As a multicultural country, Malaysia has attracted the attention of many overseas businesses and employers. Severance pay is a very important issue in the process of hiring employees, and it is also a regulation that employers must know and follow. This blog will provide overseas employers with a guide to severance pay in Malaysia to help them better understand and cope with this issue.
1. What is severance pay?
Severance pay refers to a sum of money that an employer needs to pay to an employee when terminating an employee to compensate for the financial losses that the employee may suffer after losing their job. Under Malaysian law, employers are required to pay severance pay when terminating an employee, depending on the employee's length of service and the terms of the contract.
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2. Calculation method of severance pay.
In accordance with the provisions of the Labour Act and the Employment (Severance Payment) Rules, severance pay in Malaysia is calculated as follows:
1.Employees with less than two years of service: 15 days of one month's salary.
2.Employees with more than two years of service but not more than five years: 1 month of one month's salary.
3.Employees with more than five years of service but not more than ten years: 2 months of one month's salary.
4.Employees with more than 10 years of service: 3 months of one month's salary.
It is important to note that under Malaysian law, employees are not entitled to severance pay if:
1.Employees resign themselves;
2.Employees are terminated for violating company discipline or the terms of a contract;
3.The employee is terminated during the probationary period.
3. Other matters that need to be understood.
In addition to how severance pay is calculated, there are a few important things that overseas employers need to know:
1.Contract Terms: Before hiring an employee, it is advisable to sign a detailed employment contract with the employee, clarifying the rights and obligations of both parties. The terms of the contract should include provisions on severance pay so that the corresponding expenses can be paid in accordance with the contract when the employee is terminated.
2.Social Insurance: Malaysia has a well-established social insurance system, including unemployment insurance. Employers may also be required to pay a percentage of unemployment insurance contributions when terminating an employee. Employers are advised to familiarize themselves with the relevant regulations before hiring employees and to pay the corresponding social insurance contributions in accordance with the regulations.
3.Termination Procedures: When terminating an employee, employers need to follow certain procedures. First, the employee should be given written notice and the reason for the dismissal. Second, be fair and transparent in the dismissal process and avoid any discrimination or unfair treatment. Finally, if an employee is not satisfied with the dismissal decision, they have the right to file a grievance or seek legal assistance.
Fourth, summary. As a multicultural and economically developed country, Malaysia has attracted many overseas businesses and employers to invest and expand their business. However, severance pay is a regulation that must be considered and followed when hiring employees. This blog provides a guide to severance pay in Malaysia for overseas employers, hoping to help them better understand and deal with this issue. At the same time, we also recommend that overseas employers consult with a local lawyer or professional body before hiring employees to ensure that they are fully aware of and comply with the relevant Malaysian regulations to create a good working environment for themselves and their employees.