccessFactors and Oracle with Asia payroll
- What to think about when planning an HCM integration
|Thursday, 7th March 2024
|11AM HKT (30 mins)
|Online (Zoom) Webinar