Staff Loan Agreement (Malaysia)
STAFF LOAN AGREEMENT
Employment Act 1955 (Act 265) | Contracts Act 1950 (Act 136) | Income Tax Act 1967 (Act 53)
THIS STAFF LOAN AGREEMENT is made on [Agreement Date]
BETWEEN:
(1) [Employer Name] (SSM No. [Employer SSM]) (hereinafter referred to as the "Employer"); AND
(2) [Employee Name] (NRIC/Passport: [Employee IC]), [Employee Designation], monthly gross salary [Monthly Salary] (hereinafter referred to as the "Employee").
1. LOAN
1.1 The Employer agrees to advance to the Employee the sum of [Loan Amount] (hereinafter referred to as the "Loan") for the purpose of: [Loan Purpose].
1.2 The Loan shall be disbursed on or about [Disbursement Date] by direct credit to the Employee's bank account or by such other means as agreed by the parties.
1.3 The Loan shall bear interest at the rate of [Interest Rate]. Where the Loan is interest-free, the Employee acknowledges that a benefit-in-kind may be assessed by the Inland Revenue Board of Malaysia (LHDN) under the Income Tax Act 1967 (Act 53) and reported in the Employee's annual EA Form (Borang EA).
2. REPAYMENT
2.1 The Employee shall repay the Loan by [Total Instalments] equal monthly instalments of [Monthly Instalment] each, commencing from [First Deduction Date], by way of deduction from the Employee's monthly salary.
2.2 The Employee hereby authorises and consents to the Employer deducting the monthly instalment from the Employee's salary in accordance with Section 24(1)(b) of the Employment Act 1955 (Act 265). The Employee confirms that the monthly instalment does not exceed one quarter (25%) of the Employee's monthly wages.
2.3 Early Repayment on Cessation of Employment: [Early Repayment Terms]. The outstanding Loan balance shall be deducted from any terminal benefits payable to the Employee including unpaid salary, annual leave encashment, and contractual gratuity, to the extent permitted by applicable law.
3. GENERAL CONDITIONS
3.1 The Loan is a personal obligation of the Employee and is not transferable.
3.2 The Employer reserves the right to demand immediate repayment of the entire outstanding Loan balance if the Employee commits a breach of this Agreement or is dismissed for misconduct.
3.3 This Agreement is governed by the laws of Malaysia. Any dispute shall be submitted to the jurisdiction of the courts of Malaysia or resolved through the Labour Department (Jabatan Tenaga Kerja) where applicable.
IN WITNESS WHEREOF the parties have executed this Agreement on the date first written above.
SIGNED for and on behalf of [Employer Name]
Signature: _______________________________
Name: _______________________________
Designation: _______________________________
Date: _______________________________
SIGNED by [Employee Name]
Signature: _______________________________
Date: _______________________________
Witness Signature: _______________________________
Witness Name: _______________________________
Date: _______________________________
Employer Representative
________________
Signature
Employee (Borrower)
________________
Signature
What Is a Staff Loan Agreement (Malaysia)?
A Staff Loan Agreement in Malaysia fixes the principal, interest, and security on which credit is extended.
Section 24 of the Employment Act 1955 restricts the circumstances in which an employer may make deductions from an employee's wages, permitting deductions for advances made by the employer only where the deduction does not exceed one quarter of the employee's monthly wages at any one time (excluding statutory deductions such as EPF and SOCSO). The Employee's Provident Fund Act 1991 (Act 452) and the Social Security Organisation Act 1969 (Act 4) impose their own payroll deduction requirements that must be satisfied before any staff loan repayment deduction is made.
The Moneylenders Act 1951 does not apply to employers lending to their own employees in the ordinary course of employment, provided the employer is not in the business of moneylending. However, an employer that charges interest on staff loans above the rate prescribed under the Moneylenders Regulations 2003 — currently 12% per annum for secured loans and 18% per annum for unsecured loans — risks being treated as an unlicensed moneylender under Section 5 of the Moneylenders Act 1951.
