How to Calculate Overtime Pay for Employees in Malaysia

Disclaimer: This article should not be considered to be legal advice, and altHR is not liable for any actions taken based on this article.‍‍

Depending on your industry, overtime pay may make up a large chunk of your company’s payable remuneration to your employees every month. There are a variety of simple overtime or payroll calculators available online, but as employers, you need to understand the rules and regulations behind overtime pay calculations. 

Did you know, for example, that not all employees are covered by the Employment Act 1955? Here’s a non-exhaustive list of those governed by the Act:

• Employees who earn monthly wages of RM2,000 or less.
• Employees who — regardless of monthly wage — are engaged in manual labour.
• Domestic servants. 
• And other categories of employees within the First Schedule of the EA 1955. 
  

This means that there are two categories of employees with regards to overtime pay in Malaysia: employees who are covered by EA 1955, and those who are not. For the latter, overtime hours and calculations for the latter group depend on the terms and conditions agreed upon in their respective employment contracts. 

So — how do you calculate overtime pay for employees, according to the Employment Act 1955? 

What is overtime pay, exactly? 

According to Section 60A(3)(b), overtime is defined as the number of hours of work carried out in excess of the normal hours of work per day. 

Naturally, the next question here would be: what are “normal hours” of daily work? It’s fairly straightforward: the normal hours of work is usually agreed upon in the contract of service — although these daily hours should not exceed a couple of limits, according to S.60A(1): 

(a) more than five consecutive hours without a period of leisure of not less than thirty minutes duration;

(b) more than eight hours in one day;

(c) in excess of a spread over period of ten hours in one day;

(d) more than forty-eight hours in one week. 

Additionally, it’s important for employers to note that there is a hard limit to overtime work. According to the Employment (Limitation of Overtime Work) Regulations 1980, employees in Malaysia are only allowed to work overtime for a total of one hundred and four hours in any one month. This comes up to an average of under four daily overtime hours per calendar month, so you’ll need to keep a close eye on all your employees’ total hours. 

How to calculate overtime rate in Malaysia? 

There are a number of different rates that you’ll need to be aware of: Normal, Rest Day, and Public Holiday(s). Here’s a quick breakdown of the rates as per the EA 1955, as well as a couple of examples to help you understand the calculations a little better. 

i) Normal work days

According to S.60A(3)(a) of the Act, employees shall be paid a rate of at least 1.5x their hourly rate for any overtime work outside the agreed upon hours of work — regardless of whether they are paid a monthly or daily rate of remuneration.‍

Example A: Monthly salary

• For example, an employee who works normal working hours of 8 hours a day earns a monthly salary of RM1,800. Over the course of the month, they have also worked overtime for a total of 10 hours. 
• To calculate the employee’s ordinary hourly rate of pay, you’ll first need to calculate their ordinary rate of pay (daily). To do this, divide the monthly salary by 26 days; RM1,800 / RM26 = RM69.23
• Then, take the daily rate and divide that figure by the number of hours to get the employee’s hourly rate; RM69.23 / 8 hours = RM8.65
• And finally, to calculate the overtime pay rate for a normal work day, multiply the employee’s hourly rate of pay by 1.5, and then multiply that figure with the number of overtime hours worked. Here, this would be RM8.65 x 1.5 hours x 10 hours = RM129.75. 
  

Example B: Daily salary

• An employee works normal working hours of 8 hours a day, earning RM50 on a daily basis. One day, this employee works overtime for a total of 2 hours. 
• Divide the employee’s daily salary by the number of normal working hours per day; RM50 / 8 hours = RM6.25. 
• Then, calculate the overtime pay rate by multiplying the hourly rate by 1.5, and then multiply that figure with the number of overtime hours worked. Here, this would be RM6.25 x 1.5 x 2 hours = RM18.75
  

ii) Rest days

Rest days are calculated based on Section 60(3) of the Employment Act 1955. The Act provides that every employee shall be allowed a single rest day per week, at least, and if employees have more than a single rest day, the final day shall be considered to be the rest day in this regard. 

