Employment Act Amendments: What Malaysian SME Employers Must Know

The Employment (Amendment) Act 2022 came into force on 1 January 2023, and it rewrote the rules for almost every employer in Malaysia. If you run an SME and still operate on pre-2023 HR habits, you're likely non-compliant on at least one count.

This guide gives you a plain-English compliance checklist for the Employment Act as it stands in 2026, so you know exactly what you owe your staff and where the legal lines sit.

This guide covers:

• Who the Employment Act now covers, and the RM4,000 wage cap on certain provisions
• The 45-hour work week, leave entitlements, and maternity and paternity rules
• Flexible working arrangement applications and your 60-day decision window
• The 2025 minimum wage and contribution changes you can't miss
• How employment compliance connects to your employee benefits and insurance readiness

Why the Employment Act matters more for SMEs now

The Employment Act 1955 is Malaysia's core labour statute, administered by the Department of Labour (Jabatan Tenaga Kerja) under the Ministry of Human Resources. For decades it only protected lower-wage workers. That changed on 1 January 2023.

If you're an SME employer in Malaysia, this is no longer a "big company" problem. The Act now reaches into your contracts, your leave policies, your working hours, and your record-keeping.

Get it wrong and you face complaints to the Labour Court, back-pay orders, and statutory penalties. Get it right and you build the kind of workplace that keeps good staff from leaving.

Change	Before 2023	From 1 January 2023
Maximum weekly hours	48 hours	45 hours
Maternity leave	60 days	98 days
Paternity leave	None (statutory)	7 consecutive days
Flexible working arrangement	No statutory route	Formal application, 60-day employer decision
Coverage	Mainly workers under RM2,000	All employees, with some provisions capped

Who the Employment Act covers now

Since 1 January 2023, the Employment Act applies to all employees regardless of monthly wage. The previous RM2,000 wage threshold is gone.

There's a catch. A handful of provisions still don't apply to employees earning more than RM4,000 a month.

The RM4,000 wage cap on certain provisions

For employees whose wages exceed RM4,000 per month, specific sections do not apply. These relate to overtime pay, rest-day work pay, public-holiday work pay, statutory shift allowance, and termination and lay-off benefits.

The excluded sections are 60(3), 60A(3), 60C(2A), 60D(3), 60D(4) and 60J of the Act. Everything else in the Act, including the leave entitlements and working-hour limits, applies to all your staff.

One exception worth knowing: regardless of wage, employees engaged in manual labour or the supervision of manual labour remain fully covered. So even a higher-paid supervisor on the floor can retain those entitlements.

Provision	Applies to staff earning RM4,000 or less	Applies to staff earning above RM4,000
Annual, sick, maternity, paternity leave	Yes	Yes
45-hour weekly limit	Yes	Yes
Overtime pay (section 60A)	Yes	No
Termination and lay-off benefits (section 60J)	Yes	No (statutory)

Working hours: the 45-hour week

The maximum normal working hours dropped from 48 to 45 hours per week. This is the single change most SME employers overlook, because schedules built years ago still assume 48.

If your standard week still adds up to 48 hours of normal work, you're over the limit. Recheck your shift rosters, your six-day-week arrangements, and your part-time contracts.

Overtime rules still apply on top of the 45-hour base for eligible employees. For staff earning RM4,000 or less, work beyond normal hours triggers statutory overtime rates.

Leave entitlements you must provide

The Act sets minimum paid leave by length of service. You can always offer more, but you cannot offer less.

Annual and sick leave

Length of service	Minimum annual leave	Minimum paid sick leave (outpatient)
Less than 2 years	8 days	14 days
2 to 5 years	12 days	18 days
More than 5 years	16 days	22 days

Hospitalisation leave of up to 60 days per year sits separately. Since 1 January 2023, hospitalisation leave is no longer deducted from the outpatient sick leave balance, so the two are counted independently.

Maternity and paternity leave

Paid maternity leave is now 98 consecutive days, up from 60. This aligns Malaysia with international labour standards and applies to eligible female employees.

Paid paternity leave is 7 consecutive days per confinement, capped at five confinements regardless of the number of spouses. To qualify, the married male employee must have been employed by you for at least 12 months before the leave and must notify you of the pregnancy at least 30 days before the expected confinement, or as early as possible after the birth.

Flexible working arrangements: your 60-day clock

The amendments added a statutory route for employees to request flexible working arrangements, known as FWA. This covers variations in hours of work, days of work, or place of work, including remote arrangements.

Under section 60P, an employee may apply in writing for an FWA. Under section 60Q, you must respond in writing within 60 days of receiving the application.

You can approve or reject. If you reject, you must state your reasons in writing. The law does not force you to say yes, but it does force you to handle the request properly and on time.

How to handle an FWA request without slipping up

• Log the date the written application arrives. The 60-day clock starts then.
• Assess against genuine operational grounds, not preference.
• Reply in writing, with reasons if you decline.
• Keep the record on file in case of a future dispute.

The 2025 and 2026 changes SME employers can't miss

Compliance didn't stop in 2023. Several changes since then affect your payroll and contributions directly.

Change	What it means for you
Minimum wage raised to RM1,700	Effective 1 February 2025 for employers with five or more employees and professional-activity employers; smaller employers had until 1 August 2025 to comply.
EPF contributions for foreign workers	Employers must register and contribute for foreign employees on EPF starting 1 October 2025.
Gig worker legislation	The Dewan Rakyat passed legislation in August 2025 recognising gig workers as a distinct category; check whether your platform-style engagements are affected.
Employment Pass salary thresholds	Higher minimum salary thresholds for expatriate Employment Passes take effect 1 June 2026.