For income tax purposes, a benefit-in-kind arises under Section 13(1)(b) of the Income Tax Act 1967 (Act 53) where an employer provides an interest-free or below-market-rate loan to an employee. The Inland Revenue Board of Malaysia (LHDN) uses the prescribed lending rate under the Employment Income (Benefits in Kind) Rules 2005 to assess the notional interest benefit, which is then included in the employee's taxable employment income reported on the annual EA Form (Borang EA).
The legal framework governing the Staff Loan Agreement (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 Staff Loan Agreement (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Financial Services Act 2013 (Act 758) sets the foundational requirements.
When Do You Need a Staff Loan Agreement (Malaysia)?
A Staff Loan Agreement is required in Malaysia whenever an employer extends a financial advance or loan to an employee to be repaid from salary, and both parties want a documented record of the terms.
A Staff Loan Agreement is needed when an employee requests an advance on their salary to cover an emergency expense such as a medical bill, home repair, or family obligation, and the employer agrees to advance up to two months' salary to be repaid over 12 monthly instalments.
A Staff Loan Agreement is required when an employer provides a housing loan or car purchase loan to an employee as part of the remuneration package, particularly for senior employees in the financial services, oil and gas, or manufacturing sectors, where such loans form part of the total compensation disclosed in the company's annual report.
A Staff Loan Agreement is needed when the employer's HR policy requires that any salary advance above RM1,000 be documented in a signed agreement to comply with internal audit requirements and to satisfy LHDN's audit trail requirements for benefit-in-kind assessments under the Income Tax Act 1967.
A Staff Loan Agreement is required when the employer wants to establish a clear legal basis for deducting outstanding loan balances from the employee's terminal benefits — including annual leave encashment, notice pay, and gratuity — on resignation or termination, to avoid a dispute before the Industrial Court of Malaysia under the Industrial Relations Act 1967 (Act 177).
A Staff Loan Agreement is needed when a company listed on Bursa Malaysia provides a loan to a director or connected person, as Paragraph 8.11 of the Main Market Listing Requirements prohibits companies from extending loans to directors or their connected persons except through a properly documented arrangement approved by the board's audit committee.
What to Include in Your Staff Loan Agreement (Malaysia)
A valid Malaysia Staff Loan Agreement must contain the following essential elements to protect the employer's right to recover the loan and comply with the Employment Act 1955.
Parties: Full legal name of the employer (with SSM number), the employee's full name, NRIC/passport number, designation, department, and date of commencement of employment.
Loan Amount and Purpose: The principal loan amount in Malaysian Ringgit (RM) expressed in both numerals and words, and the stated purpose of the loan (e.g. 'salary advance for medical expenses', 'car purchase loan', 'housing deposit loan').
Interest Rate: Whether the loan is interest-free or bears interest. If interest is charged, the rate must be stated as an annual percentage rate and must not exceed 18% per annum for unsecured advances to avoid triggering the Moneylenders Act 1951 (Act 400). Interest-free staff loans create a benefit-in-kind under the Employment Income (Benefits in Kind) Rules 2005, reportable to LHDN on the EA Form.
Repayment Schedule: The number of monthly instalments, the amount of each instalment in RM, and the commencement date of the first deduction. The monthly deduction must not exceed one quarter of the employee's monthly wages at any one time under Section 24 of the Employment Act 1955 (for employees covered by the Act).
Deduction Authorisation: A signed authorisation from the employee consenting to the monthly salary deduction as required by Section 24(1)(b) of the Employment Act 1955. Without written consent, deductions from wages may constitute an offence under Section 99 of the Employment Act 1955.
Early Settlement on Termination or Resignation: A clause stating that the outstanding loan balance becomes immediately due and payable on the employee's last day of service, and that the employer may deduct the entire outstanding balance from terminal benefits including unpaid salary, annual leave encashment, and contractual gratuity, to the extent permitted by Section 24 of the Employment Act 1955.
Signatures: Signatures of both the employer's authorised representative (HR Manager or Finance Director) and the employee, with dates of signing in DD/MM/YYYY format.
Additional compliance elements for a Staff Loan Agreement (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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Forms Legal. (2026). Staff Loan Agreement (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/financial/loans/staff-loan-agreement-malaysia
"Staff Loan Agreement (Malaysia) (Malaysia)." Forms Legal, 2026, https://forms-legal.com/malaysia/financial/loans/staff-loan-agreement-malaysia.
