Comprehensive Guide to Employee Benefits and Compensation in Malaysia

Employee benefits are benefits or perks offered to the employers over their incomes. Most nations guarantee several employee benefits through legislations, such as maternity leaves, minimum wages, retirement funds, medical insurance, and so on. 

Offering employee benefits in Malaysia ensures that talented employees are retained in the company.  Employee benefits also increases employee satisfaction for your employees in Malaysia

This article gives you in-depth knowledge regarding Malaysia’s compensation and benefits policy. 

Laws governing compensation package in Malaysia, fall under the regulations and legal framework of the Employment Act 1955. The Act which includes a list of guidelines that are mandatory for employers to follow for providing their employees with their fundamental rights and care. Therefore, companies are encouraged to exceed the minimum requirements for the compensation package in Malaysia that fall under the stipulated framework of the Employment Act 1955.

Malaysian labor laws have the following mandatory guidelines that all employers running a business in Malaysia must follow:

Minimum wage

Malaysia’s minimum wage has been raised to MYR 1,200 a month since February 2020. Employees should be included in an employment contract mentioning the standard 38-hour workweek. They should be paid twice their hourly wages if they work on public holidays or Sundays. 

‍Regular working hours

‍As per the Employment Act 1955, employees are not required to work for more than 8 hours a day, more than 10 hours a day, and more than 48 hours a week.

‍Breaks‍

Employees working for five consecutive hours are entitled to a leisure period of at least 30 minutes. Break periods less than 30 minutes in the five consecutive working hours shouldn’t break the continuity of the said number of working hours. 

According to the National Employment Standards (NES), an employer cannot ask their full-time employees to work more than 7.6 hours a day or 38 hours a week unless they have a reasonable explanation. Employees have the right to decline if they are offered overtime if they are not provided with a compelling reason. 

Benefits programs should be well thought out by employers so that the needs of every employee are fulfilled. Benefits plan designs should aim to strike a balance between the needs of the employees and the corporation and still adhere to the local labor laws.  

Step 1: Plan out your budget & goals clearly

While designing a benefits plan, it is crucial to keep the budget in mind. This helps assess the the scope of the benefits and compensation packages. 

The key objectives to keep in mind before figuring out this step are as follows:

• Functioning within the final budget amount set by the organization.
• Attracting and retaining potential talents
• Abiding by the federal and regional labor laws 

Step 2: Research about the needs of an employee and industry standards

Keeping the objectives and budget  in mind, research the benefits and compensations package offered by rival companies in Malaysia. Conducting an industry-wide assessment also enables you to understand what they need. 

While doing a competitive analysis to plan your benefits and compensation package in Malaysia, keep in mind the following questions:

• What benefits to offer to make your salary package more competitive against your rivals?
• What are the specific benefits required by your employees in addition to the ones already offered? 

A comprehensive research on these lines will act as the fundamentals to create a lucrative benefits plan. It will also help compare your policy against industry standards and the plans offered by the competitors and help you make a unique benefits plan. 

Step 3: Design a custom-built, flexible compensation package

After proposing a framework, make sure that the design is flexible and seeks to benefit the employees. A benefits plan is only perfect when it successfully offers a wide range of supplementary benefits. 

Ideally, a compensation package can be made cost-efficient by cutting down benefits that are not frequently used while ensuring each employee gets relevant benefits.  

Step 4: Convey the finalized benefits plan to potential and existing employees 

Clear communication is an integral part of successful benefits plans. Propose the design of your intent to all existing and potential employees and collect reviews. 

Maintain a two-way communication channel to show you value their opinions. This will secure their trust in you and ensure safety and satisfaction in their workspace. 

Step 5: Assess how effective the benefits package is

It is crucial to understand your benefits package’s effectiveness with regular assessment and evaluation. It will help you check whether the benefits plan fulfills its objective and determine if any modifications are required. 

Keep track of the economy, workforce, legislature, and demographics regularly to maintain compliance and competitiveness.

All employers in Malaysia must follow the mandatory guidelines issued by the Employment Act 1955 to make sure that all employees are provided their fundamental rights and care. 

Under the Employment Act 1955, an employee is entitled to the following benefits:

Annual leave‍

In Malaysia, annual leaves are calculated as per the number of days the employee has been of service. For instance, an employee should get eight days of annual leave for 12 months of service annually with the same company or organization.

Public holidays‍

Employees must be paid in full for all public holidays in Malaysia. Thus, they should be adequately compensated if required to work on such days. For this, employees must be paid double the usual daily rate. In addition, working overtime in the public holiday gives employees the right to receive triple pay.

Maternity leave‍

As per Malaysia’s Budget 2020 proposed by the government, maternity leave for employees working under the private sector should be sanctioned for a maximum period of 90-days was. 

Other mandatory benefits sanctioned by the Act include:

• Hospitalization leave
• Sick leave benefits 
• Lay-off benefits 

How to prepare for retirement?

The Malaysian Labour Law has also stipulated that employers should mandatorily provide benefits for preparing for retirement.  The employee benefits in Malaysia will be deducted automatically every month from the employee’s income and should be distinctively highlighted in the employment letter or offer letter.

The benefits included in this plan are as follows:-

• Employees Provident Fund (EPF) 
• Social Security Organisation (SOCSO). 

Any additional benefits offered to the company should be at the employer’s discretion.

In Malaysia, expatriates are provided with a few additional benefits, which include the following:

• Housing allowance
• Transport allowance
• Children’s school fee
• Return flight ticket 

Many benefits in Malaysia are taxable. The five categories of benefits that are taxable in Malaysia are as follows:-

• Accommodation: The taxable amount is fixed.
• Car Hire: The taxable amount is variable.
• Utilities: The taxable amount is variable.
• School Fees: The taxable amount periodic as per the school term.
• ‘Tax on Tax’: When employers pay tax on the benefits they provide, it is taxable and is paid once a year in May. 

Due to all these taxable benefits, the amounts will be included every month in taxable income, which is reflected in the employee’s payslip. 

One of the most significant restrictions while creating benefits and compensation plans in Malaysia is that employers require an established entity to pay their employees or provide benefits.

Providing multiple types of allowances and monetary or non-monetary benefits is very important because it has the potential to affect your retention rates positively. Although these benefits aren’t required by law, they might be expected by employees and might be a possible way to ensure talent retention.

Companies are encouraged to cover the supplemental benefits like GP consultation fees under the company’s medical benefits for employees in Malaysia. Depending on the industry or the sector, companies ought to provide life insurance or accident insurance to employees. Employers are encouraged to offer employees the following benefits as well:

• Medical insurance
• Internet allowance
• Travel incentives
• Travel allowance
• Remote working benefits
• Relocation assistance (if needed)
• Professional training and personal development
• Personal accident insurance
• Parking allowance
• Optical coverage
• Employment injury coverage (SOCSO)
• Education assistance
• Dental cover

It can be both tedious and challenging to create and manage a benefits plan and avoid any litigation in the process. Employers must stay updated with the compulsory benefits, minimum wage requirements, compensations, and other terms authorized by the Malaysian labor laws.

You can outsource offering employee benefits and compensations to Multiplier, a global employment solution. Our experts in all major countries keep themselves up-to-date about local employment laws. We ensure that employers will obtain industry-standard benefits if they avail of our platform. 

Multiplier’s in-house experts always stay updated with the local labor laws of the nation. Hence, we can help you create a comprehensive compensation and benefits policy in Malaysia.