Chapter 2

LEGAL ASPECT IN HUMAN RESOURCE MANAGEMENT

Learning Objectives
At the end of this chapter, you should be able to:

1. Discuss various labour laws in Malaysia.

Introduction
Human resources manager must be aware of and keep upto-date with the current and new laws concerning employment in the country. The compliance of labour law by the organisation can enhance motivation and morale of employees because they will feel that there is justice in the organisation, where their rights are protected. Non-compliance with the stipulated rules and regulations will have a serious impact on the organisations businesses, because the organisation may have to face the legal allegations.

Labour Laws in Malaysia

Employment Act 1955 Minimum Wages Order 2012 Minimum Retirement Age Act 2012 Children and Young Persons (Employment) Act 1966 Workers Minimum Standards of Housing and Amenities Act 1990 Workmens Compensation Act 1952 Employees Social Security Act 1969 Employees Provident Fund Act 1991 Trade Union Act 1959 Industrial Relations Act 1967 Occupational Safety and Health Act 1994 Pembangunan Sumber Manusia Berhad Act 2001
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Employment Act 1955

It is administered and enforced by the Department of Labour Peninsular Malaysia. It contains provisions on the minimum standards for setting terms and conditions of employment of employees in the private sector located within the states of Peninsular Malaysia and Territory of Labuan. The major aim of this Act is to set minimum labour standards for employees and to protect them from exploitation.

 The Employment Act 1955 only covers and protects:

1. private sector employees, whose salary is not more than RM2,000 per month. 2. those who work as manual labourers, supervise manual labourers, operate, or maintain mechanically propelled vehicles, or domestic servants, irrespective of their monthly wages. 3. foreign workers, part-timers, temporary/fixed-term contract employees as long as they satisfy the criteria 1 and 2.

Main Areas Covered by the Employment Act 1955

1. Contract of Service
Is an agreement when a person agrees to employ another person as an employee and that other person agrees to serve as an employee. Can be in an oral or written form and can also be expressed or implied. For employees who are covered by a valid Collective Agreement that is signed between the employer and its union, the terms and conditions as stipulated in the collective agreement will apply.

 Although a contract of service may be made orally or in writing, the following terms shall be given to the employee in writing on or before he/she starts the job: (a) employees name and number of identity card; (b) type of employment and position; (c) wages rate; (d) period of wages; (e) other allowances/incentives payable and payment rates; (f) other additional benefits; (g) normal hours of work per day; (h) overtime rates; (i) number of days entitled for annual leaves, public holidays, medical & hospitalisation leaves, and other leaves with pay; (j) the period of notice for termination or wages in lieu of notice as agreed; (k) retrenchment benefits.
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2. Payment of Wages
The Employment Act 1955 had defined wages as basic wages and all other payments in cash payable to an employee for work done in respect of his/her contract of service. However, the wages do not include the following: a) The value of any house accommodation; the supply of food, fuel, light, water, or medical attendance; any approved amenity; or approved service; b) Any contribution paid to the pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme; c) Any other fund or scheme established for the benefit or welfare of the employee; d) Any travelling allowance or the value of any travelling concession;
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e) Any sum payable to the employee to defray special expenses entailed on him/her by the nature of his/her e mployment; f) Any gratuity payable on discharge or retirement; g) Any annual bonus or any part of any annual bonus.
The wages of an employee can be calculated based on monthly, weekly, daily, hourly, piece rate basis. An employees wage must be paid at least once a month. The payment of wages must be made not later than seven days after the end of the wage period. If an employee terminates the contract of service without proper notice or leaves before the end of the notice period, the wage must be paid within three days from the day the employee left.
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 In case of normal termination with proper notice, wages must be paid not later than the day on which the contract terminates. The employer shall issue a statement to an employee to show the details of wages, allowances earned, and lawful deduction during the wage period.

