HRMS
Malaysia Tax Compliance Guide
Form E is a yearly report that all employers in Malaysia must submit to Lembaga Hasil Dalam Negeri (LHDN). It shows:
You may be fined RM200 to RM20,000, jailed for up to 6 months, or both β under the Income Tax Act 1967.
Since 2016, ALL companies in Malaysia must submit Form E, even if they:
β Freelancers and gig workers (non-employers) are not required to submit Form E.
Report employee income if they:
If none of your employees meet this threshold, just put "0" in the employee section.
Let MOCHI HRMS handle your Form E preparation with ease:
| π Feature | β Benefit |
|---|---|
| Auto Income Summary | Auto-calculate and generate employee earnings report for Form E |
| LHDN-Ready Reports | One-click export format for e-Filing upload |
| Employee Flagging | Only employees who meet income threshold are included |
| Legal Compliance | Stay fully compliant with Malaysia's latest tax and HR laws |
No more last-minute rush or manual errors!
HRMS
Labour laws in Malaysia exist to regulate the rights and responsibilities between employers and employees. These laws set the legal foundation for fair and safe working environments across various industries. For business owners, HR managers, and employees alike, understanding these regulations is essentialβnot only to ensure compliance but also to build a professional and productive workplace.
Since achieving independence in 1957, Malaysia has grown into one of Southeast Asia's most dynamic economies. In just the first half of 2024, Malaysia recorded USD 35.9 billion in approved investments across services, manufacturing, and other sectors, marking an 18% increase compared to USD 28.4 billion in the same period of 2023 (source: Malaysian Investment Development Authority).
With this economic expansion comes increasing interest from both local and international companies. However, navigating Malaysia's employment regulationsβespecially under the Employment Act 1955βcan be complex if not guided properly.
MOCHI HRMS+ is here to help you stay aligned with current regulations, avoid penalties, and streamline your HR operations.
Malaysia has a structured framework of labour laws designed to protect both employers and employees. These laws govern everything from wages and working hours to dispute resolution and retirement. Here's a breakdown of the main Acts every SME and HR team should understand to maintain full compliance:
The Employment Act 1955 outlines the minimum terms and conditions of employment, covering areas such as:
Latest Update: As of January 2023, the Act applies to all employees, regardless of salary levelβexcept for certain exemptions related to managerial roles or contract nature.
The Industrial Relations (Amendment) Act 2020 governs employer-employee relations, including:
It provides a legal framework to resolve conflicts and promotes industrial harmony in the workplace.
The Occupational Safety and Health Act 1994 enforces workplace health and safety standards by requiring employers to:
β οΈ Employers and employees both share responsibility for maintaining workplace safety under this Act.
The Employees Provident Fund Act 1991 mandates the establishment of the Employees Provident Fund (EPF), a compulsory retirement savings scheme. It requires:
These contributions go toward building long-term financial security for employees post-retirement.
The Employees' Social Security Act 1969 provides social insurance protection through the Employment Injury Scheme and Invalidity Pension Scheme. It covers:
Both employers and employees contribute monthly to the SOCSO fund.
The Minimum Retirement Age Act 2012 establishes the minimum retirement age in Malaysia is 60 years for employees in the private sector.
Employers cannot compel employees to retire before reaching this age unless under legally permissible circumstances (e.g. disciplinary grounds or mutual agreement).
β These six core Acts form the legal foundation for all employment practices in Malaysia. MOCHI HRMS+ is designed to keep your HR processes in line with these regulationsβautomatically, accurately, and effortlessly.
Malaysia's working hour regulations are primarily governed by the Employment Act 1955, which now covers all employees regardless of wage levels (previously applicable only to those earning under RM2,000/month).
Employers are required to track all working hours accurately and maintain detailed payroll and time records for 3β5 years, with tax-related records retained for 7 years.
