Employees earning up to RM4,000/month will be entitled to overtime payments. Here’s what employers need to know.

From 1 September 2022, when the new Employment Act (“EA”) amendments come into force (See: Employment Act to apply to all employees from 1 September 2022, some sections subject to increased salary threshold of RM4,000/month), all employees with wages up to RM4,000/month will be entitled to overtime payments. This is a significant change from the pre-amendment EA, where generally only employees with wages up to RM2,000/month were entitled to overtime payments.

This widened scope will have a major financial impact on many employers, who have already had to cope with the increased minimum wage from 1 May 2022 (See: Confirmed: New Minimum Wages Order effective 1 May 2022; employers with less than 5 employees exempted), and the Malaysian Employers Federation recently called on the government to defer the implementation of the EA amendments.

The practical effect of this change is that employees with monthly wages in the RM2,001-RM4,000 range who previously may have been used to occasionally working beyond their normal working hours to complete urgent tasks, or to attending to work matters on weekends or public holidays, will be entitled to overtime payments for doing so. However, overtime does not simply mean any work done outside of the 9-5 window. There are various, sometimes fairly technical, definitions and legal provisions that have to be considered in order to understand the legal definition of “overtime”.

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Employment Act to apply to all employees from 1 September 2022, some sections subject to increased salary threshold of RM4,000/month

When the Employment (Amendment) Act 2022 (“the Amendment Act”) was gazetted earlier this year, there was much confusion regarding what the scope of the Employment Act (“EA”) would be once the Amendment Act came into force. This confusion was fuelled by the government not amending the First Schedule at the same time the Amendment Act was passed, and also repeatedly stating that the EA’s scope would be expanded so that all employees regardless of salary would be entitled to the EA benefits and protections, with many industry experts sharing the view that such a blanket expansion would be impractical for many reasons.

With the gazetting of the Employment (Amendment of First Schedule) Order 2022 (“First Schedule Amendment Order”) on 15 August 2022, there finally is clarity on the scope of the EA from 1 September 2022.

EA salary threshold increased from RM2,000 to RM4,000

Prior to the new amendments, the vast majority of the EA only applied to employees earning up to RM2,000/month, or to specified groups of employees irrespective of wages (e.g. those engaged in or supervising manual labour, and several other groups). The existing EA set out specific provisions to enable non-EA employees to also be included in the sections of the EA regarding maternity protection (Part IX) and sexual harassment (Part XVA).

Following the First Schedule Amendment Order which will come into force on 1 September 2022, the way the EA scope is defined has been reversed. While it previously only applied to employees earning up to RM2,000/month with some specific sections applying to all employees, it will now apply to all employees irrespective of wages, with some specific sections not applying to employees earning more than RM4,000/month. Here are the details:

  1. The EA will now apply to “any person who has entered into a contract of service”.
  2. However, the sections of the EA in relation to overtime payments and termination benefits will not apply to employees whose wages exceed RM4,000/month (the full list of excluded EA provisions is listed below).
  3. The list of EA provisions which do not apply to domestic employees (previously known as domestic servants) has also been expanded.

This is the full list of EA provisions which will not apply to employees earning more than RM4,000/month:

  • Subsection 60(3): Overtime for work on rest days.
  • Subsection 60A(3): Overtime for work outside of normal working hours.
  • Subsection 60C(2A): Shift work allowance.
  • Subsection 60D(3): Overtime and allowance for work on public holidays.
  • Subsection 60D(4): Overtime for work on holidays on half working days.
  • Subsection 60J: Termination, lay-off, and retirement benefits.

What employers need to do

All employers will need to review their existing employment contracts and policies to ensure that they comply with the EA. It should be noted that Section 7 of the EA states that any terms or conditions which are less favourable to an employee than those provided under the EA will be void and of no effect. This includes contracts which were entered into before 1 September 2022.

(For a more comprehensive look at the changes under the Amendment Act, read my earlier article: “Malaysia Employment Act amendments: 7 key changes for employers to note”)

Flexible Working Arrangements: What employers should include in a Flexible Working Policy and other recommended documents

Pursuant to changes contained in the Employment (Amendment) Act 2022 (“the Amendment Act”), which the government has announced will come into force on 1 September 2022, employees in Malaysia will be allowed to apply to their employer for a Flexible Working Arrangement (“FWA”). (For a more comprehensive look at the changes under the Amendment Act, read my earlier article: “Malaysia Employment Act amendments: 7 key changes for employers to note”)

The introduction of FWAs under the Amendment Act is the first time that FWAs have been formally recognised in Malaysia, and may be the first of many such changes — the government has also shared that it is conducting studies on the feasibility of a four-day working week. Malaysian employers can expect FWAs to become more commonplace in the near future, and must start preparing now. Several of my clients are already putting in place the necessary flexible working policies and other related documents to not only ensure that they are not caught unprepared come the 1st of September, but also to lay the foundations for the anticipated changes in the next couple of years.

This article sets out the essential points that need to be covered in a Flexible Working Policy, and also other recommended administrative/HR documents that employers should strongly consider putting into place to smoothly accommodate FWAs.

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