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3. Employment of Women
Employers should not request their female employees to work between the hours of 10o clock in the evening and 5o clock in the morning. A female employee must be given a rest of at least 11 hours before commencing work for the day. Female employees are not allowed to be employed for any underground works.

Maternity Leave and Allowance Female employees are entitled to maternity leave and allowances for a period of not less than 60 consecutive days of each birth.

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 The female employees are allowed to take 14 days earlier than the date originally determined, if certified by a registered medical practitioner. A female employee irrespective of her wages and position shall be entitled to receive maternity allowance for the eligible period from her employer if: a) She has been employed at any time in the four months prior to her confinement; b) She has worked for a period of 90 days during the nine months before her confinement. A female employee must within a period of 60 days before her confinement informs her employer regarding her pregnancy and the date from which she intend to start her maternity leave.

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 The maternity allowances can be suspended by the employer if the female employee failure to notify it to the employer. A female employee shall not entitle to any maternity allowance if at the time of her confinement she has five or more surviving children. Confinement is defined as giving birth after at least 22 weeks of pregnancy, irrespective of whether the baby is born dead or alive.

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4. Working Hours and Holiday

Section 60A of the Employment Act 1995 has restricted the rights of employer to require its employees to work: a) more than five consecutive hours without a period of rest of not less than 30 minutes duration; b) more than eight hours per day; c) more than 48 hours per week; and d) in excess of a spread over period of 10 hours in one day.

Every employee is entitled to have a rest day of one whole day in a week.

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 Every employee is also entitled to have 11 paid public holidays. The five public holidays, which are compulsory to be granted to the employees, are: a) National Day b) Malaysia Day c) Labour Day d) Yang di-Pertuan Agongs birthday e) The birthday of the Sultan or the Governor of the State where the employee mainly works. These five paid public holidays cannot be substituted for another day or other types of holiday. The remaining six paid public holidays can be selected by the employer or be substituted to other days with the agreement between the employer and the employees.
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 When an employee works beyond normal hours of work in a day, he/she is entitled to claim for overtime pay. The limit of overtime work should be a total of 104 hours in any one month, which should exclude overtime hours on rest day and public holidays.
Days Normal work days Rest day Pay Rate *Ordinary rate of pay (O.R.P) 1 days wage O.R.P (if the employee works less than half of his/her normal hours of work). 2 days wages O.R.P (if the employee works more than half but does not exceed his/her normal hours of work) Public holidays 2 days O.R.P 3 number of hours Overtime Pay 1.5 number of hours 2 number of hours

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 Every employee is also entitled to paid annual leave. An employee is not entitled to annual leave, if his/her absenteeism exceeds 10% of the working days during the 12 months of his/her entitlement to annual leave.
Years of Services Annual Leave Medical Leave Hospitalisatio n Leave 60 days* (including the numbers of medical leave entitled for an employee)

Less than 2 years

Two years and above but less than 5 years Five years and above

8 days
12 days

14 days
18 days

16 days

22 days

*Every employee is entitled for 60 days of hospitalisation leave irrespective of his/her years of services within an organisation.

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5. Registers, Returns, Complaints, and Inquiries

The book of registrations must be updated within three days after the end of each wage period and kept in the office of the organisation where the employees are employed. The Employment Act 1955 also outlines the provisions of employees reinstatement due to constructive dismissal, employees grievance, and domestic inquiry.

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Minimum Wages Order 2012

Effective from 1 January 2013, all the Wages Council Orders made under the Wages Council Act 1947 [Act 195] shall be revoked and replaced with the Minimum Wages Order 2012. This Order has to be read together with the National Wages Consultative Council Act 2011 [Act 732]. Minimum wages is defined as basic wages. But, the definition of wages is also cross-referred to the definition of wages in the Employment Act 1955, Sabah and Sarawak Labour Ordinances.

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 The minimum wages rate payable to an employee shall be not less than: a) RM900 per month or RM4.33 per hour for the employees who work at Peninsular Malaysia. b) RM800 per month or RM3.85 per hour for the employees who work at Sabah, Sarawak, and the Federal Territory of Labuan. This Order does not cover domestic servants as defined under Section 2 of the Employment Act 1955.

