To safeguard workers’ rights and provide fair compensation to the workers, the Malaysian government has implied a mandatory minimum wage policy. Under the Minimum Wages Order 2024 (MWO 2024), effective 1 February 2025, Malaysia’s minimum wage will increase to RM 1,700 per month for employers with more than five employees, specifically those classified as professionals under the Malaysia Standard Classification of Occupations 2020 (MASCO 2020).

This policy applies to all workers in all sectors and regions, including Sabah and Sarawak. This minimum wage order exempted domestic workers such as maids, gardeners and personal drivers. Micro-enterprises with fewer than 5 staff would be able to get a grace period until 1 August 2025. According to HR Asia’s news report, up to 4.37 million workers, including foreign employees, benefit from this MWO.

Compliance with MWO 2024 is mandatory, and failure to adhere may result in legal penalties, including fines and enforcement actions by labour authorities. The failure to comply would be a violation of Section 23 of the National WAGES Consultative Council Act 2011. Employers could result in a fine of up to RM 10,000 per employee, according to Section 43 of the Minimum Wages Act 732.

Regarding salary and wages, companies may establish their own payroll policies. However, Malaysian labour law mandates that employers must pay salaries within seven days after the conclusion of each wage period. Take an example: if the salary or wages period ends on April 30, the salary or wages payment must be made by May 7.

Usually, salary or wage period will be one month, but it may specify a different cycle of time according to the employment contracts. In Malaysia, salaries are typically paid on three main schedules: at the end of the month (30th or 31st), at the beginning of the month (1st or 2nd), and on a bi-monthly basis—mid-month and end-month (15th and 30th).

Salary Deductions: What Employers Can and Cannot Do

Employers must ensure that salary calculations align precisely with both employment contracts and Malaysian labour laws. This includes accounting for basic wages, mandatory statutory deductions, overtime payments, and any additional allowances or benefits stipulated in the employment agreement. Statutory deductions typically cover contributions to retirement funds, social security, and employment insurance, ensuring financial security for employees.

Additionally, overtime payments have a separate deadline from regular salaries and must be disbursed no later than the final day of the following wage period. Timely payments ensure compliance with labour laws while fostering financial stability and trust in the workplace.

Certain salary deductions are permitted under specific circumstances. The first category consists of statutory deductions, which are legally mandated and must be withheld from employees’ salaries. These deductions include Employees Provident Fund (EPF) for retirement savings, Social Security Organisation (SOCSO) for workplace injury and disability protection, Employment Insurance System (EIS) for financial support if an employee loses their job and Potong Cukai Bulan (PCB) for monthly tax deductions. These statutory deductions ensure employees receive financial security and social protection as part of Malaysia’s labour regulations. Employers must ensure accurate and timely deductions to remain compliant with labour laws.

Additionally, certain salary deductions do not require the employee’s written consent. One such deduction is overpayment of wages, where employers may recover excess payments. However, this deduction is strictly limited to overpayments that occurred within the past three months. Section 22 of the Employment Act 1955 permits the deduction of advance wage payments as long as no interest is charged and the deduction does not exceed the monthly repayment limit. Employers can deduct equivalent amounts of wages if an employee resigns without giving proper notice. Employers can deduct an employee’s wages if he/she agrees in writing to repay company loans or salary advances.

In certain special circumstances, employers may deduct an employee’s salary with written consent. These include deductions for trade union fees, cooperative thrift contributions, or the purchase of the employer’s shares. Additionally, employees may authorize deductions for the purchase of employer’s shares, ensuring transparency and voluntary participation in such financial commitments. Some other circumstances required both written consent from the employee and prior approval from the Director General of Labour. The dual-approval process is to protect employees from coercive or unfair practices. Examples of this type of deduction include contributions to private insurance or savings schemes, as well as charges for rent, food, and utilities provided by the employer.

Limitation on Salary Deductions and Penalties

The extent to which employers can deduct from an employee’s salary is another important consideration. In general, employers cannot deduct more than 50% of an employee’s wages in any salary period. In some special circumstances, the deductions are exempt from this limit, such as indemnity for resignation without notice and final wage deductions upon termination. The repayment of a housing loan also allows employers to deduct more than 50% of an employee’s wages, but it is subject to the prior permission of the Director General, and the employer is only allowed to exceed it by an additional amount of 25%.  

Employers cannot deduct wages for personal expenses, damages, or work-related mistakes unless explicitly approved by the Director-General of Labour – Section 24 Employment Act 1955. Unauthorised deductions often include excessive penalty fines, unapproved salary reductions, or deductions for company expenses imposed without the employee’s consent. Such practices may lead to legal consequences, including fines and potential intervention by labour authorities. Employers who violate salary deduction regulations could be fined up to RM 10,000 per offence under the Employment Act 1855. These unauthorised deductions also can lead to potential lawsuits from employees or intervention from the Labour Department.