Guide: How to Calculate Overtime in Malaysia
Overtime pay is an essential aspect of fair compensation for employees who put in extra effort beyond their regular work hours. In Malaysia, understanding how to calculate overtime accurately is crucial to ensure both employers and employees are in compliance with employment regulations. This guide aims to provide a step-by-step breakdown of how to calculate overtime in Malaysia, taking into account prevailing laws.
Step 1: Determine Eligibility
First, establish whether the employee is eligible for overtime pay.
The Employment Act 1955 defines ‘overtime’ as work carried out in excess of the normal hours of work per day.
Under the amended First Schedule of Employment Act 1955, employees with wages exceeding RM4,000 are not statutorily entitled to overtime payment.
Therefore, the following employees are typically eligible for overtime compensation:
– Those earning wages up to RM 4,000 per month.
– Employees engaged in manual labour, regardless of wages.
– Individuals operating or maintaining mechanized vehicles, irrespective of wages.
– Employees supervising or overseeing manual labourers, regardless of wages.
Please note that specific eligibility criteria for overtime pay may vary based on the employment contract or company policies. It’s essential for employers and employees to be aware of their rights and obligations under the applicable labour laws and agreements.
Step 2: Understand Overtime Categories
Overtime work is categorized into three main types in Malaysia:
1. Normal Day Overtime: Work done after normal working hours on a regular workday.
2. Rest Day Overtime: Work done on a rest day.
3. Public Holiday Overtime: Work done on a public holiday.
Step 3: Calculate Ordinary Rate of Pay (ORP)
What is Ordinary Rate of Pay (ORP)?
The Ordinary Rate of Pay (ORP) is the standard or regular rate at which an employee is compensated for their work. It typically represents the employee’s base salary per day.
Ordinary Rate of Pay (ORP) = Salary per day
To calculate the Ordinary Rate of Pay (ORP) for a monthly-rated employee, you can use the following formula:
ORP = Monthly Rate of Pay ÷ 26
By dividing the monthly salary by 26, you get the ORP, which represents the daily rate of pay for that employee. This ORP is used as a basis for various calculations related to their employment, such as overtime pay or leave entitlements.
Step 4: Calculate Hourly Rate of Pay (HRP)
What is Hourly Rate of Pay (HRP)?
It is the amount of money an employee earns per hour for their work. The HRP is typically calculated based on the employee’s total monthly salary or wages divided by the number of hours they are expected to work in a day.
HRP (Hourly Rate of Pay) = Salary per hour
The HRP is calculated by dividing the ORP by the normal hours of work per day:
HRP = ORP ÷ (Number of Normal Working Hours Per Day)
How to Determine the Normal Working Hours Per Day?
If the employer practices a 6-day workweek and reduces the daily working hours from 8 hours to 7.5 hours, then the calculation of the Hourly Rate of Pay is:
HRP = Monthly Rate of Pay ÷ (26 days x 7.5 hours)
If the employer practices a 6-day workweek, maintains the daily working hours from Monday to Friday at 8 hours each, and reduces Saturday’s working hours to 5 hours, then the calculation of the the Hourly Rate of Pay is:
HRP = Monthly Rate of Pay ÷ (26 days x 8 hours)
Step 5: Determine Overtime Compensation Rates
For employees paid on a monthly basis, overtime entitlements under the Employment Act are as follows:
1. Working in excess of normal working hours on a normal work day: 1.5 x HRP
2. Rest day:
a. Where work does not exceed half his normal hours of work: 0.5 x ORP
b. Where work is more than half but does not exceed normal work hours: 1 x ORP
c. Rest day (working in excess of normal working hours): 2.0 x HRP
3. Public Holiday
a. Follow normal workings hours: 2 x ORP
b. Excess of normal working hours: 3.0 x HRP
Calculation Examples for Monthly Rated Employee
Monthly rate of pay: RM4,000
Work hour: 10am to 7pm
Break: 2pm to 3pm
Normal hours of work per day: 8 hours
ORP = 4000 ÷ 26 = 153.8462
HRP = ORP ÷ 8 = 19.2308
Normal OT rate = 1.5 x HRP = 28.8462
Rest Day OT rate = 2.0 x HRP = 38.4615
PH OT rate = 3.0 x HRP = 57.6923
Example 1 – Work on Normal Day
The employee worked on Monday (Normal Day) from 10am until 9pm.
Normal OT hour = 2 hours
Normal OT Amount = 2 hours x 1.5 x HRP
= 2 hours x 28.8462
= RM 57.69
Example 2 – Work on Rest Day for less than or equal to 4 hours (Half Day)
The employee worked on Sunday (Rest Day) from 10am until 2pm.
Rest Day Pay = 0.5 day
Rest Day Pay Amount = 0.5 x ORP
= RM 76.92
Example 3 – Work on Rest Day for more than 4 hours, less than 8 hours
The employee worked on Sunday (Rest Day) from 10am until 4pm.
Rest Day Pay = 1 day
Rest Day Pay Amount = 1 x ORP
= RM 153.85
Example 4 – Work on Rest Day for more than 8 hours
The employee worked on Sunday (Rest Day) from 10am until 9pm.
Rest Day Pay = 1 day
Rest Day OT hour = 2 hours
Rest Day Pay Amount = 1 x ORP
= RM 153.85
Rest Day OT Amount = 2 hours x 2.0 x HRP
= 2 hours x 38.4615
= RM 76.92
Example 5 – Work on Public Holiday for less than 8 hours
The employee worked on Public Holiday from 10am until 2pm.
Public Holiday Pay = 1 day
PH Pay Amount = 1 day x 2 x ORP
= RM 307.69
Example 6 – Work on Public Holiday for more than 8 hours
The employee worked on Public Holiday from 10am until 9pm.
Public Holiday Pay = 1 day
Public Holiday OT hour = 2 hours
PH Pay Amount = 1 day x 2 x ORP
= RM 307.69
PH OT Amount = 2 hours x 3.0 x HRP
= 2 hours x 57.6923
= RM 115.38
Step 6: Record Keeping and Payroll Processing
Maintain accurate records of overtime worked by each employee. Submit approved overtime forms to the payroll department within the specified timeframe for accurate and timely payment.
It’s important to ensure accurate payroll calculations to comply with labour laws and provide employees with the correct compensation for their work on normal days, rest days, and public holidays. Employees should be aware that certain deductions might be applicable to their overtime pay.
By following these steps, employers and employees alike can ensure accurate and fair compensation for overtime work in accordance with Malaysian employment laws and company policies. Remember that maintaining transparent and open communication regarding overtime and its calculations is essential to promoting a healthy and harmonious work environment.
FAQ
Would a company driver or any drivers or manual workers earning above RM4,000 be entitled to overtime?
Yes
Is allowance included in OT calculation in Malaysia?
In general, payments such as Shift Allowance, Call Back Allowance, Attendance Allowance, and Acting Allowance are subject to Wages, and they must be considered in overtime calculation.
When we calculate ORP (Ordinary Rate of Pay), we refer to the definition of wages in Section 2 of EA 1955 that defines: –
“wages” means basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but does not include—
(a) the value of any house accommodation or the supply of any food, fuel, light or water or medical attendance, or of any approved amenity or approved service;
(b) any contribution paid by the employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme established for the benefit or welfare of the employee;
(c) any travelling allowance or the value of any traveling concession;
(d) any sum payable to the employee to defray special expenses entailed on him by the nature of his employment;
(e) any gratuity payable on discharge or retirement; or
(f) any annual bonus or any part of any annual bonus
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