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Minimum Retirement Age Act 2012

Effective from 1 July 2013, it is compulsory for all employers in Malaysia who employ employees regardless of the amount of salary paid to fix the minimum retirement age of an employee as 60 years. An employer must not prematurely retire an employee before the employee attains the minimum retirement age. An employee may choose for early retirement once he/she attains the age of optional retirement as agreed in the contract of service or collective agreement.

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 This Act does not apply to the following categories of employees: 1) A person who is employed on a permanent, temporary or contractual basis and is paid emoluments by the Federal Government of any State, any statutory body or any local authorities; 2) A person who works on a probationary term; 3) An apprentice who is employed under an apprenticeship contract; 4) A non-citizen employee; 5) A domestic servant; 6) A person who is employed in any employment with average hours of work not exceeding 70 per cent of the normal hours of work of a full-time employee;
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7) A student who is employed in any contract for a temporary term of employment but does not include employee on study leave and employee studying on part-time basis; 8) A person who is employed on a fixed-term contract of service inclusive of any extension, of not more than 24 months; 9) A person who, before the date of coming into operation of this Act, has retired at the age of 55 years or more and is subsequently re-employed after he has retired.

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Children and Young Persons (Employment) Act 1966

This Act regulates the employment of children and young persons to give them rights and protection from mistreatment in the course of their employment. Effective from 1 March 2011, a child is defined as a person who has not completed 15 years of age, while a young person is referred to as a person who is 15 years of age and above, but has not completed 18 years of age. Refer Table 4.3 (pg. 45) for the working hours and the type of work permitted for children and young persons.

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Workers Minimum Standards of Housing and Amenities Act 1990

The objective of this Act is to monitor and control the minimum quality of housing facilities and other social amenities provided by the employer to the employees. Only protects employees who work in the farming (i.e., agricultural land of more than 20 hectares) and mining sectors except those located within the area administered by a City Hall or Federal Territory.

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 If the employees are provided with housing at their place of employment, the employers have the responsibility to provide: 1) a clean and good condition of house; 2) free and adequate piped water drawn from a public main; 3) adequate electricity supply; 4) nursery services if there are a minimum of 10 children under four years of age living with the employees; 5) allotting 250 square meters of the land to an employee who has been employed for a minimum period of six months for cultivation and grazing purposes; 6) community hall and other recreational facilities, if there are a minimum of 100 employees residing at the place of employment; 7) payment for medical treatments.

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Workmens Compensation Act 1952

Effective from 1 July 1992, this Act only covers foreign workers who earn less than RM500 per month and all manual workers irrespective of the wage. The objective of this Act is to provide compensation payment to foreign workers who have accidents at work or who contract employment-related diseases. It also provides for the payment of compensation to the employees dependants if the employee dies in the event of a fatal accident or contracting an occupational disease. it compulsory for all the employers who employ foreign workers to purchase workmens compensation insurance from any insurance companies registered with the Department of Labour. The employer is not allowed to deduct the earnings of an employee for the payment of insurance premium. 28

Employees Social Security Act 1969

This Act was administrated and enforced by the Social Security Organization (SOCSO). The objective of this Act is to provide protection to employees who may be involved in an accident at work or who contract some occupational disease. This Act only covers local employees who work at the private sector earning monthly wages of RM3,000 or less. This Act does not cover government employees, domestic servants, self-employed persons, foreign workers, business owners, and spouses of sole-proprietorship or partnership.

