What an Employer Can and Cannot Deduct from Your Wages

Your payslip is less than the amount you expected, and the reason given is “company policy”. But an employer cannot deduct wages at will: the Employment Act 1955 lays down a closed list of lawful deductions — anything outside that list is not permitted.

What is the basic rule?

Section 24(1) of the Employment Act 1955 states a clear principle: no deduction may be made from an employee’s wages except in accordance with this Act. Since 1 January 2023, the Employment Act applies to all employees in Peninsular Malaysia, no longer only to lower-wage earners.

This means a deduction must rest on one of the categories permitted by the Act. If a deduction does not fall within one of the categories below, it is not permitted under Section 24.

What deductions are allowed without your approval?

Section 24(2) lists the deductions an employer may make without requiring either your consent or the approval of the authorities:

Deduction	Condition
Other written law	Includes statutory contributions such as EPF, SOCSO, EIS and PCB (Section 24(2)(d))
Overpaid wages	Only if the overpayment was made within the three months preceding the month of deduction, due to the employer’s error (Section 24(2)(a))
Indemnity	Indemnity owed to the employer for leaving without notice, under Section 13(1) (Section 24(2)(b))
Salary advance	Repayment of an advance under Section 22, provided no interest is charged (Section 24(2)(c))

Note the three-month limit on overpaid wages: if the employer mistakenly overpaid you a year ago, they cannot deduct your wages now to recover it, because that payment falls outside the three months preceding the month of deduction.

What deductions require your consent or permission?

Section 24(3) lists deductions that may only be made at your written request — namely payments to a registered trade union or a thrift and loan co-operative society, and the purchase of shares in the employer’s business.

Section 24(4) is stricter: the following deductions require your written request and the prior written permission of the Director General of Labour:

• Contributions to a retirement scheme, provident fund, welfare scheme or insurance scheme for the benefit of the employee
• Repayment of a salary advance under Section 22 on which interest is charged, together with the payment of that interest
• Payments to a third party on your behalf
• Purchase of goods from the employer’s business offered for sale
• Rent for accommodation and the cost of services, food and meals provided by the employer at your request or under the contract of service

Can an employer deduct as a penalty?

This is the most frequently misunderstood question. Deductions as a “penalty” for lateness, poor performance, or damage to goods are not listed among the deductions permitted without consent under Section 24(2). Nor are they among the deductions listed under Section 24(3) or 24(4).

There is also a limit on the overall total. Section 24(8) provides that the total of all deductions in a single month may not exceed 50% of the wages earned that month. Section 24(9) exempts several items from this limit: indemnity under Section 13(1), final payment of amounts owed to the employer when the contract ends, and repayment of a housing loan — which, with the written permission of the Director General, may exceed the 50% limit by a further amount of no more than 25% of the wages earned.

What’s next

• Check your payslip and match each deduction against the categories above.
• If a deduction does not match, ask the employer to show its legal basis in writing.
• If it is not resolved, file a complaint with the nearest Labour Department (JTKSM) office.