All employees beyond the probation period (typically 1 month) must receive a written contract detailing:
This distinction carries legal weight. Misclassification can lead to penalties up to RM20,000 per employee or imprisonment. The Industrial Court uses factors like:
Under the Industrial Relations (Amendment) Act 2020, termination must be:
| Years of Service | Notice Period |
|---|---|
| Less than 2 years | 4 weeks |
| 2 to 5 years | 6 weeks |
| More than 5 years | 8 weeks |
Malaysia's national minimum wage was officially increased by 13% in 2025 β a move to improve worker welfare and reduce the cost-of-living gap nationwide.
As of 1 February 2025, the minimum monthly wage has been revised to:
| Work Schedule | Daily Wage | Monthly Wage | Hourly Rate |
|---|---|---|---|
| 6 days/week | RM65.38/day | RM1,700/month | RM8.72/hour |
| 5 days/week | RM78.46/day | RM1,700/month | RM8.72/hour |
| 4 days/week | RM98.08/day | RM1,700/month | RM8.72/hour |
Under the Employment Act 1955, employers must adhere to the following wage payment timelines:
"Wages" under Malaysian law refer to:
Failing to comply with Malaysia's minimum wage law is a serious offence. Under Section 23 of the National Wages Consultative Council Act 2011, employers found guilty of underpaying staff can face:
Under Malaysian labour law, every employee must be issued a payslip each time they are paid.
| Company Type | Tax Rate (YA 2023) |
|---|---|
| SMEs (β€ RM2.5M paid-up capital) | 15% on first RM150,000 17% on next RM450,000 24% on the balance |
| Non-SMEs / Large companies | 24% flat rate |
| Contributor | Rate |
|---|---|
| Employer | 12% or 13% (based on salary bracket) |
| Employee | 11% |
| Scheme | Employer Rate | Employee Rate |
|---|---|---|
| Employment Injury + Invalidity Scheme | 1.25% (max) | 0.5% |
| Party | Rate |
|---|---|
| Employer | 0.2% |
| Employee | 0.2% |
| Type of Overtime Work | Minimum Overtime Rate | Example (RM8.72/hr) |
|---|---|---|
| Regular OT (after 8 hrs/day or 45 hrs/week) | 1.5x hourly rate | RM13.08/hr |
| Rest Day Work | 2x hourly rate | RM17.44/hr |
| Paid Public Holiday Work | 3x hourly rate | RM26.16/hr |
Under Section 59 of the Employment Act:
For employees working a standard 8-hour workday, they are entitled to a minimum of 45 minutes unpaid rest, which can include:
All employees are entitled to:
If employees are required to work on their designated rest day:
Annual leave is granted based on length of service:
| Years of Service | Annual Leave Entitlement |
|---|---|
| 1 to 2 years | 8 days |
| 2 to 5 years | 12 days |
| Over 5 years | 16 days |
Under the Employment (Amendment) Act 2022, effective 1 January 2023:
As of 2023, employers must provide minimum 7 days of paid paternity leave if:
Paid sick leave entitlements based on years of service:
| Years of Service | Sick Leave Entitlement (Per Year) |
|---|---|
| 1 to 2 years | 14 days |
| 2 to 5 years | 18 days |
| Over 5 years | 22 days |
Additionally, employees are eligible for up to 60 days of hospitalization leave, which is separate from outpatient sick leave and must be certified by a registered medical practitioner or dentist.
Under the Fourth Schedule of the Act, children and young persons are prohibited from:
| Offence Type | Penalty (First Offence) | Repeat Offence |
|---|---|---|
| Employing minors illegally | Fine up to RM50,000 or 2 years' imprisonment, or both | Fine up to RM100,000 or 5 years' imprisonment, or both |
Several other Acts reinforce child labour protections:
The information provided in this guide is for general informational purposes only.
While every effort has been made to ensure the accuracy and completeness of the content, MOCHI Technologies Sdn Bhd makes no warranties or representations regarding its reliability or legal standing.
Users are strongly advised to consult qualified professionals or relevant authorities for specific legal, regulatory, or compliance-related advice. Do not rely solely on this material to make decisions involving statutory obligations or employment practices.
