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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Case Update: Federal Court rules that an employer cannot use reasons discovered post-dismissal to justify an employee dismissal

In this Case Update series, I share summaries of recent Malaysian court decisions to explore the current approach taken by the courts when deciding on employment-related issues. You can find all the posts in the series by clicking here, including case updates on other legal areas by TheMalaysianLawyer co-founder Lee Shih.

It is not uncommon, in instances where an employee has been dismissed, for new facts or circumstances to be discovered post-termination which are then treated as “justifying” the dismissal in the eyes of the employer.

For example, where an employee has been dismissed for poor performance, the employee or employees who then take on the dismissed employee’s responsibilities may discover a trail of errors or negligence that ran deeper than was known at the point of termination. In other cases, the employee may have been dismissed for one reason, but the employer later uncovers evidence of other misbehaviour or misconduct which the employer then takes as further proof that the dismissal was “the right decision”.

While these post-dismissal discoveries may make an employer rest more easily, convinced that dismissal was the correct option, what would happen if the employee brings an unfair dismissal claim? Would an employer who dismissed an employee because of Reason A be then able to justify the dismissal by later saying that, after the termination, they also discovered Reason X, Y, and Z, and that therefore even if Reason A was weak and insufficient to justify termination, the court should also consider Reasons X, Y, and Z?

This was the issue that went all the way to the Federal Court recently, in Maritime Intelligence Sdn Bhd v Tan Ah Gek [2021] 4 ILR 417.

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Malaysia Employment Act amendments: 7 key changes for employers to note

[Update: The Bill was tabled for its second reading and passed on 21 March 2022. There were only two minor amendments from the first draft which was the subject of this article, in relation to maternity and paternity leave. These have been updated in the text below.]

Wide-ranging amendments to Malaysia’s Employment Act 1955 (“the EA”) are now going through Parliament. The Employment (Amendment Bill) 2021 (“the Bill”) was tabled for its first reading on 25 October 2021.

The Explanatory Statement to the Bill states that it seeks to amend the EA “to comply with the international standards and practices as required by the Trans-Pacific Partnership Agreement, the Malaysia-United States Labour Consistency Plan and the International Labour Organization”. It further states that the purpose of the amendments, among others, is “to provide for the protection against discrimination and forced labour, and to provide for maternity benefits”.

As the Bill is only in its first reading, I expect some changes before it is finalised and passed. The current draft of the Bill does appear quite disjointed in parts, and there are some inconsistencies that will need to be cleaned up. It is worth noting that many of the amendments contained in the Bill have been mooted as far back as 2017, so while the fact that the Bill has been tabled is promising, there is no guarantee that it will be passed — though for political reasons it does appear very likely that it will happen this time.

The current draft of the Bill contains comprehensive amendments — there are 46 sections in total — but at this stage I will briefly set out the key changes that employers should take note of, along with some commentary.

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