The minimum wage and EPF changes feed straight into your statutory contributions. If you're unsure how EPF, SOCSO, and EIS fit together, our guide to EPF, SOCSO and EIS employer contributions breaks down each one.

You might need to review your setup if...

Some SME profiles are more exposed than others. See if any of these describe you.

• You haven't updated employment contracts since before 2023.
• Your standard week still totals 48 hours of normal work.
• You've never had a written FWA policy or process.
• You pay above RM1,700 but never re-checked against the 2025 minimum wage.
• You employ foreign workers and haven't onboarded them to EPF.
• You offer no group medical or life cover, even though headcount has grown.

From compliance to protection: the employee benefits link

Meeting the Employment Act gets you legal. It doesn't get you protected. Once you formally owe staff statutory leave, contributions, and proper contracts, your people become a balance-sheet responsibility, not just a cost line.

Statutory contributions like SOCSO cover work-related injury and certain illness, but they don't replace private group medical, group term life, or personal accident cover. Many SMEs discover the gap only when an employee is hospitalised and SOCSO alone doesn't stretch.

Structured employee benefits also do a second job: they help you keep the talent you've just invested in onboarding and training. If you're setting up group cover for the first time, our first-time guide to employee benefits for Malaysian SMEs walks through the basics, and our comprehensive SME insurance guide shows how the pieces fit together.

Common employer mistakes to avoid

Mistake	Fix
Assuming the Act only covers low-wage staff	It covers all employees; only specific provisions are capped at RM4,000.
Ignoring FWA requests or replying late	Respond in writing within 60 days, with reasons if declined.
Combining sick and hospitalisation leave	Count them separately since 1 January 2023.
Treating SOCSO as full employee protection	Add group medical and life cover to close the gap.

Compliance checklist for SME employers

Action	Done?
Contracts updated to reflect post-2023 entitlements	□
Normal working week capped at 45 hours	□
Leave policy matches statutory minimums by service length	□
98-day maternity and 7-day paternity leave provided	□
Written FWA process with a 60-day decision rule	□
Wages meet the RM1,700 minimum	□
Foreign workers onboarded to EPF	□
Group medical and life cover reviewed against headcount	□

FAQ

Does the Employment Act apply to my small business in Malaysia?

Yes. Since 1 January 2023 the Employment Act 1955 applies to all employees regardless of monthly wage, so almost every SME with staff is covered. A few provisions on overtime and termination benefits don't apply to employees earning more than RM4,000 a month. The leave entitlements and the 45-hour weekly limit apply to everyone.

What is the maximum working week under the Employment Act now?

The maximum normal working week is 45 hours, reduced from 48 under the Employment (Amendment) Act 2022. This applies to all covered employees. Overtime rules apply on top of the 45-hour base for eligible staff, so check that your standard rosters and six-day-week schedules still fit within the limit.

How much maternity and paternity leave must I give?

Paid maternity leave is 98 consecutive days and paid paternity leave is 7 consecutive days per confinement. Paternity leave requires at least 12 months of service and advance notice of the pregnancy. Both entitlements apply regardless of wage. You can offer more than the statutory minimum but never less.

What is a flexible working arrangement application?

It's a formal written request by an employee to vary their hours, days, or place of work under section 60P of the Employment Act. As the employer you must respond in writing within 60 days under section 60Q. You can approve or reject the request, but if you reject it you must state your reasons in writing.

Do I have to approve flexible working requests?

No. The Employment Act requires you to consider and respond to the request properly, not to approve it. You may decline on genuine operational grounds, provided you reply in writing within 60 days and give your reasons. Keep the record on file in case the decision is later questioned.

What's the difference between SOCSO and group employee benefits?

SOCSO is a statutory social security scheme covering work-related injury, certain illness, and invalidity. Group employee benefits are private insurance you arrange, such as group hospitalisation, group term life, and personal accident cover. SOCSO is mandatory and limited; group benefits are optional and fill the gaps SOCSO leaves, which matters for hospitalisation costs and talent retention.

What happens if I don't comply with the Employment Act?

Employees can lodge complaints with the Department of Labour and the Labour Court, which can order back-pay and enforce statutory entitlements. Non-compliance also carries penalties under the Act. Beyond the legal risk, poor compliance damages staff trust and retention, which costs more than the fix.

Did the minimum wage change recently?

Yes. The minimum wage rose to RM1,700 a month, effective 1 February 2025 for employers with five or more employees and professional-activity employers. Smaller employers with fewer than five employees were given until 1 August 2025 to comply. Check that your lowest-paid staff meet the current rate.

Contingent Conclusion

The Employment Act now covers nearly every SME employee in Malaysia, with a 45-hour week, expanded leave, and a formal flexible-work process you have to handle on a clock.

Once you've taken on these duties, your team is a responsibility you carry, and statutory schemes like SOCSO only go so far. Group medical, group term life, and personal accident cover are what protect both your people and your balance sheet.

Contingent helps Malaysian businesses find the right coverage for their specific risks. Whether you're comparing options or need a second opinion on existing cover, our team can help.

Get a quote · or WhatsApp us directly

Disclaimer: This article provides general guidance based on publicly available regulatory information as of June 2026. Regulations may be amended. Always verify current requirements with the relevant authority, such as the Department of Labour (Jabatan Tenaga Kerja), or qualified professionals before making compliance decisions.