How does annual leave work in Malaysia?

Annual leave is an integral part of every employee’s entitlements — it provides them with precious time away from work to rest and recharge, so they can bring their best selves to work.

As an employer in Malaysia, are you aware of your legal obligations with regards to annual leave? Here’s everything you need to know.

What is annual leave?

Annual leave, also known as vacation leave or holiday leave, refers to a specific amount of paid time off that an employee is entitled to take from work each year. It allows employees to take a break from their job responsibilities and attend to personal matters or leisure activities.

The purpose of annual leave is to ensure that employees maintain a healthy work-life balance, reduce burnout, and rejuvenate themselves. It is a fundamental aspect of labour laws and employment practices.

The role of the Employment Act 1955

In Malaysia, annual leave is regulated by the Employment Act 1955 (EA). It covers all employees in Malaysia, irrespective of wages or occupation. Domestic servants are excluded from the coverage, and employees earning above RM4,000 per month are exempted from certain provisions in the Act.

According to the EA, employees who have worked for a certain duration with an employer are entitled to a specific number of days of annual leave. The exact number of days can vary based on factors such as the length of service, job position, and terms of employment.

Annual leave is typically accrued over time, meaning employees earn a certain amount of leave days for every month or year of service. Once accrued, employees can request to take their annual leave with the approval of their employer. How it is accrued, requested, and utilised can differ from one company to another.

Paid annual leave entitlements in Malaysia

Are Malaysian employers legally obliged to provide paid annual leave?

Yes, Malaysian employers are legally obliged to provide paid annual leave to their employees under the Employment Act.

How many days of annual leave do employees get in Malaysia?

According to the Employment Act, employees who have completed at least 12 months of continuous service with the same employer are entitled to paid annual leave. The specific provisions regarding annual leave entitlement are as follows:

• Employees who have been employed for less than two years: They are entitled to 8 days of annual leave for every 12 months of continuous service.

• Employees who have been employed for two years or more: They are entitled to 12 days of annual leave for every 12 months of continuous service.

Even if an employee has not completed a full year of service, they are entitled to a pro-rated amount of annual leave.

Additionally, the Employment Act specifies that annual leave should be taken within 12 months after it is accrued. Employers and employees can mutually agree on when the annual leave can be taken, but the leave should be utilised within this timeframe.

The annual leave provided under the Employment Act is typically considered paid leave, where employees are entitled to their regular salary for the days they take off. Employers cannot substitute paid annual leave with monetary compensation, except in cases where the employment relationship is terminated.

NOTE: If an employee is absent from work without permission or reasonable excuse for more than 10% of the working year, their statutory annual leave entitlement for that working year will be forfeited.

Employment laws are constantly subjected to changes and updates — we recommend referring to the latest version of the Employment Act or our Malaysia SME BizHub page for the most up-to-date and accurate information regarding annual leave regulations in Malaysia.

Can employers refuse an annual leave request?

Yes, employers have the right to refuse an annual leave request from an employee, but there are certain conditions and considerations that they need to take into account. While employees are entitled to annual leave as per the Employment Act 1955 in Malaysia, the timing and approval of leave requests may vary based on the operational needs of the company and the specific circumstances.

Here are some common reasons an employer might refuse an annual leave request:

• Operational needs: If the requested leave period coincides with a busy season, important project deadlines, or staffing shortages, the employer might need to deny the request to ensure that the business runs smoothly.
• Staffing balance: If too many employees request for leave during the same period, it might disrupt work schedules and create staffing imbalances. In such cases, employers might limit the number of employees taking leave simultaneously.
• Notice period: Employees are generally required to provide advance notice when requesting annual leave. If an employee requests leave on short notice, the employer might refuse the request due to insufficient time to adjust work schedules.
• Multiple approvals: If the employee has already taken leave recently or has previous leave requests that are already approved for the same period, the employer might deny the request to maintain fairness among employees.
• Critical tasks: If the employee’s absence during the requested period would significantly impact critical tasks or projects, the employer might need to refuse the request.
• Company policies: Employers might have specific policies in place regarding the timing of annual leave, blackout periods (periods during which leave is not allowed), or other guidelines that employees need to follow.

Communicate clearly with employees regarding the process for requesting and approving annual leave. Open communication will help manage expectations and ensure that both the needs of the business and the well-being of your employees are met.

