Your journey as an employer begins with hiring an employee. But what do you put into the contract that will govern the relationship between you and your new employee? Especially here in Malaysia. As an employer you need to understand on what needs to be included in the employment contract to best safeguard your interest and ensure that a clear expectation is communicated to your employee.
In this article we will discuss the idea of an employment, what are the laws that will be governing it , employment contract, and terms that you wish you knew before you even hire a person.
What is an employment?
It basically means doing work for a salary. So if you are hire a person, ask that person to do something and in return you pay that person for his service that may count as an employment. But is that really just it?
Laws governing employment and employment contract here in Malaysia
Here in Malaysia the main law that governs employment is the Employment Act 1955.
So important this regulation that it goes to the extend that if the terms and anything in an employment contract that you sign with your employee is against the sections, rules and regulation under this Act, the Act will take precedence. In other words, the terms in your employment contract would be invalid. This is in view of Section 7 of the Employment Act 1955.
So that is why you need to pay attention and understand this topic seriously. This is to ensure that you the extend of your rights and liabilities as an employer under the said act.
Aside from the Employment Act 1955, there are other laws that will run simultaneously with the employment of your staff that you need to understand, capture and ensure compliance. Not being compliant would result with you being penalise by authorities. The other laws are;
Children and Young Persons (Employment) Act 1966
Minimum Retirement Age Act 2012
National Wages Consultative Council Act 2011
Employees' Minimum Standards of Housing, Accommodations and Amenities Act1990
Employees Provident Fund Act 1991
Employees' Social Security Act 1969
Employment Insurance System Act 2017
Pembangunan Sumber Manusia Berhad Act 2001
Whistleblower Protection Act 2010
Malaysian Anti-Corruption Commission Act 2010
Do you need your employment contract in writing?
Under Section 10(1) of the Employment Act, if an employee has to work for more than one month under a contract of service, the contract must be in writing.
But who is defined as an employee under the Employment Act?
An employee is defined under the First Schedule of the Employment Act. In that said schedule anyone who is bound under a contract of service is an employee. This is view of the recent amendment to the law. We did talked about this in the article here. So in view of this, basically whoever that is providing a service under a contract of employment / contract of service for more than one month would require his or her contract to be in writing.
Alright. So what should be covered in the Employment Contract? Lets discuss this further on other things that are important to know about.
Types of Employment Contract
Apprentice
Fixed Terms
Part-time
Permanent Employment
Main clauses and terms found in the Employment Contract
Working Hours Under the Employment Contract
Now this is important. This is in relation to how many hours that you can require your employee to work. Under the new amendment to the Employment Act an employee cannot be asked by the employer to work;
(a) more than five consecutive hours without a period of leisure of not less than thirty minutes duration; (b) more than eight hours in one day; (c) in excess of a spread over period of ten hours in one day; (d) more than forty-five hours in one week:
Wage & salary under the Employment Contract
Definition of wages
The various employment laws that we have in Malaysia has a different set of definition for wages.
As a basis for our understanding under the Employment Act a basic wage and all other payment for the work done by the employee. However that said wage does not include;
the house accommodation, fuel, food, light or water given to the employee to provide the work;
any payment made as contribution by the employer to the employee's pension fund, provident fund, retrenchment scheme, termination, lay-off or retirement scheme or any other fund for the welfare of the employee;
any travelling allowances
any special expenses payable due to the nature of the employment
gratuity payment
any part of annual bonus payment.
Minimum wage to be paid in the Employment Contract
As per the Minimum Wage Order 2022, as an employer you should also note that you shall pay an employee a minimum of RM1,500 if you are;
(a) an employer who employs five or more employees; and (b) regardless of the number of employees employed, an employer who carries out a professional activity classified under the Malaysia Standard Classification of Occupations (MASCO) as published officially by the Ministry of Human Resources.
Some best practice with regards to wage terms in the employment contract that you should do
(a) Breaking down statutory deductions
It would be best that you breakdown the salary / wage terms in an employment contract into various deductions that is required under the law being;
Employees Provident Fund Act 1991
Employees' Social Security Act 1969
Employment Insurance System Act 2017
This would ensure that the employee clear of his responsibilities as to the statutory payments required of them and that will be deducted from their wage.
(b) Stating the statutory contributions from the employer
It is also a great practice that you state the statutory contribution that will be paid by the employer under the following laws;
Employees Provident Fund Act 1991
Employees' Social Security Act 1969
Employment Insurance System Act 2017
Pembangunan Sumber Manusia Berhad Act 2001
Overtime wage rate payment for work done beyond normal hours or on holiday
If you require your employee to work beyond the normal hours of work, as an employer you are required to pay for overtime work wage rate.
Section 60A(3)(a) in relation to overtime wage work pay states;
"For any overtime work carried out in excess of the normal hours of work, the employee shall be paid at a rate not less than one and half times his hourly rate of pay irrespective of the basis on which his rate of pay is fixed."
