2015

WORLDWIDE BENEFIT & EMPLOYMENT GUIDELINES MALAYSIA

In today’s competitive race to attract and retain highly skilled global talent, organisations require current, in-depth information on everything from local statutory benefits, to salary trends, to managing a diverse workforce. Through Mercer’s own extensive global presence, we collect and analyse data and insights that help companies take the actions necessary to support their human capital strategies. You can order any of the publications below by clicking on the title links or by visiting www.imercer.com/global.

DATA MINING & INSIGHTS

© 2015 Mercer LLC. 2 Worldwide Benefit & Employment Guidelines

Compensation Handbook

Global Car Policies

Global Compensation Planning Report

Global Diversity and Inclusion Handbook

Global HR Factbook

Global Mobility Handbook

Global Pay Summary

HR Atlas Asia Pacific

HR Management Terms

International Geographic Salary Differentials

M&A HR Issues around the World

Short-Term Incentives around the World

Total Employment Costs around the World

Worldwide Benefit & Employment Guidelines

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Condition of Sale

Copyright © 2015. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or be transmitted in any form or by any means, electronic or mechanical, photocopying, recording or otherwise, without the prior written permission of the publishers. No responsibility for loss occurring to any person acting or refraining from acting as a result of the material in this publication can be accepted by the authors or the publishers.

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In today’s competitive race to attract and retain highly skilled global talent, organisations require current, in-depth information on everything from local statutory benefits, to salary trends, to managing a diverse workforce. Learn about our extensive product lineup at www.imercer.com/global.

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© 2015 Mercer LLC. 3 Worldwide Benefit & Employment Guidelines

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WORLDWIDE BENEFIT &EMPLOYMENT GUIDELINES ASIA PACIFIC – MALAYSIA2013 EDITIONSAMPLE

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© 2013 Mercer LLC. Worldwide Benefit & Employment Guidelines

We welcome your questions or comments on the 2013 Worldwide Benefit & Employment Guidelines report. Please direct them to your local Mercer offices.

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CONTRIBUTORS

Samantha Polovina

Debrah Rath

Ramya Gomathy

Dhanya Manghat

Narasinha Varute

Praveen Venugopal

MANAGING EDITOR

Stefani Baldwin

EDITORS

Virginia McMorrow

Cibi Chandy

Ashwini C H

SPONSORS

Ali Kursun

Robyn Cameron

GRAPHIC DESIGNERS

Abhilash Prabhakaran

Anuroop C

Contact client.services.europe@mercer.com with any inquiries or comments.

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Condition of Sale

Copyright © 2013. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or be transmitted in any form or by any means, electronic or mechanical, photocopying, recording or otherwise, without the prior written permission of the publishers.

No responsibility for loss occurring to any person acting or refraining from acting as a result of the material in this publication can be accepted by the authors or the publishers.

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EDITORS’ NOTE

We are pleased to introduce the twelfth edition of Mercer’s Worldwide Benefit & Employment Guidelines (WBEG).

WBEG covers 64 countries and is available in five regional volumes providing concise, reliable, and easy-to-use information for the major economic regions of the world. With its extensive analysis and narrative reports, WBEG is the definitive reference for mandatory and private benefit practices, statutory regulations, and employment conditions around the world.

Our deepest appreciation and thanks go to the Mercer offices and correspondents around the world who have contributed to this edition. We would also like to thank our International Consulting Group for their peer review of the content. We take great care to ensure the information provided is accurate; however, we cannot take responsibility for errors or omissions.

We would be happy to assist you with any issues, as would our local network of Mercer consultants. The editors remain at your disposal should you have any questions. Your feedback and comments are highly valued.

DISCLAIMERThis publication contains confidential and proprietary information of Mercer. It may not be modified, sold, or otherwise provided, in whole or in part, to any other person or entity without the prior written permission of Mercer. Mercer will retain all copyright and other intellectual property rights in the methodologies, methods of analysis, ideas,concepts, know-how, models, tools, techniques, skills, knowledge, and experience underlying this publication.

This publication contains information obtained from a range of sources. While information supplied by third parties is believed to be reliable, Mercer has not sought to verify it. As such, Mercer makes no representations or warranties as to the accuracy of the information presented in the publication, and no liability will be accepted by you or any third party for any loss or damage arising out of or in connection with the contents of the publication whether arising in or for breach of contract, tort (including negligence), misrepresentation, misstatement, breach of statutory duty, or otherwise.

Not all relevant background data may be included in this publication and therefore it may not specifically address the facts or circumstances that may arise under individual circumstances. The content should not be relied upon as the sole source for tax or legal advice, or used as a substitute for any enquiries or procedures that should be undertaken by an individual to clarify individual circumstances.

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GLOBAL BENEFITS TRENDS

BY J.P. Provost, Senior Partner and North America Business Leader, International Consulting Group, and John Hall, Senior Partner, and European Business Leader, International Consulting Group

Understanding the implications of benefit trends is essential for making human resources (HR) and strategic business decisions. Looking back on the past year and toward the remainder of 2013, two key trends have surfaced:

•A change in company focus from cost cutting to cost efficiency.