However, it’s also crucial that you adhere to employment laws and not arbitrarily deny leave requests based on discriminatory or unfair practices. If an employer consistently denies leave requests without valid reasons, it could lead to employee dissatisfaction and potential legal implications.

Does overtime work contribute to annual leave?

Overtime work typically does not directly contribute to annual leave entitlement. Annual leave is generally calculated based on an employee’s continuous service with an employer, and the number of days of leave is determined by the length of service as specified in the Employment Act 1955.

Overtime work involves working extra hours beyond the regular work schedule, often due to business needs, project deadlines, or other exceptional circumstances. While employees are entitled to additional compensation for overtime work, such compensation is usually in the form of overtime pay or time-off-in-lieu (compensatory time off), rather than directly influencing their annual leave entitlement.

Compensatory time off refers to providing employees with time off in exchange for the extra hours worked during overtime. This time off can be used to balance ‌extended working hours and help employees maintain a reasonable work-life balance. However, it’s distinct from annual leave, which is a separate form of paid time off granted to employees for rest and relaxation.

Do public holidays contribute to annual leave calculations?

Public holidays are not counted as part of an employee’s annual leave entitlement. They are separate from annual leave and are designated days on which businesses, government offices, and other institutions are closed to observe specific national, cultural, or religious events.

If a public holiday falls within an employee’s scheduled annual leave period, you do not need to deduct from their annual leave balance. This means your employees can enjoy the public holiday off work without it affecting their accrued annual leave days.

What happens to unused annual leave?

In Malaysia, the treatment of unused annual leave can vary based on company policies and employment contracts. However, here are some common practices and legal guidelines to consider:

• Carry-over: Some companies allow employees to carry over a certain amount of unused annual leave from one year to the next. This means that if an employee doesn’t utilise their full annual leave entitlement within a given year, they can use it in the following year. However, there might be limitations on the maximum number of days that can be carried over.

• Forfeiture: In some cases, employers may have a ‘use it or lose it’ policy, where any unused annual leave at the end of the year is forfeited. This means that employees will not be able to carry over their unused leave days to the next year.

• Payout: If an employee leaves the company or their employment is terminated and they have unused annual leave days, some companies might provide a payout for those days. The payout would usually be based on the employee’s salary rate.

• Conversion: Some companies allow employees to convert a certain portion of their unused annual leave into cash. This can provide employees with additional income, while still encouraging them to take regular breaks.

• Donation: Some companies offer the option for employees to donate their unused annual leave to colleagues in need, especially in cases of medical emergencies.

The Employment Act in Malaysia does not specifically address the treatment of unused annual leave, so it’s generally subject to the terms outlined in your employment contracts and policies.

How do you calculate paid leave pro rata?

Calculating paid leave on a pro rata basis involves determining the proportional amount of leave an employee is entitled to, based on their length of service within a specific period. This is relevant when an employee joins or leaves the organisation halfway through a leave cycle. Here’s how to calculate paid leave on a pro rata basis:

1. Determine the full year entitlement: Start by identifying the full annual leave entitlement an employee would receive if they worked the entire year.
2. Calculate proportion: Divide the number of months the employee has worked (or will work) by 12, representing a full year. This gives you the proportion of the year the employee has been employed.
3. Calculate pro rata leave: Multiply the full year entitlement by the proportion calculated in the previous step to determine the employee’s pro rata leave entitlement.

This calculation accounts for the fact that an employee who works only a portion of the year should receive a proportional amount of annual leave based on their time of service.

For example, if an employee is entitled to 14 days of annual leave and they have worked for 8 months, their pro rata leave calculation would be as follows:

• Full Year Entitlement = 14 days
• Proportion = 8 months / 12 = 0.67
• Pro Rata Leave = 14 days × 0.67 = 9.38 days (9.5 days when rounded to the nearest whole or half day)

In this example, the employee’s pro rata leave entitlement would be approximately 9.5 days.

It’s important to note that the above calculation assumes that ‌leave entitlement accrues evenly throughout the year. If the leave accrual is more complex or if the employment contract specifies a different method of pro rata calculation, then you should follow the terms outlined in the contract or company policies accordingly.

Is unused annual leave paid upon resignation?

The Employment Act does not specifically address the payout of unused annual leave upon resignation. Therefore, the treatment of unused leave is often guided by company policies and employment contracts.

Here are some general guidelines to consider:

• Payout policies: Some companies have policies that provide for the payout of unused annual leave days when an employee resigns. This means that the employer would calculate the monetary value of the unused leave days and include it in the final paycheck.

