The Act covers everyone — except for two sections

Malaysia's Employment Act 1955 was amended substantially in 2022, and understanding one threshold explains who gets statutory severance.

The general coverage

From 1 January 2023, the Employment Act applies to all employees — anyone who has entered into a contract of service.

The two exceptions

With an important carve-out: the sections relating to overtime payments and termination benefits do not apply to employees whose wages exceed RM4,000 per month.

So statutory termination benefits are for covered employees: those earning up to RM4,000, plus manual labourers, supervisors of manual labourers, operators of vehicles transporting passengers or goods commercially, domestic employees, and certain positions on seagoing vessels.

The formula

Termination benefits become payable in retrenchment or business closure:

• 10 days' wages per year of employment — under 2 years
• 15 days' wages per year — 2 years or more but less than 5
• 20 days' wages per year — 5 years or more

Above RM4,000

If you earn above the threshold, statutory termination benefits do not apply. Whatever you receive comes from your contract or company policy instead.

Which makes reading that clause important if you are in that bracket.

The retrenchment process

For mass retrenchment, the employer must notify the Director General of Labour at least 30 days in advance.

The Last-In, First-Out (LIFO) principle should be considered in selection, and proper retrenchment benefits must be paid.

Notice periods

• 4 weeks — under 2 years of service
• 6 weeks — 2 to 5 years
• 8 weeks — over 5 years

These apply whether the employer or the employee initiates, unless the contract stipulates otherwise.

Without notice, the terminating party pays compensation equal to the wages that would have been earned during the period.

Not at-will

Malaysia does not have at-will employment. Unfair dismissal claims go under the Industrial Relations Act 1967, and must be filed within 60 days of termination.