Annual Leave Policy (Malaysia)
[Company Name]
ANNUAL LEAVE POLICY
[Policy Version] | Effective Date: [Effective Date]
Employment Act 1955 (Act 265), Section 60 | Policy Owner: [HR Contact Name]
1. PURPOSE AND SCOPE
1.1 This Annual Leave Policy establishes the rules governing paid annual leave entitlements for all employees of [Company Name] (the "Company") in Peninsular Malaysia, in compliance with Section 60 of the Employment Act 1955 (Act 265).
1.2 This policy applies to all permanent, contract, and probationary employees employed in Peninsular Malaysia. Employees in Sabah are subject to the Sabah Labour Ordinance (Cap. 67) and employees in Sarawak are subject to the Sarawak Labour Ordinance (Cap. 76), and their leave entitlements are governed accordingly.
1.3 Nothing in this policy shall be construed to reduce any employee's statutory minimum entitlement under Section 60 of the Employment Act 1955. Where any conflict exists between this policy and the Employment Act 1955, the Act prevails.
2. ANNUAL LEAVE ENTITLEMENTS
2.1 Employees of the Company are entitled to paid annual leave in accordance with their length of continuous service, as follows:
Less than 2 years of service: [Leave Year 1] days per year
2 or more but less than 5 years of service: [Leave Year 2] days per year
5 or more years of service: [Leave Year 3] days per year
2.2 The above entitlements meet or exceed the statutory minimums prescribed by Section 60(1) of the Employment Act 1955 (Act 265) — 8 days (under 2 years), 12 days (2–5 years), 16 days (5+ years). Employees earning above RM4,000 per month in non-manual roles are governed by their employment contracts; the Company applies the above entitlements to all employees as a matter of policy.
2.3 Public Holidays: In addition to annual leave, employees are entitled to [Public Holidays] paid public holidays per year, including the 5 compulsory national holidays under Section 60D of the Employment Act 1955 — National Day (31 August), Malaysia Day (16 September), Yang di-Pertuan Agong's Birthday, Hari Raya Puasa (2 days), and Hari Raya Haji. The Company will publish the list of public holidays for each calendar year by 1 December of the preceding year.
3. LEAVE ACCRUAL AND LEAVE YEAR
3.1 The Company's leave year runs from 1 January to 31 December.
3.2 Leave Accrual Method: [Leave Accrual]. Employees who join or leave the Company during a calendar year are entitled to a pro-rata leave entitlement calculated under Section 60E(1) of the Employment Act 1955.
3.3 Annual leave accrues from the first day of employment, including the probationary period. However, approval for leave during probation is at the discretion of the employee's immediate supervisor.
4. LEAVE APPLICATION PROCEDURE
4.1 Employees must submit a leave application with a minimum of [Advance Notice] working days' advance notice, using the Company's approved leave application form or HRMS portal.
4.2 All leave applications are subject to approval by the employee's immediate supervisor, taking into account business requirements. The employer may, after consulting the employee, fix the time at which leave is to be taken under Section 60(1A) of the Employment Act 1955.
4.3 In cases of emergency or medical necessity, the employee must notify their supervisor as soon as practicable and submit supporting documentation (e.g. medical certificate for hospitalisation) upon return to work.
5. CARRY-FORWARD AND LEAVE EXPIRY
5.1 Employees may carry forward up to [Carry Forward Days] days of unused annual leave from one leave year to the next, subject to supervisor approval. Carried-forward leave must be taken by [Carry Forward Expiry], in accordance with Section 60A(1) of the Employment Act 1955 (Act 265).
5.2 Leave balances exceeding the carry-forward limit will lapse at the end of the leave year, except where the employee was unable to take leave due to Company operational requirements — in which case the Company may approve an extended carry-forward period in writing.
6. LEAVE ENCASHMENT ON CESSATION OF EMPLOYMENT
6.1 Upon termination of employment for any reason, the employee's outstanding accrued annual leave balance shall be encashed — [Leave Encashment On Resignation] — at the employee's ordinary daily rate of pay (basic monthly salary ÷ 26 working days), in accordance with Section 60E(3) of the Employment Act 1955 (Act 265). This payment will be included in the employee's final salary payment.
7. POLICY REVIEW
7.1 This policy will be reviewed annually by [HR Contact Name] and updated as necessary to reflect changes to the Employment Act 1955 or Company requirements. All amendments will be communicated to employees in writing with reasonable advance notice.
Approved by: ____________________________
Date: ____________________________
For and on behalf of [Company Name]
HR Manager / Policy Owner
________________
Signature
What Is a Annual Leave Policy (Malaysia)?