If however you require your employee to work on a holiday, a different wage work pay will be applicable. Under Section 60D(3) an employer would need to pay a double wage rate for the day that the employee work on a holiday.
If you require an employee to work on a holiday we includes and in excess of normal hours, the overtime rate of wage of the work pay shall be not less than three times the ordinary rate per piece. This is in view of Section 60D(3)(aaa).
Leave rights to be provided by employer to employee in Employment Contract
There are several types of leaves available for the employee that must be given by the employer. These leaves are sanction by law as follows;
Annual leave
Sick leave
Maternity leave
Paternity leave
Annual Leave under the Employment Contract
As an employer you can provide the minimum annual leave to your employee as stipulated by the Employment Act or more. The minimum annual leave will be pretty much depends on how long that particular employee has been working for you.
Less than 2 years employment : (minimum 8 days)
More than 2 years but less than (minimum 12 days)
More than 5 years employment : (minimum 16 days)
Medical or Sick Leave under the Employment Contract
The same goes with the medical leave. As an employer you can provide the minimum medical leave to your employee as stipulated by the Employment Act or more.
These are the minimum required medical leave to be provided by you as an employer;
Less than 2 years employment : (minimum 14 days)
More than 2 years but less than 5 years employment : (minimum 18 days)
More than 5 years employment : (minimum 22 days)
Maternity Leave under the Employment Contract
A maternity leave is given to a female employee with maternity allowances during the maternity leave period. The female employee observing the confinement period shall only have a right to the maternity allowances if;
She has been employed by the employer of at least 90 days consecutively before the date she gave birth; and
She has been employed by the employer four months before her confinement.
Your employee however would need to give notice to you as their employer before hand within a period of sixty days immediately preceding her expected confinement and the date from which the female employee intends to commence her maternity leave.
If the female employee commences the maternity leave without notifying you, the payment of maternity allowance to her may be suspended until such notice is given to her employer.
Paternity Leave for the male employee under the Employment Contract
The call of fatherhood is also important in the eyes of the law. A male employee shall be entitled for a paternity leave for a period of 7 days consecutively. There is a caveat to this however. The male employee must;
At the time of this request, he has not exceed 5 times paternity leave with the same employer;
he has been employed by the same employer at least twelve months immediately before the commencement of such paternity leave; and
he has notified his employer of the pregnancy of his spouse at least thirty days from the expected confinement or as early as possible after the birth.
Termination Clause in an employment contract
The termination clause is an all important clause that would set the terms of the termination. A party would need to give an ample notice to the other in in relation to the termination of the contract.
Despite there are exception to the rule in relation to the termination notice, parties are bound under the Employment Act in relation to providing a termination notice. There are several clauses that are operative in the Employment Act to govern this.
If proper notice were not given as an employer you would want to find yourself in an unfair dismissal claim by your employee.
Other clauses you need to consider to be put in your employment contract
It would be best to also include the following items in your employment contract;
Probation period, leave entitlement during probation, confirmation of employment
Bonus entitlement
Public holidays observe by the employer
Retirement age for employees
Confidentiality and non-disclosure
Intellectual property rights of the employer
Exclusive service
Employer right to conduct search
Right to conduct tests for illegal substances
Employer right to suspend employee for allege misconduct
Some other clauses and terms that may not be applicable or even illegal in Malaysia
There are some employers that tries to be 'smart' in putting in some creative clauses but actually run foul to the laws in Malaysia. You want to know that these terms may be invalid here in Malaysia;
Restraint of trade clause
Restraint on employee to join registered trade union
Prohibition on whistleblowing
Employment Contract sample. Is it for you?
Though it is rampant and often in the market that business owner likes-likes-likes to download a contract agreement, working contract agreement, employment contract, letter of offer of employment or working contract or agreement letter between employer and employee or whatever terms that the market can come up with, that may not be the best thing to do.
The simple reason being is that template could have terms that goes against the law and even worse invalid opening up to list of problems to your business operations.
Among the issues we have seen are;
Conflicting terms with the employment contract and the employment act
False expectation between employer and employee as to their work
Wrong legal jurisdiction covering the terms
Outdated terms
A template would also not able to capture the latest laws governing the employment area. In 2022 alone there are two subsidiary legislation under the Employment Act alone that has been gazetted and enforce in law being;
PU(A) 262/2022 PERINTAH KERJA (PINDAAN JADUAL PERTAMA) 2022
And this does not include the other acts that we have mentioned above.
When one is in doubt, get a professional help!
Conclusion
There are many other items that needs to be covered and need to be understood by an employer in the realm of employment law. It would be wise that you obtain a legal counsel to best advice you in such matter to ensure that you are clear as to your rights and liabilities as an employer.
Need assistance in drafting an employment contract for your business? Contact our ASCO LAW lawyers.