Employee termination
in Malaysia.

SALARY PAYMENT IN Malaysian Ringgit (MYR, RM)

CONTRACT LANGUAGES Malay / English

PAYROLL TAX 13.22%

PAYROLL CYCLE Monthly

TIME TO HIRE 24 hours
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Malaysia

Valid reasons to terminate employment in Malaysia

In Malaysia, valid reasons to terminate an employment fall under two categories; business-related or behavior-related.

Business related issues include;

the cessation of business affecting purpose of employment or the place of work;
diminution of work;
refusal by employee to transfer;
change of business ownership affecting reason for employment.

Behavior-related issues include;

Insubordination, serious violation of the workplace discipline or repeated absence;
Severe damage due to grave negligence;
Criminal conviction infringing the company interests.

Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time. Horizons’ Malaysia PEO can mitigate risk for foreign companies and provide guidance throughout the entire process.

Unfair reasons to terminate employment in Malaysia

The Industrial Relations Act (1967) introduces protections against unfair dismissal. When terminating an employment agreement, Malaysian employers must provide “just cause and excuse”. Cases of unfair dismissal are usually handled by the Industrial Court of Malaysia which proposes suitable remedies.

Discriminatory terminations include protected employees such as disabled persons and employees on maternity leave. Employers cannot terminate an employee who is on maternity leave except on the grounds of misconduct, willful breach of the employment contract, or closure of the business.

Dismissal procedure in Malaysia

The Employment Act (1955) requires Malaysian employers to give due notice when terminating an employment agreement. Due notice involves providing the employee(s) to be terminated with justification for the dismissal.

The required notice period should be detailed in the employment agreement. In instances where a notice period clause has not been specified in the employment agreement, employers should follow the minimum notice periods as set out in the Employment Act (1955):

4 weeks’ notice if the employee has been so employed for less than 2 years;
6 weeks’ notice if the employee has been so employed for 2 years or more, but less than 5 years;
8 weeks’ notice if the employee has been so employed for 5 years or more.

Alternatively, if an agreement is reached between both parties, employers can make a payment in lieu of notice.

In most cases, employers are also required to pay severance to terminate employees. The Employment (Termination and Lay-Off Benefits) Regulations 1980 sets out the minimum statutory severance payments that should be paid to employees who have been employed for more than 12 months:

1 – 2 years employment – 10 days salary
2 – 5 years employment – 15 days salary
5+ years employment – 20 days salary

Most employers also include any accrued and untaken days of leave in the severance payment.

Employers do not need to provide notice or severance when terminating an employment agreement for a behavioral issue, such as a serious violation of workplace discipline, severe damage due to grave negligence or a criminal conviction.

Resignation procedure in Malaysia

Resigning employees are required to give due notice to their employer. Unless otherwise stated in the employment agreement, the length of notice required is based on the length of employment as follows:

0 – 2 years employment – 4 weeks
2 – 5 years employment – 6 weeks
5+ years employment – 8 weeks

Employees may resign without giving notice in instances where their employer has wilfully committed a breach of contract.

Hiring in Malaysia, Made Easy

Your business can easily hire employees in Malaysia without opening a local entity. We handle local employment law, complex tax regulations, and international payroll in 180+ countries worldwide. All you need to do is focus on your business.

FAQs

Is it difficult to terminate employment in Malaysia?

Although the Industrial Relations Act (1967) introduces protections against unfair dismissal of employees, it isn’t overly difficult to terminate an employment contract in Malaysia. Employment agreements can be terminated for poor performance, provided a proper internal dismissal procedure/due inquiry process has been followed.

What are the risks of terminating employment in Malaysia, and how do I mitigate them?

When terminating an employment agreement in Malaysia, the risk revolves around a case of unfair dismissal being lodged with the Industrial Court of Malaysia.

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