•An increased need for external advice and data to help maximise the return on benefit expenditure.

THE SWITCH TO COST EFFICIENCY

In the wake of 2008’s financial crisis, organisations implemented cost-reduction strategies to lower the costs associated with employee benefits. Trimming or eliminating benefits adversely affected both employees (higher premiums) and employers (loss of a motivational tool). Despite the need for cost savings, however, some employers found it difficult to quickly implement benefit reductions in some parts of the world due to local legal requirements and/or cultural practices. In late 2011–early 2012, Mercer saw the focus beginning to shift from cost-cutting to maximising the value of, and return on, benefit expenditure.

ATTRACTION AND RETENTIONFaced with talent shortages and an ageing workforce, employers are attempting to promote benefits as an attraction and retention vehicle. The demographic shift and ongoing demand for mobile employees to staff worldwide operations have forced employers to engage in workforce planning with an eye to what future employees—local and expatriate—might desire in their benefit programmes.

PURCHASING POWERReducing benefit costs in an intelligent manner means that companies are not spending less but spending smarter. Needing flexibility to adapt to inevitable changes over time, some large companies are adding features to better leverage purchasing power. For example, the high-tech industry, with its younger workforce, can offer more targeted—and cheaper—plans.

TAx INCENTIvESTax efficiency of benefit vehicles has become increasingly important, particularly for high earners, who desire tax-effective retirement and long-term incentive (LTI) plans. Further, increasingly diverse (nationality-wise) senior management and company boards challenge HR to design reasonable multi-country retirement programmes.

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GLOBAL BENEFITS TRENDS

ACTION-ORIENTED REvIEWSTraditional reviews of benefit plans often involve determining competitiveness. But managers today are looking for action-oriented reviews—with a focus on optimal plan designs, financing methods, and delivery options. They want data on market trends—and guidance on how to prepare for the future.

THE NEED FOR EXPERT ADVICE AND DATA

With a global economy that continues to barely grow, many companies have restructured their HR departments to eliminate some benefit specialties, or have pooled these resources and tasked them with overseeing a series of countries. With fewer benefit specialists on hand, employers increasingly are turning to outside external experts for help with specific situations.

MERGERS AND ACqUISITIONS (M&A)An increase in global M&A activity has prompted organisations to review, integrate, and redesign their benefit offerings. Within a due diligence process, the parties determine and mitigate risks and liabilities from the proposed transaction—often involving defined benefit (DB) plans, retiree medical benefits, change-in-control clauses, severance requirements, and executive LTIs. HR must also comply with the demands of unions and/or works councils, pension trustees and regulators, and evolving government regulations.

PLAN ADMINISTRATIONSmaller companies need support in handling daily administrative tasks, leading to a change in the traditional consultant role from conceptual/design projects to more in-depth detailed activity. With requests for outsourcing or “off the shelf” products, customisation of benefit programmes is on the decline for this segment.

DECENTRALISATIONMany companies control core benefit elements from a central operation—for example, declaring that there will be an XYZ plan—but leave the plan design and features to regional and local units. These plans, however, must simultaneously comply with local laws and meet the company’s core guiding principles.

RISk MANAGEMENTRevisions to International Accounting Standard (IAS) 19, effective 1 January 2013, aim to create greater consistency in benefit accounting, as well as provide more targeted disclosure requirements to highlight potential DB plan funding risks. With significant changes in DB accounting, employers face changes to their financial statements. In Europe, especially, the emphasis is on risk management of retirement plans, driving a need for expert advice.

WELLNESS PLANSWith availability of new data that illustrates the positive returns from offering wellness benefits, more and more multinational companies have begun to enhance their wellness plans. However, HR needs to consider cultural norms when introducing programmes, as the failure to address culture differences may hamper the success of any global efforts.

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GLOBAL BENEFITS TRENDS

THE BENEFIT OF INSIGHT

In the coming months of 2013, employers will face more complexity, more regulation, more change, and the availability of stronger global data. Paying close attention to benefit trends, staying on top of legal and regulatory changes, and seeking expert advice when warranted offers companies an advantage in managing the workforce of the future.

J.P. Provost, based in New York, can be reached at +1 212 345 8998 or jp.provost@mercer.com. John Hall, based in Paris, can be reached at +33 1 55 21 38 02 or john.hall@mercer.com.

ABOUT ICG

Mercer’s International Consulting Group (ICG) provides expert advice and coordinated delivery of global and regional solutions for multinational organisations. The group provides specialised expertise, knowledge, data, and tools to help multinationals manage the costs, risks, and complexity of their cross-border benefit and rewards programmes. ICG helps clients leverage global buying power and reduce risk by implementing and managing recurring global benefits service delivery, such as global benefits management, actuary, and defined contribution plan management. ICG also offers deep expertise in global governance, risk management, and mobility, and provides an integrated, multi-disciplinary team that blends technical knowledge in consulting with understanding of global business issues and client-focused strategies.

