Termination and lay-off benefits in Malaysia

Two employers retrench the same employee on the same day. One pays a month’s salary and calls it generous. The other pays 20 days’ wages for each of nine years — roughly six months’ pay — because that is what the law requires. The difference is that the second read the Employment (Termination and Lay-Off Benefits) Regulations 1980.

Made under s.60J of the Employment Act 1955, these Regulations are in force and almost invisible in Malaysian HR content — which is why severance offers here are so often below the legal minimum.

Who qualifies for termination benefits?

Regulation 3(1) sets one gate: twelve months of continuous service ending with the relevant date. Below that, there is no statutory entitlement at all.

Regulation 3(2) matters more than it looks: two or more periods of employment count together if the gaps between them do not exceed 30 days in aggregate. Serial short contracts with brief breaks do not reset the clock.

Regulation 4(1) then makes the entitlement broad — the employee is entitled where the contract is terminated for any reason whatsoever, except three cases:

• retirement, where the contract actually stipulates a retirement age;
• dismissal for misconduct after due inquiry under s.14(1) of the Act;
• voluntary resignation, unless the employee left under s.13(2) for the employer’s wilful breach or under s.14(3) because of immediate danger.

Note what is not on that list. Poor performance, redundancy, closure, non-renewal and restructuring all attract the benefit.

How much is payable?

Regulation 6(1) sets three bands by length of service:

Continuous service	Benefit per year of service
Less than 2 years	10 days’ wages
2 years to under 5 years	15 days’ wages
5 years or more	20 days’ wages

The band is chosen by total service and then applied to every year, not stacked in tranches. An employee with six years takes 20 days for all six, not 10 for the first two and 15 for the next three.

Incomplete years are pro-rated to the nearest month. Under reg 6(2), a day’s wages is the average day’s wages over the twelve completed months immediately preceding the relevant date — not last month’s basic salary, which is the most common payroll error here.

Regulation 6(4) adds a point employers routinely miss: this benefit is in addition to any indemnity payable under s.13 for termination without notice. Payment in lieu of notice is not severance, and paying one does not discharge the other.

Why a generous package does not displace the floor

Regulation 6(1) is phrased as “shall not be less than”. That is a floor, not a formula.

Employers frequently assume a contractual severance scheme replaces the statutory one — that a written policy of “one month per year” is a substitute regime. It is not. It is a contractual promise sitting on top of a statutory minimum, and the minimum survives whatever the contract says. Where the contractual sum is larger it is generally treated as satisfying the floor; where it computes lower for a particular employee, the shortfall is still legally owed. Compute both and pay the greater, employee by employee.

When must it be paid?

Regulation 11(1): not later than seven days after the relevant date — the date the contract ends, or for a lay-off the date the four-week period in reg 5(1) expires. Failure is an offence under reg 11(2).

Regulation 12(1) adds a duty employers skip almost universally: at the same time as payment, the employer must give a written statement of the amount and how it was calculated. Omitting it is a separate offence, and under reg 12(3) the employee can demand the statement within fourteen days.

Common mistakes

Using last-drawn basic salary. Regulation 6(2) requires the average day’s wages across twelve completed months. For anyone on variable pay, the two figures differ.

Treating notice pay as severance. Regulation 6(4) makes them cumulative.

Applying the bands cumulatively. One band applies to the whole period of service.

Assuming misconduct removes the entitlement automatically. Regulation 4(1)(b) removes it only where the dismissal followed a due inquiry. Without one, the exception does not apply and the benefit remains payable.

Overlooking the RM4,000 line. Paragraph 1A of the First Schedule to the Employment Act 1955 disapplies s.60J — the parent section for these Regulations — above RM4,000 a month, leaving the employee with whatever the contract gives. But paragraph 2 preserves it irrespective of wages for manual labourers, commercial-vehicle operators and supervisors of manual labourers: their First Schedule entries disapply nothing, and s.60J sits in Part XIIA, so a manual worker earning RM6,500 still qualifies for the statutory benefit.

What’s next

Compute the exposure before the decision, not after: total the 10/15/20-day figures across the affected headcount and add notice pay under s.13. If the exercise is a redundancy, the s.63 notification duties run on their own clock — see retrenchment-malaysia. For the full exit sequence, see offboarding-statutory-checklist.