Reference Site: https://www.payrollpanda.my/labour-laws/malaysia-labour-laws/#leave
β With MOCHI HRMS+, companies can flag age-sensitive roles, automate compliance checks, and store employment documents securelyβensuring minors are only engaged within legal boundaries.
MOCHI HRMS+ automatically generates legally compliant payslips with all required fields in PDF or digital formatβready to share and archive.
With MOCHI HRMS+, all statutory calculations, payroll tax deductions, and submission reports are automated β ensuring 100% compliance with LHDN, KWSP, SOCSO, and EIS requirements.
HRMS
Malaysiaβs leave laws are designed to ensure employees are not only fairly compensated for their workβbut also entitled to adequate time off for rest, recovery, family responsibilities, and personal matters.
Under the Employment Act 1955 and other supporting regulations, employers are required to provide various types of leave including:
This guide explores the key provisions of Malaysia's leave entitlements and how companies can stay compliant while supporting employee wellbeing.
π Whether you're an HR professional or SME owner, understanding these laws is essential to building a healthy, legally compliant workplace culture.
Staying compliant with these regulations is crucial for avoiding legal risks, employee dissatisfaction, or claims of unfair treatment. The Employment Act 1955 requires all employers in Malaysia to provide certain types of paid leave. One of the key entitlements is annual leave, which ensures that employees have time off for rest and personal matters.
Employees who have completed at least 12 months of continuous service are entitled to paid annual leave based on their years of employment:
| Length of Service | Minimum Paid Annual Leave Entitlement |
|---|---|
| 1 to 2 years | 8 days per year |
| 2 to 5 years | 12 days per year |
| More than 5 years | 16 days per year |
Sick leave is a mandatory benefit under Malaysian labour law to ensure employees can recover from illness without loss of income. Section 60F of the Employment Act 1955 outlines the entitlement based on the employee's duration of service.
| Length of Employment | Annual Sick Leave Entitlement |
|---|---|
| 1 to 2 years | 14 days |
| 2 to 5 years | 18 days |
| More than 5 years | 22 days |
To be eligible for paid sick leave:
β With MOCHI HRMS+, sick leave balances, MC attachment, HR approvals, and payroll integration are fully automatedβmaking it easy to track entitlements and ensure compliance.
Effective 1 January 2023, Malaysia's Employment Act was amended to enhance protections for working mothers. One of the most significant updates is the extension of maternity leave from 60 to 98 consecutive days.
π Maternity leave may begin up to 30 days before the expected delivery date, based on medical advice or employee preference.
β With MOCHI HRMS+, you can easily track maternity leave eligibility, auto-calculate entitlements, and store relevant documents securelyβensuring full compliance with Malaysian employment law.
Under the Employment (Amendment) Act 2022, effective 1 January 2023, married male employees in Malaysia are legally entitled to 7 consecutive days of paid paternity leave. This new entitlement supports work-life balance and acknowledges the vital role of fathers during childbirth.
To qualify for paid paternity leave, the employee must:
π Employees should submit supporting documents such as a doctor's confirmation letter or birth certificate when requesting paternity leave.
β With MOCHI HRMS+, paternity leave requests can be submitted, tracked, and approved digitallyβwith documentation securely stored and integrated with payroll.
In Malaysia, the Employment Act 1955 requires employers to provide up to 60 days of hospitalization leave per year, in addition to the employee's normal sick leave entitlement. This ensures employees can recover from more serious health conditions without losing income.
For example: If an employee has already used 14 days of paid sick leave, they may still be eligible for up to 46 additional days of hospitalization leave.
To qualify, the employee must provide a valid Medical Certificate (MC) issued by a registered medical practitioner. The following situations are covered:
π Employers have the right to verify the medical certificate before approving the leave.
β With MOCHI HRMS+, hospitalization leave requests can be filed with MC uploads, auto-tracked against sick leave limits, and approved according to your company's workflowβensuring transparency and compliance.
Employers are not allowed to terminate or issue a termination notice to an employee during pregnancy or due to a pregnancy-related illness.