• Forfeiture policies: Other companies might have policies that state that unused annual leave days are forfeited upon resignation. This means that the employee would not receive any monetary compensation for the leave days they haven’t used.

• Pro rata calculation: In cases where an employee has not completed a full year of service but has accrued annual leave, the company might calculate the pro rata value of the unused leave days and provide a payout accordingly.

• Notice period offset: If the employee has not fully utilised their accrued annual leave entitlements, some companies have policies that the remaining annual leave days can be used to offset their notice period after resignation.

Tips for managing annual leave in Malaysia

Managing annual leave effectively is crucial for maintaining a healthy work environment and ensuring that employees benefit from time off. Here are some valuable tips for managing annual leave:

1. Create an annual leave policy

Establishing a clear and comprehensive annual leave policy is essential for promoting transparency and consistency in how leave is managed. Your policy should outline the process for requesting and approving leave, the notice period required, and any blackout periods during which leave might be restricted.

Make sure the policy is easily accessible to all employees and includes information about pro rata calculations for new hires or resignations. A well-communicated policy helps avoid confusion and ensures that everyone is aware of their entitlements and responsibilities.

2. Plan peak leave periods ahead of time

Certain times of the year, such as festive seasons and school holidays, tend to be popular periods for employees to take annual leave. To prevent operational disruptions, plan for these peak periods well in advance.

Encourage employees to submit their leave requests early, allowing you to manage staffing needs effectively. By proactively addressing potential staffing gaps, you can ensure that essential tasks are covered while employees enjoy their well-deserved breaks.

3. Encourage employees to use their annual leave

Some employees might be hesitant to take their annual leave due to work commitments or concerns about workload. As an employer, it’s important to emphasise the benefits of using annual leave for rest and relaxation.

Encourage your employees to take time off to recharge, as this can lead to increased productivity, reduced burnout, and improved overall well-being. Consider implementing initiatives that promote a healthy work-life balance and create a culture where taking annual leave is seen as a positive practice.

4. Foster open communication

Encourage employees to communicate their leave plans well in advance, and provide managers with the tools and resources they need to handle leave requests efficiently. Clear communication ensures that there are no last-minute surprises and that leave requests can be managed smoothly.

5. Cross-train employees

Cross-training employees in different roles or tasks can be incredibly beneficial during peak leave periods. When one employee is on leave, others can step in to fill the gap, minimising disruptions and maintaining productivity. Cross-training also offers employees the opportunity to develop new skills and gain a broader understanding of the organisation’s operations.

6. Lead by example

Managers and leaders play a significant role in shaping the leave culture within an organisation. When managers prioritise their own well-being and take annual leave regularly, it sends a positive message to their teams about the importance of work-life balance. Use your ‌annual leave to recharge and demonstrate that taking time off is an integral part of maintaining a healthy and sustainable work environment.

Employment Hero can help you streamline leave management

Leave management doesn’t have to be complicated. Employment Hero is an all-in-one HR and payroll software that can help you streamline your leave management processes, reduce administrative burdens, and ensure compliance.

Access a centralised leave management system where employers and managers can manage employee leave requests and view employees’ leave balances and entitlements, all in one place. Employees also enjoy self-service functionality by using Employment Hero — they can use the mobile app to submit leave requests, view their leave balances and entitlements, and receive notifications about the status of their requests.

You’ll also get access to a range of reports and analytics related to leave management, allowing you to gain valuable insights into leave patterns across the business and identify areas for improvement. Leave the hard work to us — the platform is automatically updated with minimum annual leave requirements and other relevant legislative changes, so you’ll never have to fret about compliance.

For more information on other types of leave, such as maternity leave or paternity leave, sick leave and more, visit the Malaysia SME BizHub or refer to our guide to HR compliance.

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Check out our other resources: 

• How does compassionate and bereavement leave work in Malaysia?
• The legal requirements of hiring in Malaysia
• Key dates for small businesses in Malaysia

 

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Disclaimer: The information in this article is current as at 17th August 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional employment or legal advice. Any reference to government policies, regulations, or guidance is for informational purposes only and should not be considered official government advice. The information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.

Note: The Employment Act is not applicable to Sabah and Sarawak, as they have their own Labour Ordinances respectively: the Sabah Labour Ordinance and Sarawak Labour Ordinance.