Navigating Employee Termination and Notice Periods in Malaysia

In Malaysia, the Employment Act provides a legal framework to protect employees during contract termination, outlining specific requirements for notice periods and severance pay based on tenure. Employers must adhere to these regulations to mitigate risks associated with unlawful dismissal.

Understanding Notice Periods

Malaysian labor laws mandate that employers provide reasonable notice when terminating an employee. The duration varies with the employee's length of service:

Less than 2 years: 4 weeks' notice
2 to 5 years: 6 weeks' notice
Over 5 years: 8 weeks' notice

For smoother transitions, it is advisable to issue notices at least two months in advance. If the employment contract does not specify a notice period, the statutory standards apply. Employers may opt to pay wages in lieu of notice.

Severance Pay Guidelines

Severance pay, or termination benefits, compensates employees dismissed due to reasons like redundancy or restructuring, excluding misconduct. The compensation is calculated as follows:

Under 2 years of service: 10 days' wages
2 to 5 years: 15 days' wages
Over 5 years: 20 days' wages

This financial support helps alleviate economic strain post-employment. For instance, a long-serving employee in a manufacturing firm restructuring received 20 days' pay, aiding their job search.

Termination Process Overview

A structured termination process ensures compliance and minimizes disputes:

Draft a written termination notice stating reasons and effective date, aligned with legal standards.
Deliver the notice via traceable methods like registered mail or email.
Conduct a termination meeting to explain decisions and address employee concerns.
Process severance pay, unpaid wages, and benefits within seven days of the last working day.
Complete exit formalities, such as retrieving company assets and updating EPF, SOCSO, and EIS records. Note: Redundancies require 30 days' advance notice to the Labor Department.

Employment Insurance System (EIS) Benefits

Malaysia's EIS offers unemployment benefits, with eligibility and payout duration depending on age, termination cause, and contribution history. Key aspects include:

Contributions: Both employers and employees contribute 0.2% of wages monthly.
Eligibility: Requires at least 6 months of contributions in the past year and termination not due to misconduct.
Application: Submit documents like ID, contract, and dismissal notice to HRDF.
Benefits: Calculated as a percentage of average wages (e.g., 80% in the first month), tapering over up to 6 months. For example, an employee earning RM2,000 monthly might receive RM1,600 initially.

SailGlobal offers expert guidance to navigate these complexities, ensuring compliance and avoiding contractual disputes. Contact us for tailored legal support.

Malaysia Employee Termination: Notice Periods, Severance Pay, and EIS Guide