However, termination is permitted in the following cases only:
β If termination occurs under any of the above conditions, the employer must prove that the dismissal is not related to the employee's pregnancy or condition.
Under the Employment Act 1955, Malaysian employees are entitled to 11 paid public holidays each calendar year. These holidays promote national unity and allow employees to rest and observe significant cultural and religious events.
π Example: On 28 November 2022, a special holiday was declared to celebrate the formation of the new government following the 15th General Election (GE15)
If an employee is required to work on a gazette public holiday:
| Type of Work Performed | Payment Entitlement |
|---|---|
| Public holiday work (any hours) | 1 day holiday pay + 200% of daily wage |
β Payment applies regardless of the number of hours worked that day.
If an employee resigns or is terminated before completing a full year, they are still entitled to pro-rated annual leave.
Example: If an employee works for 7.5 months and leaves, their unused leave will be calculated accordingly and rounded to the nearest full day.
While the Employment Act 1955 sets out mandatory leave entitlements, many employers in Malaysia go beyond legal requirements by offering non-mandatory (discretionary) leave. These leave types are not legally required but are considered best practices to support employee well-being and foster a positive workplace culture.
Unpaid leave is a discretionary form of leave that allows employees to take time off work without receiving wages. It is commonly used when all paid leave entitlementsβsuch as annual leave or emergency leaveβhave been fully utilized.
Although not mandated by law, unpaid leave can be a practical solution for employees facing personal commitments or unexpected circumstances.
Unpaid leave may be requested for situations such as:
π Approval is subject to the company's policy and management discretion.
β With MOCHI HRMS+, unpaid leave can be customized, tracked, and integrated into payroll processing automaticallyβensuring transparency and alignment with your HR policies.
Emergency leave is a non-mandatory form of leave that some employers offer to accommodate unforeseen personal matters such as family emergencies, accidents, or sudden obligations. While not required by Malaysian labour law, it is often provided as part of a compassionate or flexible leave policy.
To ensure responsible use of emergency leave, employees should:
π Employers may reserve the right to request evidence for record-keeping or audit purposes.
β With MOCHI HRMS+, emergency leave categories can be configured with custom rules, approval flows, and system alertsβgiving your team flexibility without losing control.
Although compassionate leaveβalso known as bereavement leaveβis not mandated under Malaysian labour law, it is widely practiced among responsible employers as a gesture of care and support during times of personal loss.
This type of leave allows employees to take time off to mourn the passing of immediate family members and manage related responsibilities.
π Some companies may also extend compassionate leave to cover miscarriages or close extended family, based on internal discretion.
β With MOCHI HRMS+, compassionate leave can be set up as a custom leave type with auto-approval workflows, documentation upload, and trackingβall while preserving sensitivity and confidentiality.
Marriage leave, also referred to as matrimonial leave, is a discretionary benefit offered by many employers in Malaysia to allow employees time off for their own wedding or to attend the weddings of immediate family members.
Although not required by Malaysian labour law, offering marriage leave demonstrates care for employee life events and contributes to a positive work culture.
π Leave is usually only claimable once per employee for their own marriage.
β With MOCHI HRMS+, marriage leave can be pre-configured as a special leave type with one-time eligibility, approval routing, and required documentation uploadsβmaking it simple and structured.
Disaster leave is a discretionary form of leave provided by employers to support employees affected by natural disasters or emergency situations, such as floods, landslides, or large-scale public safety incidents.
Although not mandated by Malaysian labour law, disaster leave is increasingly recognized as part of responsible employer practices, especially in high-risk or flood-prone areas.
π Employers may refer to National Disaster Management Agency (NADMA) or National Center for Disaster Management (NCDM) guidelines during crisis events.
β With MOCHI HRMS+, disaster leave can be added as an on-demand leave type, triggered during emergencies and managed through flexible approval routes.
Birthday leave is a discretionary benefit offered by some employers in Malaysia to allow employees to take a day off on or around their birthday. While not required by law, this gesture can go a long way in boosting morale, enhancing employee experience, and reinforcing a culture of appreciation.
