Advice to New Business Owners – Stay Out of Jail From These 6 Employment Law Offences!

Being a business owner is no easy feat; there are many things to manage, including finding the right location for your business, identifying and marketing to your target customers, pricing, hiring and supervising employees, and more.

One important thing to not overlook is definitely compliance with the laws.

This article summarises 6 employment legislations that generally apply to all business owners / employers, and seeks to remind the need to adhere strictly to them to avoid any criminal liability.

  1. Employment Act 1955 (EA 1995)

The EA 1955 is a fundamental employment legislation that, amongst others, prescribe the minimum standards of rights and entitlements that an employee can expect from any employment relationship.

Gopal Sri Ram JCA (as he then was) held in the case of Barat Estates Sdn Bhd & Anor v Parawakan A/L Subramaniam & Ors [2000] 4 MLJ 107 that the act is “a piece of beneficent social legislation”.

However, the EA 1955 is only applicable to employees defined under Schedule 1 of the Act while non-EA employees will have to look to their employment contracts to know their rights and entitlements.

Now the rights and entitlements provided and protected by the EA 1995 are, amongst others, as follows:

  • Wages

Section 19(1): Employers must pay employee’s wages not later than the 7th day after the last day of any wage period. Usually means before the 7th day of the new month.

  • Rest day

Section 59(1): Employers must allow at least 1 rest day per week for employees.

  • Working hours

Section 60A: Employers cannot force employees to work continuously for more than 8 hours a day and not more than 5 consecutive hours without a period of leisure of not less than 30 minutes duration.

  • Overtime payment

Section 60A(3)(a): Employers must pay at least 1.5x hourly rate of pay to employees for any work done in excess of normal working hours.

  • Public holiday

Section 60D(1)(a): Employees are entitled to at least 11 paid public holidays per year.

  • Annual leave

Section 60E(1)(a): Employees with a length of service of < 2 years are entitled to annual leave of 8 days per year. 2- 5 years – 12 days, and > 5 years -16 days. If less than 1 year, then in direct proportion to the number of completed months.

  • Maternity allowance and leave (applicable to all employees regardless of Schedule 1)

Section 37(1)(a): Female employees are entitled to at least 60 consecutive days of paid maternity leave.

Criminal Offence: Section 99A provides that any non-compliance to the above is punishable with a fine not exceeding RM10,000. The Court can also order employers to fulfil repayments for matters such as maternity allowances, wages, overtime wages, rest day, sick leave, annual leave and holidays that were wrongly denied.

  1. Minimum Wage Order 2020

Pursuant to section 23 of the National Wages Consultative Council Act 2011, the Minister is empowered to make an order on the national minimum wages’ rates. The latest order is the Minimum Wages Order 2020, which has been effective since 1st February 2020.

Following the Minimum Wages Order 2020, employees who work in the following 16 City Council and 40 Municipal Council areas.

City Council:
Johor Bahru, Iskandar Puteri, Alor Setar, Melaka Bersejarah, Pulau Pinang, Seberang Perai, Ipoh, Shah Alam, Petaling Jaya, Kuala Terengganu, Kuching Utara, Kuching Selatan, Miri, Kota Kinabalu, Kuala Lumpur, and Seremban.

Municipal Council Areas:
Batu Pahat, Kluang, Kulai, Muar, Segamat, Pasir Gudang, Kulim, Sungai Petani, Langkawi, Kubang Pasu, Kota Bharu, Alor Gajah, Jasin, Hang Tuah Jaya, Port Dickson, Jempol, Kuantan, Temerloh, Bentong, Manjung, Kuala Kangsar, Taiping, Teluk Intan, Kangar, Ampang Jaya, Kajang, Klang, Selayang, Subang Jaya, Sepang, Kemaman, Dungun, Padawan, Sibu, Kota Samarahan, Bintulu, Sandakan, Tawau, Labuan, and Putrajaya.

the minimum wages payable will be RM5.77 an hour or RM1,200 monthly.

Employees who work in areas other than the 16 City Council and 40 Municipal Council areas, the minimum wages payable will be RM5.29 an hour or RM1,100 monthly.

Criminal Offence: Section 43 provides that an employer who fails to pay the basic wages as specified in the minimum wages order to his employees commits an offence and shall, on conviction, be liable to a fine of not more than ten thousand ringgit for each employee.

  1. Employees Provident Fund Act 1991

EPF is a mandatory retirement saving scheme for all Malaysian employees working in the private sector.

Pursuant to Section 55A, employees can only make full withdrawals of their savings once they reached the age of 55. However, partial withdrawals can also be made for specific purposes such as purchasing a house.

Under the Act, employers will need to, amongst others,:

  1. Register themselves as employers with the EPF within 7 days upon hiring the first employee (Section 41(1));
  2. Register their employees as EPF members and keep their information updated (Section 41(1) and 42(2);
  3. Provide salary statements to employees (Section 42(1)); and
  4. Collect employees’ share of EPF contribution and submit it to the EPF along with the employer’s contribution (Section 45(1)).

