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Asia-Pacific employment law bulletin 2024


Application of the Employment Act

At the beginning of 2023, Malaysia saw drastic changes to its employment laws in the form of  amendments to the Employment Act 1955 (EA). The limited application of the EA to those who were in blue collar jobs or those earning less than RM2,000 (approx. USD 425) per month was removed. The EA became applicable to all employees engaged under a contract of service, alongside the introduction of new provisions relating to discrimination, forced labour, flexible work hours and new qualifiers to overtime payments (see our 2023 APAC employment law bulletin for more details).

The broadened application of the EA meant many employers now had to consider the requirements of the EA for the first time. These requirements included minimum leave days for employees across the board, limitations on work hours and even retrenchment principles. One particularly topical area was in relation to wage deductions for employee share schemes (e.g. where an employee may agree to a deduction of wages to pay the exercise or purchase price of shares).

Wage deductions under the EA

Under the EA, wage deductions can only be carried out with the prior permission from the Director General of Labour (DGL), save for some very limited circumstances. The issue of obtaining prior permission from the DGL for wage deductions in share schemes was rarely an issue previously, as the eligible employees would typically be out of the scope of the EA. However, given that the EA now applies to all employees, the requirement for prior permission from the DGL is now plainly applicable.

The current position applicable to wage deductions (for share schemes) is as follows:

  • Local employer offering its own shares for sale: If an employer offers its own shares to its employees, deductions can be made from employees’ wages to enable the purchase of such shares, provided for the employee provides consent in writing for such deductions. A consent form for wage deductions signed by the employee would suffice. Prior permission from the DGL in such circumstances is not required.
  • Foreign entity (e.g. parent) offering its shares for sale to employees in its Malaysian businesses: The position is wholly different when a foreign entity (e.g. the parent company of the local employer) offers its overseas shares to local employees. The Labour Department has confirmed that if the shares offered for sale are in an entity outside of Malaysia, prior permission of the DGL is required. As such, employers must make an application for permission from the DGL to deduct wages if the share scheme at all relates to shares in a parent company outside of Malaysia. The Labour Department has attempted to facilitate this process by uploading forms for such applications online.

Zaid Ibrahim & Co. : Yong, Hon Cheong