Unused Annual Leave in Malaysia: What Are Employees Legally Entitled To?

New amendments to the Employment Act 1955 will come into effect on the 1st of January 2023. Read the full breakdown here.

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

Annual Leave is something that most employees are familiar with — after all, the Employment Act 1955 specifically states that all employees covered by the Act are entitled to a certain number of days of paid leave per year. However, the Act does not govern every employee in Malaysia — only those categorised under the First Schedule of the Act. 

Still, most employment contracts in Malaysia provide for annual leave entitlements, usually ranging from 14 days a year, all the way up to 20, or even 30 days of annual leave. However, with the nation under various forms of lockdown and movement control orders since 2020 due to the COVID-19 pandemic, many workers have opted against using their annual leaves (with  hopeful eye on the future). 

And as we approach the end of the calendar year, many of you might be wondering: What will happen to my Annual Leave balance?

‍Can I carry forward my unused annual leave?

The Employment Act 1955 provides that all employees shall be entitled to at least 8 days of annual leave, with the entitlement to increase based on years of service with the company. These employees, according to Section 60E of the Act, will need to utilise their unused annual leave within the following 12 months of service — if not, the leave entitlement will be forfeited.

You’re classified as an employee under the Employment Act 1955 if you’re employed in West Malaysia and you fall into one of the following categories:

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

Meanwhile, if you earn monthly wages of more than RM2,000, or if you don’t fall into any of the categories above, you’ll need to have a look at the terms and conditions of your employment contract and company policy. Most agreements will provide for a certain amount of annual leave, and you should look for the following information: 

• Limit on unused annual leave days that can be “carried forward” to the next year.
• Deadline for unutilised annual leave to be used. 
  

Do note that some company policies may not provide for any carry-forward, which means that you’ll need to use up your annual leave entitlement within the calendar year.

Can I encash my unutilised leave? 

Encashing your unutilised leave basically means that you’ll exchange the remaining days of your annual leave entitlement for your normal daily pay (click here to find out how to calculate different rates of pay). This is akin to “selling” your annual leave to your company, and can be useful for employees who don’t need or want to use their entire annual entitlement.  

However, this is not a legal requirement for employers. Consequently, you’ll need to look through your employment contract or employer handbook to find out if your company provides this benefit. It’s also important to talk to your management or HR department if this isn’t clear, as company policy differs from company to company. 

What happens to my unused annual leave if I resign?

A similar question may arise if, and when you resign from your job at a company — what happens to your annual leave balance, then? If you still have unused days of annual leave when you resign, you can use these remaining days during your notice period to “bring forward” your final day of service. 

However, do note that technically, you’ll still be employed by your company until the final day of your notice period. This also means that employers still have the right to reject your annual leave application, even if you are serving your notice period. In this event, you are entitled to payment in lieu of the annual leave balance — basically, your company will need to pay you for your unutilised annual leave days at the ordinary rate of pay. 

Here’s how you calculate your ordinary rate of pay (daily pay):  

At the end of the day, keeping track of your leave entitlements — and understanding your rights and legal obligations — is crucial. If you want to find out more about the different types of leave entitlements in Malaysia, click here, or you can find out about overtime pay rates here. And of course, for all things HR, head over to the altHR resources page.

Using altHR to keep track of leaves — in the “new normal”

Keeping track of various leave entitlements for employees can be a challenging process for employers and employees alike — but it doesn’t have to be.

Digi’s super app, altHR, can help with this. The Leaves module (one of the most popular features on the app) is a comprehensive tool that helps to keep track of your employees leave allocations, requests, and policies. 

You’ll even be able to handle the more complex aspects of leave policies, such as the different entitlements for different groups of employees based on tenure with the company, marital status, levels, carry-forward balances, replacement leave policy, and even leave reports. And of course, all of that works seamlessly with the other modules in the new normal, such as Documents, Expense and Payroll Management. 

HR professionals are often faced with repetitive, manual, and often time-consuming 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. We’ll be able to 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.