Criminal offence: See Chart below as taken from https://www.kwsp.gov.my/en/employer/overview/compliance-and-enforcement. All credit is theirs.

First Column: Section                             

Second Column: Offences

Third Column: Penalties / Legal Action

  1. Employees’ Social Security Act 1969

Established in 1969 and widely known as SOCSO, it is a form of workplace insurance for employees.

Under the Act, employers will need to, amongst others,:

  1. Register themselves as an employer within 30 days upon hiring the first employee (Section 4 & Regulation 10 of the Employees’ Social Security (General) Regulations 1971);
  2. Contribute timely (Regulation 32 of the Employees’ Social Security (General) Regulations 1971; and
  3. Immediately after the receipt of the notice of accident, notify SOCSO within 48 hours (Regulation 71 of the Employees’ Social Security (General) Regulations 1971)/

Criminal offence: Section 94 of the Act provides that if any person-

(a) fails to pay any contribution or any part thereof which is payable by him under this Act or fails to pay within the time prescribed by regulations any interest payable under section 14A;

(b) deducts or attempts to deduct from the wages of an employee the whole or any part of the employer’s contribution;

(c) in contravention of section 52 reduces the wages or any privileges or benefits admissible to an employee;

(d) in contravention of section 53 or any regulation dismisses, discharges, reduces or otherwise punishes an employee;

(e) fails or refuses to submit any return or accident report required by the regulations, or makes a false return or report;

(f) obstructs any Inspector or other official of the Organization in the discharge of his duties; or

(g) is guilty of any contravention of or non-compliance with any of the requirements of this Act or the rules or the regulations in respect of which no special penalty is provided,

he shall be punishable with imprisonment for a term which may extend to two years, or with fine not exceeding ten thousand ringgit, or with both.

However, offences under the Act can be compounded as per section 95A of the Act. The amount of compound can be found here.

  1. Employment Insurance System Act 2017

Employment Insurance System Act 2017 is an Act to provide for the Employment Insurance System administered by the Social Security Organization to provide certain benefits and a re-employment placement programme for insured persons in the event of loss of employment which will promote active labour market policies, and for matters connected therewith.

An insured person who has lost his/her job can apply for the benefits through the EIS website or manually at a SOCSO office. However, voluntary resignation, expiry of the employment contract, mutual termination of contract, retirement, and dismissal due to misconduct are not circumstances that an insured person can claim his EIS insurance (Section 30).

Under the EIS, employers will need to:

  1. Register their employees under the Employees’ Social Security Act 1969 (SOCSO) as stated above then as SOCSO members the employees are automatically entitled to EIS (Section 17(1));
  2. Submit employer’s share of EIS contribution to SOCSO every month (Section 18 & 20); and
  3. Maintain a record of employees’ information and keep the information updated (Section 78).

Criminal offence: Failure to comply with the provisions under the Act an offence and on conviction, an employer is generally liable to a fine not exceeding RM10,000 or to imprisonment for a term not exceeding two years or to both. An offence under this Act can also be compounded (Section 77).

  1. Minimum Retirement Age Act 2012

Before 1 July 2013, employers have total discretion to determine the retirement age of their employees in their employment contracts. What happened then was often men and women were given different retirement ages and this leads to discrimination by employers.

However, after the coming into force of the Act on 1 July 2013, the retirement age in Malaysia is now regulated by law.

Section 4(1) states the minimum retirement age of an employee is 60 years old. Any minimum retirement age below 60 years set by employers in their employment contract will be deemed void and invalid (Section 7).

The Act however does not apply to all employees (see Schedule of the Act for the exempted employees).

Criminal offence: Section 5(2) provides that an employer who prematurely retires an employee before the age of 60 commits an offence and upon conviction shall be liable to a fine not exceeding RM10,000.

Conclusion

The above 6 employment legislations should apply to all business owners who have employees.

As emphasised, a failure to comply with them may give rise to a conviction of a criminal offence. That will not only lead to fines or imprisonment or both, but will also tarnish the reputation of the business and the business owner.

It is thus recommended for new business owners to obtain sufficient legal consultation to ensure their businesses are in compliance with these laws and if a business owner or employer is faced with a charge for allegedly breaching the above laws, he/she is advised to seek legal advice and legal representation immediately.

If you require further advice on these laws, or require legal advice on a retainer basis to ensure your business is in compliance with them, or requires legal representation to defend a charge or to negotiate a compound, feel free to Contact Me.

Authored with the assistance of my able intern, Oliver. 

LouisLiaw:

View Comments (1)

  • Many restaurants and security companies are not following the above and they open challenging the Labour Laws. I recently went for an interview for a security guard job -the rules are as follows work 12 hours a day for 30 days no public holidays, no annual leave, no medical leave and no rest day. If you take a day off they deduct RM 50 per day. The Salary is RM 1700 per month. have written to the Labour Minister and MTUC but they want details which I cannot provide due to the safety of myself.Many of the workers are above 60 years old so they have no choice for other work and others need the money badly .The Labour Minister must go and monitor these type of companies especially theSecurity Comapanies.They cannot force anyone to do overtime.