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 The registration of SOCSO is based on the principle of once in, always in. The employer and the employee must pay monthly contribution according to the rates specified under the SOCSO Contribution Schedule. The rates of contribution are based on the total monthly wages received by an employee. Wages are all cash remuneration payable to an employee, which does not include: 1) payments by employer for any pension or provident fund for employees; 2) mileage claims; 3) gratuity payments for dismissal or retrenchments; 4) annual bonus.
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 SOCSO provides coverage to eligible employees through two social protection schemes:

1) Employment Injury Insurance Scheme

This scheme provides protection to employees who are engaged in occupational accidents and diseases. The scheme also protects employees from accidents that occur while: a) working at the workplace; b) travelling from the route between the place of residence and work; the place where the employee takes his/her meal during permitted resting hours; specified destination while on official duties with the conditions that the employee use the normal route and no detour or stopping due to personal engagements.
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2. Invalidity Pension Scheme

This scheme provides 24 hours protection for employees from invalidity or death, irrespective of the cause of death. The scheme is to ensure that the employees dependants receive compensation payment when an unexpected incident occurs to the employee.

The two schemes (i.e., employment injury insurance scheme and invalidity pension scheme) are categorized into two categories:

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a) First Category This category consists of employment injury insurance scheme and invalidity pension scheme. Only covers employees below 60 years of age. The contribution is paid by both the employer and the employee. b) Second Category Only consists of invalidity pension scheme. Protects employees above 60 years of age and still working; employees above 55 years of age when first registered and contributed to SOCSO; and an insured person receiving invalidity pension who is still working and receiving wages that is less than 1/3 of the average monthly wages before invalidity. The contribution is only paid by the employer.

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 An insured employee or dependant will be entitled to the following benefits: 1) Periodical payments in the case of disablement suffered as a result of an employment injury. 2) Periodical payments to the dependants of an insured person who dies as a result of an employment injury. 3) Payments for funeral benefit or expense on the death of an insured person as a result of an employment injury. 4) Periodical payments to an insured person who is in receipt of invalidity pension or disablement benefit and is so severely incapacitated or disabled as to require the personal attendance of another person. 5) Medical treatments for the attendance on insured persons suffering from disablement. 6) Periodical payments to dependants of an insured person who dies while in receipt of invalidity pension.
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Employees Provident Fund Act 1991

This Act was administered and enforced by the Employees Provident Fund Board. The main objective of this Act is to ensure that employees have funds available after their retirement. This Act covers three categories of employees: 1) all local private sector employees who are employed by an employer under a contract of service or apprenticeship ; 2) non-pensionable public sector employees; 3) expatriates and foreign workers who earn less than RM2,500 per month 4) those who have opted to contribute before 1 August 1998.

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 The categories of employees who are exempted from making the mandatory contribution: 1) Domestic servants or foreign domestic maids 2) Out-workers who do cleaning and alteration repair works 3) Any persons who are detained in any prison, custody, place of detention, Henry Gurney School, mental hospital, or rehabilitation centre 4) Any workers holding Employment Pass or expatriates holding Visit Pass (Temporary Employment) whose monthly wages are not less than RM2,500 5) Self-employed persons 6) Pensioners

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 The amount of contribution is calculated based on the monthly wages of an employee. Wages are all remuneration in money received by an employee under his/her contract of service, which includes salary, bonus, commission, or allowance payable by the employer, but does not include the following: 1) Service charge; 2) Overtime payment; 3) Gratuity; 4) Retirement benefit; 5) Retrenchment, lay-off, or termination benefits; 6) Travelling allowance or the payments for any travelling concession; 7) Any other remuneration or payment exempted by the Minister
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 For employees who received monthly wages of RM5,000 and below, the portion of employers contribution is 13% of the employees monthly wages, while the employee contributes 11%. For employees who receive wages more than RM5,000 per month, the employees contribution is 11%, while the employers contribution is 12% the employees monthly wages. For expatriates and foreign workers (except for those excluded), the percentage of employees contribution is 11% of their monthly wages, while the employers contribution is RM5 per person.

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 Both the employers and the employees contribution that remits to the fund is divided into two accounts as follow:

1) Account No. 1
This constitutes 70% of the savings for the purpose of retirement. The employee may withdraw the savings upon reaching the retirement age.

