Payment terms in Malaysia: discover how employee compensation works

Understanding payment terms is important if you're looking for a job. It helps you negotiate better employment contracts and manage your finances. This article takes an in-depth look at payment terms in Malaysia, including types and legal requirements. 

The topics we'll cover include: 

• What are payment terms? 
• Common payment terms in Malaysia 
• Legal requirements for payment terms in Malaysia 
• Understanding your payslip 
• Negotiating payment terms 
• Special considerations for different employment types 
• Empowering job seekers with knowledge of payment terms 
• FAQ 

What are payment terms? 

Payment terms are the conditions and time frames under which employees receive their wages or salaries. These terms can vary depending on the type of employment. Common employment types in Malaysia include full-time, part-time, and contractual. Different job roles or industries may have different payment terms. For example, many sales professionals get performance-based pay. 

Common payment terms in Malaysia 

There are a few common types of payment terms in employment contracts. 

Monthly salary payments 

Monthly salaries are the most common payment terms for full-time employees. Depending on the company, the timing of payments may be: 

• Most firms credit wages at month-end or within the first 7 calendar days of the following month, in line with s.19 EA 1955. 
• At the end of the month. 
• Bimonthly in the middle and at the end of the month. 

Hourly or daily wages 

Many part-time and temporary employees receive pay per hour or per day of work. Industries offering these types of payment terms include construction, manufacturing, and retail. 

Commission-based payments 

A commission is a payment made to an employee based on their performance. It's usually a percentage of the revenue generated through the sale of a product or service. In some cases, it's a fixed amount per sale. Commission payments are common in a variety of industries. These include sales, insurance, real estate, and retail. 

Piece-rate payments 

Piece-rate pay is a form of compensation where pay is per unit of completed work. For example, the item can be a piece of clothing or a kilogram of fruit. In most cases, these employees don't earn a base salary. 

Legal requirements for payment terms in Malaysia 

Malaysian employers must follow the standards and guidelines in the Employment Act 1955. The Act outlines the legal requirements for payment terms. 

Frequency of salary payments 

The standard wage period in Malaysia is one month. Some companies may have different payment cycles, but the wage period shouldn't exceed one month. 

Maximum period for salary payments 

Employers must pay salaries within seven days after the last day of each wage period. This means if the wage period ends on April 30, you should receive your pay by May 7. 

Employers may sometimes fail to pay salaries on time due to financial difficulties. In this case, employees can file a complaint with the Department of Labour. Employers who repeatedly delay salary payments face legal consequences, such as fines or business suspension. 

Requirements for overtime pay 

Employers must offer overtime pay to eligible employees who work beyond normal working hours. Eligible employees are those who earn RM4,000 or less per month or perform manual labour. Normal working hours shouldn't exceed eight hours a day or 45 hours a week. 

Overtime pay in Malaysia varies depending on which days you work overtime. On a normal working day, you'll receive 1.5 times your hourly rate per extra hour worked. The rate goes up to twice your hourly rate on a rest day and three times on a public holiday. 

According to the Employment Act, your hourly rate is your monthly salary divided by 26 days, divided by the number of working hours. 

Minimum wage regulations 

On February 1, 2025, the Malaysian government raised the minimum monthly wage to RM1,700. The minimum wage applies to most businesses and employees. 

The minimum hourly rate currently stands at RM8.72. The minimum daily rate depends on the number of working days per week: 

• Six working days a week: RM65.38 per day 
• Five working days a week: RM78.46 per day 
• Four working days a week: RM98.08 per day. 

Employers must follow the minimum wage law to avoid legal penalties. Those who fail to pay the minimum wage may face a fine of RM10,000 per employee. 

Understanding your payslip 

It's a good idea to understand your payslip so you have a clear idea of your compensation package and take-home pay. 

Basic salary 

Your basic salary is the fixed monthly pay you receive before any deductions. It's part of your gross salary. The amount should be in your employment contract. 

Allowances and bonuses 

Allowances are payments made to reimburse you for certain work-related expenses. Examples include transportation, meals, and housing allowances. Bonuses are payments made to reward you for your efforts. Performance, annual, or festive bonuses are a few common types of bonuses. 

Deductions 

There are four types of deductions on a Malaysian payslip. The Employees Provident Fund contribution goes towards your retirement savings. Employees contribute 11-13% of their wages to EPF (employers add 12 – 13 %, some even more). 

