Employment Act regulations explained in this article only apply to certain categories of employees like manual workers or employees whose monthly wages do not exceed RM4,000.
Different rates apply depending on whether the work is performed on normal work days, rest days or public holidays, and whether during or outside normal working hours.
We also indicate which overtime payroll items you can use for automatic hourly rate calculations based on the employee's wages. Please refer to the Ordinary Rate of Pay paragraph at the end of this article to check that the calculation basis for hourly rate set in the system is suitable for your company.
Overtime on normal work days
For any overtime work carried out in excess of the normal hours of work, the employee shall be paid at a rate not less than one and half times his hourly rate of pay.
In PayrollPanda, you can use the preset overtime item: Overtime (Normal) x1.5.
Overtime on rest days
Every employee is allowed a rest day of one whole day per week. Where an employee is allowed more than one rest day in a week (employees working a 5-day week), the last of the rest days shall be the rest day for overtime purposes. So for employees working Monday to Friday the rest day will be Sunday.
A daily-rated worker who works on a rest day during normal working hours shall be paid as follows:
(i) 1 day's wages if the work does not exceed half his normal hours of work; or
(ii) 2 days' wages if the work is more than half but does not exceed his normal hours of work.
A monthly-rated worker who works on a rest day during normal work hours shall be paid as follows:
(i) 1/2 day's wages if the work does not exceed half his normal hours of work, or
(ii) 1 day's wages if the work is more than half but does not exceed his normal hours of work.
In PayrollPanda, you can create a custom Overtime item with multiplier rate of 1 and enter 4 hours for half day's wage and 8 hours for full day when adding the custom Overtime item to your payroll. Please read this article to find out how to create custom overtime. Tick Yes for EPF for your custom Overtime item since additional pay for work during normal working hours on a rest day is subject to EPF.
For overtime work on a rest day outside normal working hours, an employee shall be paid at a rate which is not less than two times his hourly rate of pay.
In PayrollPanda, you can use the preset overtime item: Overtime (Rest-day) x2.
Overtime on public holidays
If working during normal working hours on a public holiday, in addition to the holiday pay he is entitled to for that day, an employee is entitled to two days’ wages at the ordinary rate of pay, regardless that the period of work done on that day is less than the normal hours of work.
In PayrollPanda, you can create a custom Overtime item with multiplier rate of 2 and enter 8 hours (even if the employee worked for less than 8 hours during the public holiday) when adding the custom Overtime item to your payroll. Please read this article to find out how to create custom overtime. Tick Yes for EPF for your custom Overtime item since additional pay for work during normal working hours on a public holiday is subject to EPF.
For any overtime work carried out by an employee outside normal working hours on a public holiday, the employee shall be paid at a rate which is not less than 3 times his hourly rate of pay.
In PayrollPanda, you can use the preset overtime item: Overtime (Public) x3.
Ordinary rate of pay
The Employment Act provides that the minimum daily rate of pay for overtime calculations should be: monthly wages* / 26. However employers are also allowed to choose any other calculation basis which is more favourable to the employee, eg monthly wages / 22 if the employee works 5 days a week. In PayrollPanda, you can select the calculation basis for overtime under Settings > Payment Settings. If your employees work 6 days a week, please be aware that some months have 27 workdays and therefore it would be preferable to choose Fixed Days - 26 as calculation basis rather than Working Days in Current Calendar Month to avoid paying overtime below the minimum rate.
The hourly rate should be calculated based on the normal daily hours of work under the employee's contract. Our preset overtime items calculate the hourly rate for employees working 8 hours a day. If your employees' hours of work from January 2023 were reduced to 7.5 hours due to the 45-hour weekly limit under the Employment Act amendments, you can follow the instructions in this article to create custom overtime items with hourly rate based on 7.5 hours.
*wages for this purpose are defined as:
basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but not including:
(a) the value of any house accommodation or the supply of any food, fuel, light or water or medical attendance, or of any approved amenity or approved service;
(b) any contribution paid by the employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme established for the benefit or welfare of the employee;
(c) any travelling allowance or the value of any travelling concession;
(d) any sum payable to the employee to defray special expenses entailed on him by the nature of his employment;
(e) any gratuity payable on discharge or retirement; or
(f) any annual bonus or any part of any annual bonus.
The following are also excluded from the definition of wages for overtime calculation purposes: any payment made under an approved incentive payment scheme or any payment for work done on a rest day or on any gazetted public holiday granted by the employer under the contract of service or any day substituted for the gazetted public holiday.
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