Understanding Retrenchment and Termination Compensation in Malaysia
by Hong Yuan
Apr 18, 2024
at 2:54 PM
Retrenchment can be a stressful and uncertain time. Financial worries often add to the emotional strain. If you find yourself in this situation in Malaysia, it's important to understand your rights regarding compensation.
Which employees are eligible to receive lay-off benefits payments?
Based on the Employment (Termination and Lay-Off Benefits) Regulations 1980, employees are eligible for termination benefits payments when their employment contracts are dismissed for any reason except:
When the employee's contract is terminated due to misconduct
When the employee chooses to terminate their contract
When the employee's contract of service is renewed and revised with equal or enhanced benefits (with renewal being in effect immediately)
When the employee's contract is dismissed upon reaching the retirement age (that is if this clause is written in the contract)
When the employee’s monthly salary is more than RM4,000
Malaysia's Employment (Termination and Lay-Off Benefits) Regulations 1980 mandate minimum compensation for employees who are laid off. The amount you receive depends on your length of service with the company:
Less than 2 years: You are entitled to 10 days' wages for each year of service.
2 years to 5 years: The minimum compensation increases to 15 days' wages for each year of service.
5 years or more: You are eligible for 20 days' wages for every year of service, with a pro-rated amount for incomplete years (rounded to the nearest month).
Wages used in the calculation include your basic salary, allowances considered part of your wages, and any commissions earned in the preceding 12 months.
Calculation of Termination & Lay Off Benefits
Example:
Employee A is retrenched by company BCD. He worked there for 3 years and 5 months and earned RM3500 a month. How much should his benefits be?
Entitlement as per Reg 6 of the Employment (Termination & Lay Off Benefits Regulation 1980) = 15 days for every month of service.
Average true days wages = RM3500 x 12 / 365 = RM115.07 (per day)
3 years and 5 months = 3.4167 years
3.4167 x (RM115.07 x 15) = RM5897.40
Beyond the Minimum
The legal minimums are a starting point. Your employment contract or company policy might offer more generous severance pay. It's always wise to review your contract and company handbook to see what benefits you might be entitled to.
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