A Malaysia Annual Leave Policy is a written employer document that establishes the rules and procedures governing employees' paid annual leave entitlements, leave application procedures, carry-forward provisions, and leave encashment terms in compliance with Section 60 of the Employment Act 1955 (Act 265). The policy applies to employees employed in Peninsular Malaysia and the Federal Territory of Labuan who are covered by the Employment Act 1955 — those earning RM4,000 or less per month, or engaged in manual labour regardless of salary, or employed as domestic servants.
Section 60(1) of the Employment Act 1955 (Act 265) prescribes the minimum paid annual leave entitlements for covered employees: 8 days per year for employees with less than 2 years of service; 12 days per year for employees with 2 or more but less than 5 years of service; and 16 days per year for employees with 5 or more years of service. These minimum entitlements represent a floor — employers may grant more generous leave by contract or policy, but may not contract out of these statutory minimums under Section 7A of the Employment Act 1955.
Employees earning above RM4,000 in non-manual roles are not covered by the Employment Act 1955 minimum leave entitlements — their leave is governed by their employment contracts. In practice, most Malaysian employers apply uniform leave policies to all employees regardless of the RM4,000 threshold, as this simplifies administration and avoids a two-tier leave system. Employers in Sabah and Sarawak are subject to the Sabah Labour Ordinance (Cap. 67) and the Sarawak Labour Ordinance (Cap. 76) respectively, which contain separate annual leave provisions.
Section 60A(1) of the Employment Act 1955 requires that annual leave be taken within 12 months from the end of the year in which it accrued, unless the employer and employee agree to carry forward any unused leave balance. Section 60E(3) provides that where employment is terminated before the employee takes all accrued annual leave, the employer must pay the employee at the ordinary rate of pay for each day of outstanding leave. Unused annual leave encashment is a common source of disputes before the Labour Department (JTK) under Part XV of the Employment Act 1955 and before the Industrial Court of Malaysia.
The legal framework governing the Annual Leave Policy (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Annual Leave Policy (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Employment Act 1955 (Act 265) sets the foundational requirements.
When Do You Need a Annual Leave Policy (Malaysia)?
A Malaysia Annual Leave Policy is required whenever an employer wishes to document, communicate, and administer employees' leave entitlements in a clear and legally compliant manner.
An Annual Leave Policy is needed when a company hires its first employee and must establish clear leave rules from the outset, to avoid disputes about entitlements that may later be adjudicated before the Labour Department (Jabatan Tenaga Kerja, JTK) under Section 69 of the Employment Act 1955.
An Annual Leave Policy is required when an employer is updating its HR Policy Handbook to reflect the Employment (Amendment) Act 2022, which increased minimum leave entitlements and extended the scope of the Employment Act 1955 to employees earning up to RM4,000.
An Annual Leave Policy is needed when a company implements a new payroll or HRMS system and must document the leave accrual, carry-forward, and encashment rules in a formal policy that the payroll system can be configured to enforce.
An Annual Leave Policy is required during a labour audit by the Labour Department under Section 63 of the Employment Act 1955, when Labour Officers examine the employer's leave records and policy documentation to verify compliance with Section 60.
An Annual Leave Policy is needed when a multinational company establishes a Malaysian subsidiary and must align the global leave policy with local statutory minimums under the Employment Act 1955, confirming that foreign national employees on Employment Passes also receive at least the Malaysian statutory minimum leave entitlements.
Parties in Malaysia should prepare a Annual Leave Policy (Malaysia) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Annual Leave Policy (Malaysia)
A valid Malaysia Annual Leave Policy must contain the following essential elements to comply with Section 60 of the Employment Act 1955 and provide clarity for employees.
Scope and Applicability: A statement of which employees the policy applies to — all permanent full-time employees, contract employees, probationary employees — and the effective date of the policy. The policy should specify that employees covered by the Employment Act 1955 (Act 265) receive at least the statutory minimum entitlements under Section 60.
Leave Entitlements by Service Length: A table or schedule setting out annual leave entitlement by years of service, at a minimum matching Section 60(1) of the Employment Act 1955: 8 days (under 2 years), 12 days (2–5 years), 16 days (5+ years). Employers granting above-minimum entitlements (e.g. 14 days from Year 1) should state this expressly.
Probationary Period: A statement on whether annual leave accrues during the probationary period and when leave may first be taken. Under Section 60(1) of the Employment Act 1955, the statutory minimum leave applies from the commencement of employment, not after confirmation.
Leave Accrual Method: Whether leave is granted in full on the first day of each leave year (lump-sum basis) or accrues monthly (pro-rata basis). Pro-rata accrual is common in Malaysia and is consistent with Section 60E(1) of the Employment Act 1955 for calculating outstanding leave on termination.
