Guide to Annual Leave in Malaysia
Annual leave is an important employment benefit that allows employees to take time off from work for leisure, rest, and personal reasons while still receiving their regular salary. In Malaysia, annual leave entitlements are governed by labour laws and employment contracts. In this guide, we will discuss the regulations regarding annual leave in Malaysia and how to prorate annual leave for employees with incomplete service years.
Annual Leave Entitlement in Malaysia
In Malaysia, the Employment Act 1955 governs the employment conditions, including annual leave entitlement.
Standard Annual Leave Entitlement
- First 2 Years of Employment: Employees are entitled to a minimum of 8 days of annual leave per year.
- 2 to 5 Years of Employment: After 2 years but less than 5 years with the same employer, the entitlement increases to 12 days per year.
- More than 5 Years of Employment: For employment beyond 5 years with the same employer, the minimum annual leave entitlement is 16 days per year.
Prorating Annual Leave for Incomplete Service Year
When employees join a company or leave a company during the year, their annual leave entitlement needs to be prorated to account for the portion of the year they have worked. This ensures that employees are given the appropriate amount of annual leave based on their length of service within that year.
To prorate annual leave, you can use a simple calculation based on the number of days in a year (usually 365 days). Here’s how you can do it:
Prorated Leave Entitlement = (Number of Days Worked / Total Days in a Year) x Annual Leave Entitlement
Example 1: Prorating Annual Leave for New Employees
Let’s say an employee is hired on July 1st and the annual leave entitlement is 12 days. To calculate their prorated leave for the year:
- Number of Days Worked (from July 1st to December 31st) = 184 days
- Total Days in a Year = 365 days
- Prorated Leave Entitlement = (184 / 365) x 12 = 6 days
So, the employee is entitled to 6 days of annual leave for the remainder of the year.
Example 2: Prorating Annual Leave for Departing Employees
If an employee resigns or leaves the company on September 15th and has an annual leave entitlement of 12 days, you can calculate their prorated leave for the year as follows:
- Number of Days Worked (from January 1st to September 15th) = 259 days
- Total Days in a Year = 365 days
- Prorated Leave Entitlement = (259 / 365) x 12 = 8.52 days
In this case, you can round the prorated entitlement to the nearest whole day, which would be 9 days. So, the departing employee is entitled to 9 days of annual leave for the year.
Remember that it’s important to follow the Employment Act and any additional policies or agreements in place at your company when calculating and granting annual leave entitlement. Keep accurate records of annual leave balances and usage to ensure compliance and fairness for all employees.
What Employees Can Do with Unused Leave
Employees who accumulate unused annual leave typically have two options:
1. Carry Forward Annual Leave:
In Malaysia, employees have the benefit of “carrying forward” their unused leave from one year to the next, subject to company approval. This practice offers flexibility in managing both personal and professional responsibilities, enabling employees to schedule time for personal matters without the concern of losing their accrued leave entitlement.
For example, a policy may state, “Employees may carry forward 5 days of leave into the next year, to be used by December 31st of that year, or they will be forfeited.”
For instance, if an employee has 5 unused annual leave days on December 31, 2023, they can carry forward to January 1, 2024, in addition to their regular entitlement. However, the additional 5 days must be used by December 31, 2024, to avoid forfeiture.
2. Annual Leave Encashment:
Alternatively, employees can convert their unused annual leave into cash, a practice known as leave encashment. This practice allows employees to receive additional income, and it is typically calculated based on the employee’s ordinary rate of pay.
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
Leave encashment is less common than carry forward leave and is typically not a legal requirement. It’s only possible if the company explicitly includes it in the employment contract and/or employee handbook.
Resigned Employees and Annual Leave
When an employee resigns with surplus annual leave, there are typically two options:
1. Offset Notice Period:
The unused annual leave days can be used to offset the employee’s notice period. For instance, if an employee has a 30-day notice period and 7 days of annual leave balance, resigning on December 1st would allow them to conclude their employment on December 24th by using the 7 days of annual leave.
2. Encash Remaining Leave:
Alternatively, the company may offer to encash the remaining annual leave balance. Employees on a monthly rate of pay receive their monthly wages without any reduction during the month in which they take annual leave.
The choice between these options depends on company policy and the terms outlined in the employment contract and/or employee handbook.
Additional Annual Leave FAQs
Are employees on probation entitled to annual leave?
Some companies may choose to allow probationary employees to take annual leave during their probationary period, while others may require employees to wait until they are confirmed in their positions.
The decision often depends on the company’s specific policies and practices. Allowing probationary employees to take annual leave can be seen as a way to provide some flexibility and work-life balance. However, other companies may choose to delay annual leave entitlement until after probation to ensure that employees have fully integrated into their roles and demonstrated their commitment and suitability for the position.
Can employers reject an employee’s annual leave application?
Yes, employers can reject annual leave requests based on various reasons such as insufficient notice, non-compliance with company procedures, scheduling conflicts with other employees’ leave, or urgent work demands.
Can the company force employees to take annual leave?
Employers cannot forcibly impose annual leave on employees for their convenience. Leave should be granted according to employee preferences and the company’s operational needs. The Industrial Court and Ministry of Human Resources guidelines discourage forced annual leave during normal times and even during exceptional circumstances like the Movement Control Order (MCO). During festive celebrations, employers may consider temporarily closing for the additional one or two days instead of compelling employees to utilize their own leave.
How does Unpaid Leave affect annual leave entitlement?
According to Malaysia’s Employment Act 1955 (Act 265), periods of unpaid leave that exceed thirty days within a year are not counted when determining an employee’s length of service for annual leave entitlement.
Is it a legal requirement for employers to allow their employees to carry over unused leave?
Under Section 60E(2) of the Employment Act 1955 in Malaysia, employers are legally required to allow their employees to take their annual leave “not later than twelve months after the end of every twelve months continuous service.” This means that employees are entitled to use their annual leave within 12 months from when the leave is earned, and failing to do so can result in the forfeiture of the leave.
In essence, this section ensures that employees have the opportunity to utilize their annual leave entitlement within a reasonable timeframe and prevents employers from indefinitely deferring or denying employees their annual leave rights. The law aims to promote work-life balance and employee well-being by ensuring that employees have the opportunity to take their earned leave.
Therefore, employers in Malaysia must comply with this legal requirement and allow employees to take their annual leave within the specified time frame, typically within 12 months from the end of each 12-month continuous service period.
Can Employers limit carry forward leave?
Section 60E of the Employment Act 1955 (EA) in Malaysia does not specify a limit on the carry forward of annual leave. It primarily focuses on the entitlement to annual leave, the timing of taking leave, and the forfeiture of leave if not taken within 12 months after the end of every 12 months of continuous service.
Employers can, in practice, set limits on the carry forward of annual leave through their company policies or employment contracts. However, it’s essential to ensure that any such limitations are in compliance with the EA.
If employers choose to limit the carry forward of leave, they should clearly communicate these limitations to employees in their policies and employment contracts. Additionally, these limitations should not violate the principles outlined in the EA, such as allowing employees a reasonable opportunity to utilize their annual leave entitlement.
Get Annual Leave Management Right with CentralHR
Calculating and managing annual leave can be complex. CentralHR offers customizable and automated leave calculation solutions tailored to your company’s policies. Employees can conveniently plan and check their leave balances, while managers can efficiently approve leave requests through CentralHR’s leave system.
Contact us today and request a free demo to optimize your annual leave management.