Next up is the Social Security Organisation contribution. SOCSO provides medical coverage to employees who suffer from occupational diseases or workplace injuries. SOCSO: employee share up to 0.5 %, employer up to 1.75 %. Employment Insurance System, or EIS, which offers job loss assistance. 

The final deduction is the monthly tax deduction. Malaysia's progressive tax system means that the tax rate rises with income, ranging from 0% to 30%. 

Overtime pay 

Any overtime pay you earn for a particular month should be on your payslip. Note that overtime payments have a different deadline from salary payments. They're due at the end of the next wage period. 

Leave balance 

Leave balance refers to your remaining annual leave days. Annual leave entitlement ranges from eight to 12 days, depending on how long you've worked there. 

Make sure you regularly review your payslip to identify any errors or discrepancies. This is especially important if you have a lot of allowances or overtime pay. 

Negotiating payment terms 

You may want to negotiate payment terms when considering a job offer or attending a performance review. 

Research industry standards and benefits 

Research salary trends in your industry to determine your market value and the types of benefits similar roles are offering. This can help you make a reasonable request when negotiating your compensation package. There are many online platforms, including JobStreet and Payscale, that you can use to do your research. 

Note that the standard range for salary increases is 10% to 30%. It's usually a good idea to aim for a 30% increase, but make sure you can justify your request. 

Understand the full compensation package 

When negotiating compensation, many people focus only on getting a higher salary. However, you should consider the entire compensation package. Bonuses, allowances, and benefits can sometimes be worth more than a small salary increase. 

Discuss payment frequency and methods 

Some employers may be willing to adjust their wage periods or payment methods. If you would prefer bimonthly payments or payment via an e-wallet, don't be afraid to discuss it with your boss. 

Negotiate performance-based incentives 

Many performance-based jobs offer additional compensation beyond the base pay. These can be commissions, bonuses, or other rewards. If you're doing well in your job, consider negotiating for better incentives. Highlight your value to your employer and explain why you deserve a better incentive. 

Special considerations for different employment types 

Payment terms in Malaysia may differ for various types of employment. 

Full-time employees 

Full-time employees receive the most benefits from employers. They have a wide array of statutory benefits, including annual leave, paid leave, medical insurance, and retirement plans. Employers should make the income tax deductions for full-time workers. 

Part-time workers 

Part-time workers have the same legal protection as full-time employees. Employers must offer these workers annual leave, paid leave, and EPF and SOCSO contributions. Part-time workers often receive benefits on a pro rata basis. 

Contract or temporary workers 

Employers may hire contract or temporary workers for seasonal work or short-term projects. These workers may have different payment terms specified in their contracts. Pay may be on an hourly, daily, or per-project basis. Short-term contract staff are still covered by the EA 1955 on wages, OT, public holidays and minimum-wage rules, but discretionary benefits (e.g., bonuses, insurance) vary by contract. 

Freelancers or independent contractors 

Freelancers and independent contractors are self-employed individuals who provide services under contract. Payment terms can vary greatly, from net 30 payment terms to invoice payment terms. Independent workers typically don't receive benefits, such as paid leave, medical coverage, and retirement plans. They're also responsible for their own business expenses and taxes. Common payment methods include bank transfer (GIRO/FPX), DuitNow, SWIFT, PayPal or Wise. 

Empowering job seekers with knowledge of payment terms 

Having a clear understanding of the different types of payment terms helps you negotiate and allows you to make more informed career choices. It can also contribute to better budget planning and long-term financial security. 

Before accepting a job offer, thoroughly review the payment terms in your employment contract. Use this guide to advocate for fair and transparent payment terms in your current or future employment. 

FAQ 

There are many common questions about payment terms in Malaysia. 

1. How do payment terms differ between full-time and part-time employees in Malaysia? 
   ⁠Full-time employees typically receive monthly salaries. Part-time employees, on the other hand, usually receive pay at an hourly or daily rate. Both types of employees should receive benefits, such as annual leave, paid leave, and overtime pay. However, benefits for part-time workers are usually on a pro rata basis in line with the number of hours worked. Employers offer EPF and SOCSO contributions to both full-time and part-time employees. 
2. What information must be on a Malaysian payslip? 
   ⁠Employers must ensure that their employees' payslips contain certain types of information. These include the basic salary, allowances and bonuses, overtime pay, and deductions. 
3. What are the typical allowances and bonuses included in Malaysian salary packages? 
   ⁠Allowances usually cover work-related expenses, such as transportation, accommodation, and meals. Common types of bonuses include performance, annual, and festive bonuses.