π Most companies apply for a one-time entitlement per year, and unused birthday leave may not be carried forward.
β With MOCHI HRMS+, birthday leave can be auto-triggered based on employee birthdates, complete with custom notification reminders, usage tracking, and auto-expiry settings.
Childcare leave is a non-mandatory leave type that some employers in Malaysia offer to employees who are parents of young children. While not required under the Employment Act 1955, this benefit can significantly improve work-life balance and employee retention, especially for working mothers and fathers managing early parenthood.
π Employers often extend this benefit to parents with children under a certain age (e.g. 7 or 12 years old), as defined in the employee handbook.
β With MOCHI HRMS+, you can configure childcare leave as a custom category, automate entitlement rules, and keep accurate recordsβsupporting a family-friendly work environment while staying organized.
Hajj leave is a non-mandatory, but widely respected benefit that many Malaysian employers offer to Muslim employees undertaking the pilgrimage to Mecca. While not required under the Employment Act 1955, this leave reflects cultural sensitivity and supports religious obligations.
π Most companies require the employee to have completed a minimum service period (e.g. 5 years) before becoming eligible for Hajj leave.
Many employers treat Hajj leave as a special category separate from annual or unpaid leave, to preserve entitlements while honoring the employee's spiritual commitment.
β With MOCHI HRMS+, Hajj leave can be set as a unique one-time entitlement, with custom eligibility rules, document uploads, and automated approval flowsβmaking religious leave respectful, smooth, and compliant.
Replacement leave, also known as time off in lieu, is a practice where employees who work on their rest days or public holidays are compensated with a day off at a later date, instead of receiving overtime pay. This is legally permissible under the Employment Act 1955 and widely adopted across many Malaysian workplaces.
Replacement leave is commonly granted when employees are required to work on:
π Employers must ensure that such arrangements are mutually agreed upon in advance and documented to avoid disputes.
π Employers may still be required to pay a premium rate if replacement leave is not granted or if the employee refuses the option.
β With MOCHI HRMS+, replacement leave requests and eligibility are automatically logged when employees work on public holidays or off daysβensuring fair compensation, transparency, and proper documentation.
Study leave is a discretionary leave benefit granted to employees who are pursuing educational or certification programs that contribute to their professional development and align with the organization's goals.
Although there is no statutory requirement under Malaysian law to provide study leave, many progressive employers choose to offer it to support skill-building and lifelong learning.
Employers may grant study leave for purposes such as:
π Approval is typically based on whether the course or exam is relevant to the employee's current role or future responsibilities within the organization.
Define clear eligibility criteria, such as:
Set reasonable limits for:
Consider linking study leave to bonding clauses if the course is company-funded
β With MOCHI HRMS+, you can configure study leave as a special category, track usage, attach proof documents, and align it with your employee development goalsβall in one platform.
Under Malaysian labour regulations, employees are encouraged to utilize their annual leave within 12 months from the date it is earned. However, situations may arise where employees still have unused leave at the end of the entitlement period.
While the Employment Act 1955 does not specifically regulate how unused leave must be handled, employers typically adopt one of the following three common practices, as part of their internal leave policy.
π This is a discretionary practice and not legally required unless part of the employment agreement.
Upon termination or resignation, any unused annual leave must be paid out to the employee.
The standard rate is calculated as:
π Monthly salary Γ· 26 days = 1 day's pay
Employers may offer a more favorable formula if stated in the employment contract or company policy
β With MOCHI HRMS+, pro-rated leave, payout calculations, and unused leave balances are automatedβmaking it easy to stay compliant without manual tracking.
This guide is for informational purposes only and should not be considered as legal advice. Please consult with qualified legal professionals for specific employment law matters.
β With MOCHI HRMS+, you can define custom rules for leave carry-forward, auto-calculate leave encashment, and generate alerts to prevent forfeiture disputesβkeeping your leave policies transparent and well-managed.