2) Account No. 2
This constitutes 30% of the savings for housing, education, and medical purposes. The employee may withdraw the savings for the reasons of :

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- reaching the age of 50 years; - down payment for purchasing the first house; settling the remaining first housing loan; - financing for higher education for self or his/her child; - medical costs; - exceeds one million ringgit in his/her account.

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Trade Union Act 1959

This Act was enforced by the Department of Trade Union Affairs. This Act had regulated the procedures for applying for registration of a union, the use of union funds, the rights and liabilities of unions, and other matters relating to the constitution of unions as stipulated. Every trade union must apply to be registered and recognised under the Trade Union Act 1959 to become a certified union to represent its member in the trade disputes. This Act has stipulated that all employees who are: 1) above the age of 16 years, but have not completed 21 years of age, have the right to join a certified trade union. However, he/she is not eligible to be elected as an officer or trustee of the union; 2) have not attained the age of 18 years are not entitled to vote on matters regarding strike, lock-out, imposition of a levy, dissolution of the union, and the amendment of the rules of the trade union.
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 The Act has also regulated that the officers of a trade union should be: 1) a Malaysian citizen; 2) he/she should have been engaged for a period of at least one year in any established union; 3) he/she should have never served as an executive in any union that has been cancelled or withdrawn; 4) he/she should not be an officer or employee in a political party; 5) he/she should have never been convicted with criminal act; 6) he/she should not be a bankrupt person.

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 According to the Guidelines for Establishment and Registration of Trade Union, the employees who intend to form a trade union must apply to the Director General of Trade Unions for registration within one month from the date of its formation by following the process given below:

Step 1: Initial meeting - Meeting needs to be held among the union members. - There is no limitation about the attendance.
Step 2: Register with Director General of Trade Union - Every application for registration should be signed by at least seven members or officers of the trade union. - There are few forms and documents that should be filled and prepared before submitting to the Director of General for registration.
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Industrial Relations Act 1967

This Act was enforced by the Industrial Relations Department. This Act provides for the regulation of relations between employers and employees or employees and their trade unions and the prevention and settlement of trade disputes. The main objective of this Act is to encourage harmonious relations between employers and employees (or their trade unions) through direct negotiation to settle their differences with minimal government intervention.

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 This Act has set out the regulations regarding: 1) the legitimate rights of employers, employees, and their trade unions; 2) the procedure relating to submissions of claims for recognition and scope and representation of trade union and collective bargaining; 3) the matters relating to promotion of employees, internal transfers, recruitment of employees, dismissal, retrenchment, and reinstatement of employees, and allocation of duties over any of these matters are not allowed to be included in the proposal for collective bargaining. 4) the procedure of trade dispute settlement; 5) the power of Ministry of Human Resources to intervene and to refer any trade dispute to the Industrial Court for arbitration.

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 The regulated that the employer is not permitted to do the following: 1) state any condition in the contract of service restraining the right of an employee to join a trade union; 2) refuse to employ a person if he/she is a member of a trade union; 3) compel an employee to join a trade union; 4) discriminate, dismiss, or threaten an employee on the grounds that he/she is a member of a trade union; 5) induce an employee not to join a trade union by offering certain advantages.

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 The Act also imposes that an employee and their trade union is not permitted to do the following: 1) persuade an employee to join the trade union during the working hours except when permitted by the employer; 2) threaten or injure any person to be or not to be a member or officer of the trade union; 3) induce an employee or officer of the trade union by offering certain advantages.

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Occupational Safety and Health Act 1994

This Act is enforced by the Department of Occupational Safety and Health. This Act provides the legislative framework to secure the safety and health among all Malaysian workforces and to protect others against risks to safety and health in connection with the activities of workers at work. The objective of this Act is to promote safety and health awareness, and establish effective safety and health performance through self-regulation schemes designed to suit the needs of the particular organisation.