Leave Application Procedure: The minimum advance notice required for leave applications, the approval process (immediate supervisor, HR), and the HRMS or leave application form to be used. The policy should address peak-period restrictions and the employer's right to schedule leave under Section 60(1A) of the Employment Act 1955.
Carry-Forward and Expiry: The maximum number of days that may be carried forward to the following year and the expiry date for carried-forward leave. Section 60A(1) provides a 12-month carry-forward window unless otherwise agreed in writing.
Leave Encashment on Termination: A statement that unused accrued leave will be encashed at the employee's ordinary daily rate of pay upon termination of employment under Section 60E(3) of the Employment Act 1955, calculated as basic monthly salary divided by 26 working days.
Additional compliance elements for a Annual Leave Policy (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
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author = {{Forms Legal}},
title = {Annual Leave Policy (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/employment/hr-forms/annual-leave-policy-malaysia}},
note = {Free legal document template. Based on Employment Act 1955 (Act 265)}
}Frequently Asked Questions
The minimum annual leave entitlement in Malaysia under Section 60(1) of the Employment Act 1955 (Act 265) is: 8 days per year for employees with less than 2 years of service; 12 days per year for employees with 2 or more but less than 5 years of service; and 16 days per year for employees with 5 or more years of service. These minimums apply to employees covered by the Employment Act 1955 — those earning RM4,000 per month or less, or engaged in manual labour regardless of salary. Employees earning above RM4,000 are not covered by these statutory minimums and their leave entitlement is governed by their employment contract. An employer cannot contract out of these statutory minimums under Section 7A of the Employment Act 1955 — any term in a contract of service less favourable than the statutory minimum is void.
Under Section 60E(3) of the Employment Act 1955 (Act 265), unused accrued annual leave must be encashed at the employee's ordinary rate of pay when employment is terminated — whether by resignation, retrenchment, or other cessation. The ordinary daily rate is calculated as basic monthly salary divided by 26 working days under Section 60I of the Act. During employment, leave encashment (selling back leave days to the employer) is not a statutory right but is permitted if the employer's policy or the employment contract provides for it. Many Malaysian employers allow employees to encash a limited number of days per year — commonly up to 3 to 5 days — above the statutory minimum entitlement. Disputes about leave encashment may be referred to the Labour Department under Section 69 of the Employment Act 1955 for wages claims within 1 year of the due date.
Under the Employment Act 1955 (Act 265), the statutory minimum annual leave entitlement applies from the first day of employment — there is no provision in the Act that excludes the probationary period from leave accrual. This means that employees on probation are legally entitled to accrue annual leave under Section 60(1) from the date they commence employment. However, many Malaysian employment contracts and leave policies restrict the taking of leave during the probationary period — requiring employees to apply for leave approval, which may be withheld during probation for operational reasons. Upon confirmation or the end of probation, the employee's accrued leave (including leave accrued during probation) becomes available for use. If employment is terminated at the end of probation, any accrued but unused leave must be encashed under Section 60E(3) of the Employment Act 1955.
Under Section 60D of the Employment Act 1955 (Act 265), every employee covered by the Act is entitled to a minimum of 11 paid public holidays per year — 5 of which are compulsory national holidays: (1) National Day (31 August), (2) Malaysia Day (16 September), (3) Yang di-Pertuan Agong's Birthday, (4) Hari Raya Puasa (2 days), and (5) Hari Raya Haji (1 day). The remaining 6 days are selected from the gazetted list of national and state public holidays. State public holidays vary — for example, Selangor includes the Sultan of Selangor's Birthday and Nuzul Quran, while Penang includes Penang Governor's Birthday and Wesak Day. Employers must display the 11 selected public holidays for each calendar year. Employees required to work on a public holiday are entitled to additional pay at double the ordinary rate under Section 60(3) of the Employment Act 1955.
Under Section 60(1A) of the Employment Act 1955 (Act 265), an employer may — after consulting the employee — fix the time at which any period of annual leave is to be taken. This means an employer can direct employees to take leave during a company shutdown period (e.g. factory or office closure over a public holiday period or year-end), provided the employer consults the employee first and the total days directed do not exceed the employee's accrued entitlement. Employers in the manufacturing sector commonly exercise this right during festive shutdown periods. Where an employer does not exercise the right to schedule leave and the employee fails to take leave within 12 months after the leave year ends, the employer may direct the employee to use the leave under Section 60A(1) or risk having to encash it. Forcing an employee to take unpaid leave as annual leave for which they have no entitlement would constitute a breach of the Employment Act 1955.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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