Malaysia: Compliance checks by the Labour Department

In brief

Recently, we have observed that the labour authorities in Peninsular Malaysia have increased efforts to monitor employers’ compliance with the local laws and practice. With the expansion of the scope of the Malaysian Employment Act (EA) effective 1 January 2023 to cover all employees in Peninsular Malaysia (and Labuan), employers are reminded of their statutory obligations, especially those under the EA.


Inspections and inquiries

Under the EA, officers of the Labour Department are empowered to enter the premises of employment to inspect and make inquiries which the officers consider necessary on any matter relating to the provisions of the EA.

While the EA provides that the officers should, where practicable, notify the employer of any inspections, the EA also empowers them to make such visits to workplaces without prior notice.

Reminder on employers’ EA obligations

Given that any inspections or inquiries by the Labour Department can be done without prior notice or with short notice, it is pertinent that employers ensure continuous compliance with their obligations under law. 

Particularly, employers are reminded of their EA-prescribed obligations as follows:

  • Restrictions on payroll deductions: Employers are not allowed to effect payroll deductions (even if the employees have given their consent) except for limited purposes set out in the EA. Some examples of payroll deductions which require the prior approval of the Director General of Labour are deductions relating to contributions for employee stock purchase plans offered by a parent/related company of the employer, global retirement plans, payment for insurance premium, payment for season parking.
  • Limitations on working hours and overtime
  • Observation of public holidays
  • Providing employment benefits (such as annual leave, sick leave, rest day) at rates not lower than the minimum prescribed under the EA
  • Proper record keeping, particularly of the employee register and maternity allowance register at the workplace for inspection
  • Various notification requirements, which are triggered by instances such as the employer’s name or location change, taking over of business, termination of certain categories of employees, etc.

In addition, if there are any employment-related permits, approvals or certificates which have been obtained by the employer, such permits, approvals or certificates should be kept by the employer at the workplace, to be made available for inspection as and when necessary.  

Failure to comply with the provisions of the EA is generally an offense, and on conviction, can attract a general penalty of up to RM 50,000 (approx. USD 10,000) (with some other non-compliances carrying higher penalties). Additionally, if any offense under the EA is committed by a body corporate, the directors, managers, or other similar officers of the body corporate may be charged jointly or severally.

* * * * *

This client alert was issued by Wong & Partners, a member firm of Baker McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.