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 This Act applies throughout Malaysia in the following industries (except armed forces and board ships governed by the Merchant Shipping Ordinance): 1) Manufacturing 2) Mining and quarrying 3) Construction 4) Agriculture, forestry, and fishing 5) Utilities (including electricity, gas, water, and sanitary services) 6) Transport, storage, and communication 7) Wholesale and retail trades 8) Hotels and restaurants 9) Finance, insurance, real estate, and business services 10) Public services and statutory authorities.
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 There are three main principles that have been taken as the foundation in the drafting of this Act: 1) Self-regulation. - An employer must establish a comprehensive and clear safety and health policy to handle issues relating to workplace injuries and illnesses. 2) Consultation - Employers, employees, and the Department of Occupational Safety and Health must negotiate to settle issues and problems relating to safety and health at workplace. 3) Co-operation - Employers and employees must cooperate to upgrade the standards of safety and health at workplace.
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 The Act has regulated that all employers with more than five employees are required to formulate a written Safety and Health Policy. A well-written Safety and Health Policy shall include three parts: 1) General policy statement - Provide a summary of safetys goals, responsibilities of management on the issues of employees safety and health, the importance of safety and health to overall business performance. 2) Organisation - Describe the roles and responsibilities of each person within the organisation to ensure the quality of safety and health at the workplace.

3) Arrangement - Specify the actions to be taken to ensure that the Safety and Health Policy is being effectively implemented.
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 The duties of employers as stipulated in the Act are as follows: 1) Provide and maintain a safe and healthy working environment, including system of work; 2) Ensure that the use, operation, handling, storage, and transport of plant, equipments, and substance are safe; 3) Establish safety and health policy as required under the Act; 4) Provide adequate safety information, instructions, training, and supervision; 5) Ensure that the working area and the means of access to and the way out are safe; 6) Provide adequate facilities for welfare of employees.

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 The general duties of an employee may include the following: 1) Take reasonable care for the safety and health of self and other persons who may be endangered by his/her activities; 2) Cooperate with the employer or other persons to carry out the duties imposed by the Act and the safety regulations; 3) Wear or use personal protective equipment and clothing provided by the employer at all times; 4) Comply with any rules, instructions, or measures on occupational safety and health.

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Pembangunan Sumber Manusia Berhad Act 2001

The purpose of this Act is to encourage employers to conduct training for their workers so as to upgrade their skills and abilities through the imposition and collection of a human resource development levy. The human resources development levy is the mandatory levy payment imposed by the PSMB ACT 2001. The HRDF is a pool of funds that consists of human resources development levy contributed by the employers.

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 The categories of employers who are eligible to pay the levy include:
Categories of Employers
Manufacturing sector With 50 employees and above Any amount 1 per cent of the employees monthly wages RM2.5 million or 1 per cent of the more employees monthly wages Less than RM2.5 million 0.5 per cent of the employees monthly wages 1 per cent of the employees monthly wages 1 per cent of the employees monthly wages

Paid-up Capital

Rate of Levy

With 10 to 49 employees

With 10 to 49 employees (optional)

Service sector With 10 employees and above in 21 selected industries With 50 employees and above in the industries of hypermarket, supermarket, or departmental stores Any amount

Any amount

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 The amount of levy is calculated based on the monthly wages of the employees across the organisation. The PSMB ACT 2001 has defined wages as the basic salary and fixed allowances or other remuneration paid in cash received by the employee as the return of their services to the organisation, but does not include the following: 1) pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, or any other fund or scheme offered for the benefit and welfare of the employee; 2) travelling allowances; 3) bonus or commission; 4) gratuity payable on discharge or retirement; 5) reimbursement of expenses;
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6) allowances paid to an apprentice under apprenticeship contract; 7) unfixed allowances; 8) Any other remuneration or payment exempted by the Minister. The employers who are registered with PSMB and pay the levy are eligible to apply for training grants. The training programmes must be in the area of direct benefit to their employees skills upgrading and the organisations business performance.

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