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author = {{Forms Legal}},
title = {Staff Loan Agreement (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/financial/loans/staff-loan-agreement-malaysia}},
note = {Free legal document template. Based on Financial Services Act 2013 (Act 758)}
}Frequently Asked Questions
Yes, but only within the limits set by Section 24 of the Employment Act 1955 (Act 265). Under Section 24(1)(b), an employer may deduct from an employee's wages any advance of wages made to the employee, provided the total of all deductions in any wage period does not exceed one quarter (25%) of the employee's wages for that wage period, excluding statutory deductions for EPF, SOCSO, and EIS contributions. Deductions that exceed the 25% limit or are made without the employee's written authorisation constitute an offence under Section 99 of the Employment Act 1955, punishable by a fine. The 25% limit applies to employees covered by the Employment Act 1955 — broadly, employees earning RM4,000 per month or less in Peninsular Malaysia. For employees not covered by the Act, deductions are governed by the Contracts Act 1950 (Act 136) and the terms of the Staff Loan Agreement.
When an employee in Malaysia resigns or is terminated, the outstanding balance of any staff loan becomes immediately repayable unless the Staff Loan Agreement provides otherwise. The employer may deduct the outstanding balance from the employee's terminal benefits — including unpaid salary, annual leave encashment, notice pay in lieu, and contractual gratuity — provided the deductions are authorised in the Staff Loan Agreement and comply with Section 24 of the Employment Act 1955. If the terminal benefits are insufficient to cover the outstanding loan balance, the employer may pursue the remaining amount through a civil claim in the Magistrates Court or Sessions Court under the Civil Law Act 1956 (Act 67). Employers should not withhold the employee's final salary beyond the statutory period — final wages must be paid within 7 days of the last day of service under Section 19 of the Employment Act 1955 — but may set off the loan against those wages where authorised.
A staff loan in Malaysia may be either interest-free or interest-bearing, depending on the employer's policy. Where an interest-free loan is provided — which is common practice in Malaysian companies — a benefit-in-kind arises under the Employment Income (Benefits in Kind) Rules 2005 made under the Income Tax Act 1967 (Act 53). LHDN calculates the notional interest benefit using the prescribed lending rate and includes the amount in the employee's taxable employment income on the EA Form. For loans below RM300,000 (as adjusted from time to time), the benefit-in-kind is typically small and the employer must report it on the employee's EA Form. Where interest is charged, the rate must be commercially reasonable and should not exceed 18% per annum for unsecured advances to avoid the Moneylenders Act 1951 (Act 400). The interest income received by the employer from staff loans is assessable as business income under the Income Tax Act 1967.
Yes. If an employee fails to repay an outstanding staff loan after resignation or termination, the employer may recover the debt through civil proceedings in Malaysia. For amounts up to RM100,000, the employer may file a claim in the Sessions Court under the Subordinate Courts Act 1948 (Act 92). For amounts up to RM100,000, a Magistrates Court claim is appropriate, and for amounts exceeding RM1,000,000 the High Court has jurisdiction. The employer must produce the signed Staff Loan Agreement, evidence of disbursement (payroll records or bank transfer), and the statement of outstanding balance. The limitation period for a contract debt under Section 6(1)(a) of the Limitation Act 1953 (Act 254) is six years from the date the debt became due. The employer should also register any salary deduction authorisation with the company's payroll records to support the claim in court.
A staff loan advance from an employer to an employee is not 'wages' under the Employees Provident Fund Act 1991 (Act 452) and therefore does not attract EPF contributions on the principal advance amount. However, the monthly salary deduction used to repay the loan reduces the employee's net take-home pay but does not reduce the gross wages on which EPF contributions are calculated — EPF is assessed on gross wages before the loan deduction. The employer must ensure that the monthly loan deduction does not reduce the employee's take-home pay below the statutory minimum required to cover mandatory EPF contributions (11% employee, minimum 12% employer for employees below age 60 as at 2024) and SOCSO/EIS contributions under the Employees' Social Security Act 1969 (Act 4) and the Employment Insurance System Act 2017 (Act 800). If the deduction schedule makes it impossible to meet statutory payroll obligations, the employer must reduce the monthly instalment accordingly.
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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