Can Employer Deduct Employee’s Salary?
The Employment Act 1955 has been expanded as of January 1, 2023, extending its provisions on salary deductions to apply to all employees, not just those earning RM 2,000 and below. According to Section 24 of the Act, employers are generally not allowed to deduct employees’ salaries unless authorized under the Act.
Generally, there are 3 categories of permissible deductions:
1. Deductions without employee consent
Employers can unilaterally deduct an employee’s salary without their consent in the following cases:
- Recovering overpayment of wages made within the last three months.
- Deductions for payment in lieu of notice owed by the employee to the employer.
- Deductions of wage advances made under Section 22 of the Employment Act 1955 (without charging interest).
- Deductions authorized by other written laws (such as EPF, SOCSO, EIS, PCB and PTPTN deductions).
2. Deductions at the employee’s request
Employees can request in writing for the following deductions to be made from their salary:
- Deductions for payments to a registered trade union or co-operative thrift and loan society.
- Deductions for payments related to the sale of shares of the employer’s business to the employee (applicable to shares in the actual employer, which is usually the local entity).
3. Deductions with employee request and Director General’s permission
Employers can only deduct from an employee’s salary if there is a written request from the employee and permission is obtained from the Director General of Labour (DGL). This applies to deductions for:
- Rental, services, food, and meals provided by the employer at the employee’s request or as per the employment contract.
- Payments into superannuation schemes, provident funds, employer’s welfare schemes, or insurance schemes for the employee’s benefit.
- Payments to a third party on behalf of the employee (e.g. Zakat, ASB, Tabung Haji, Angkasa, insurance premium)
- Repayments of wage advances made under Section 22 of the Employment Act 1955 (where interest is charged).
- Purchases of goods from the employer’s business.
- Purchase of parent company shares
- Payments to sports and recreational club fees
- Payment of foreign workers’ levy
- Medical fees
- Repayment of housing/vehicle/computer/education/personal loans
The maximum deduction limit is 50% of an employee’s wages in any given month, except in specific circumstances such as indemnity in lieu of notice, final payment of wages, or housing loan repayment. However, exceeding the limit by an additional 25% for housing loan repayment requires prior permission from the DGL.
In order to obtain approval from the DGL for employee salary deductions, the company must submit an application to the nearest Jabatan Tenaga Kerja (JTK) branch in Malaysia where the employee is employed. If there are multiple entities in Malaysia, multiple applications may be required.
Please note that the approval process from DGL may vary depending on the branch, but typically it takes around 2 to 3 months from the date of submission for the DGL to review and provide approval. It may take longer if there are any comments or requests for additional information or documents. It is advisable to consult with a JTK officer to determine if it is possible to temporarily halt the salary deductions from employees until the application is submitted and approval is obtained from DGL. Once the approval is granted, the deductions can be resumed accordingly.
Employers should review their salary deduction practices, ensure compliance with deduction limits, and seek permission from the DGL when necessary. If amounts owed by employees to the employer are not covered by authorized deductions under Section 24 of the Employment Act 1955, the employer can pursue legal action separately to recover those sums if the employee refuses or fails to pay.
For further information, please contact JTKSM or the nearest JTK branch, which can be found at the following link: https://jtksm.mohr.gov.my/en/contact-us/headquarters-and-branches
Contact us, if you require our assistance with this application.