This means that for employees working regular days of Monday to Friday, Sunday shall be considered the rest day. 

Calculating overtime pay rate for rest days can be a little bit more complicated than overtime pay for a normal day. Here are a couple of scenarios that you might encounter: 

Scenario A: Monthly salary

• Employees on monthly salaries are entitled to be paid half of their ordinary rate of pay for the day’s work if the period of work does not exceed half their normal hours of work. 
• If the employee has worked for more than half of their normal hours of work — without exceeding the normal hours of work for the day — they shall be entitled to one day’s wages at the ordinary rate of pay. 
  

Scenario B: Daily or hourly salary

• Employees on salaries that are paid daily, hourly, or other similar rates of pay, are entitled to one day’s wages at the ordinary rate of pay if they work on a rest day for hours not exceeding half their normal hours of work. 
• If the employee works for over half the normal hours for the day — without exceeding the normal hours of work — they shall be entitled to two days’ wages at the ordinary rate of pay. 
  

Scenario C: Overtime work in excess of normal working hours

• Any work that is carried out in excess of the normal hours of work on a rest day — whether the employee is remunerated on a monthly or daily basis — will entitle the employee to overtime pay of twice their hourly rate of pay. 
  

iii) Public holidays

All employees covered by the Employment Act 1955 are entitled to paid holidays for ten gazetted public holidays; if the holidays fall on a rest day, the next working day immediately thereafter will be a paid holiday instead. 

If your employees are required to work overtime on a public holiday as per S.60D of the Act, they are entitled to overtime pay of at least 3 days’ wages at the ordinary rate of pay. This applies to all employees as per the act, including monthly, daily, and hourly-paid workers; the employees in question will also receive their ordinary pay, on top of the overtime pay. 

Meanwhile, if the employee in question works hours that are in excess of their normal hours of work on a public holiday, this work shall be paid at 3 times the ordinary hourly rate for that employee. 

Taking HR to the next level by digitalising your payroll with altHR

Keeping track of everything can be challenging, particularly for employers and HR professionals in the SME sector. What’s abundantly clear is that it’s crucial for Malaysian businesses of all sizes to digitalise their HR processes. Keeping track of payroll for employees can be an arduous, tedious task for even the most experienced of HR professions — but it doesn’t have to be, with Digi’s super app, altHR.

Besides the automation of various other HR processes, altHR comes with a Payroll module that helps employers keep track of all forms of employee remuneration, while automatically calculating monthly salary deductions. This doesn’t just cover EPF contributions, with SOCSO, EIS, and monthly income tax (MTD/PCB) deductions also included. 

These deductions are also automatically adjusted when employers make changes to monthly remuneration of employees, including incentives, bonuses, and other allowances. This automation frees up time for HR professionals to focus on other important matters to the business, while ensuring that monthly payroll is calculated accurately for all employees. 

The best bit? Everything is seamlessly integrated with the other modules within altHR, such as Documents, and Expenses. For example, once payroll has run for the month, admins have the option to send payslips to the Documents module — all within altHR. 

Additionally, the account can also be set to send automated emails, so employees are notified the moment payslips are available. And finally, digital copies of payslips are always available — to employees via the Documents module, and admins via the Payroll admin panel. 

HR professionals are often faced with daunting, often tedious tasks on a daily basis — tasks that have become even more difficult to handle in light of the ongoing COVID-19 situation. 

But help is available, if you know where to look. Let us streamline your HR processes by managing and automating day-to-day tasks, so you won’t have to worry about things like paperwork, privacy concerns, time-tracking, or onboarding challenges.

Sign up for altHR, the all-in-one digital solution that covers everything from payroll and onboarding, to staff management and providing employees with information kits. You’ve done it the old way long enough.