OTHER MERCER BENEFITS PUBLICATIONS

For companies, offering a competitive car benefit plays a key role in attracting and retaining the best talent. Mercer’s Global Car Policies (GCP) report keeps HR leaders abreast of current policy trends and competitive market data to support their corporate car planning and budget allocations.

Whether you need car policy information for one region or worldwide, GCP offers HR decision makers a comprehensive collection of global data and information that helps:

•Review your company’s car policy against local markets.

•Highlight differences in car policy practices across key markets.

•Identify cost-saving measures.

GCP is available for 88 countries and covers five job categories. For more information, visit www.imercer.com/carpolicies

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Whether you operate in two countries or 20, staying competitive through the creation of effective, attractive, and statutorily correct benefit plans remains a challenge. You need to keep track of constantly evolving benefit laws and regulations, as well as understand employment conditions and statutory and typical benefits.

Mercer’s Worldwide Benefit & Employment Guidelines (WBEG) helps you meet these challenges by providing access to current, reliable information on:

•Statutory employee benefits.

•Typical employer benefit practices.

•Overall employment conditions.

Our global network of country experts gather and interpret current information, offering in-depth data of unparalleled quality for 64 countries.

This edition of the WBEG includes:

•An updated layout for ease of use.

•Comprehensive, user-friendly tables.

•The most recent practice and legislative updates for each country.

REPORT SUMMARyEach country report contains four major sections:

1. The Country overview section provides general information on social security schemes, contributions to social security and typical employer-sponsored plans, legislative updates, trends, and definitions.

2. The Statutory benefits section provides extensive analysis of mandatory benefits related to retire-ment, death, disability, medical, and unemployment benefits. It also has details on any applicable social benefits that may be provided.

3. The Typical benefits practice section provides details on employer-sponsored or supplemental retire-ment, death, disability, and medical benefits. It also gives information on flexible benefits and perqui-sites and allowances provided.

4. The Employment conditions section includes information on severance and termination indemnities for both individual and collective dismissals, as well as working time (including working hours, overtime, night work, rest periods, and annual holiday and leave). The section also provides content on entry and residence rules, employment contracts, occupational health and safety, and industrial relations.

INTRODUCTION

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WBEG is developed in conjunction with Mercer’s local colleagues to ensure that the content reported is reliable, accurate, and up-to-date. Mercer’s International Consulting Group then peer reviews all local content.

TERMS AND DEfINITIONSAccidental death and dismemberment (AD&D) coverage: Insurance protection that pays out upon the insured’s death, if death is the result of an accident. AD&D also provides benefits for the accidental loss of hands, feet, sight, speech, or hearing.

Account-based pension: A defined contribution (DC) retirement account that is drawn down regularly for “pension payments.” The pension ceases when the account balance runs out. The individual must draw down a mandatory minimum amount each year, depending on age.

Acquired rights: The legal notion that once an employer provides an employee with a benefit on a regular basis, there is a contractual agreement between the employer and the employee to continue to provide that benefit.

Actuarial valuation: Valuation by an actuary to determine benefit liability and test future funding or current solvency of the value of the pension fund’s assets with its liabilities.

Beneficiary: A person or legal entity designated as the recipient of any benefits provided by life insurance and/or an accidental death and dismemberment plan or from a benefactor.

Bereavement leave: Paid time off to which an employee is entitled for the death of a close relative.

Book reserve plan: A retirement arrangement funded through allocations on a company’s balance sheet.

Cap: (1) The total incentive opportunity a sales representative can earn in a given period. (2) A cap on other pay elements (for example, an expatriate allowance). Also known as a maximum, lid or ceiling.

Childcare leave: Leave for female and male employees who take care of their child; it is provided after maternity leave.

Childcare support: The support provided by an organisation in various ways to look after dependant children.

Christmas bonus: The annual guaranteed bonus associated with Christmas.

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Claim: A demand to the insurer by, or on behalf of, the insured person for benefit payment under a policy. Although medical billing personnel process many claims, sometimes the individual may need to make direct payments to the medical provider and be reimbursed by the policy.

Claims base: Actual incurred claims for the employee base during the previous two- or three-year period under the same benefits plan.

Claims fiduciary: A fee assessed to a client by the insurance company to take on a liability for them. A fiduciary relationship field exists when a self-funded client hires an insurance firm to control its claims. The client uses the insurance company’s specialised skill of processing health insurance claims.

Claims review: Review of claims by government, medical foundations, professional standards review organisations (PSROs), insurers, or others responsible for payment to determine liability and payment amount. The review may include determination of the claimant’s eligibility; of the provider’s eligibility so the benefit is covered; that the benefit is not payable under another policy; and that the benefit was necessary and of reasonable cost and quality.

Claims sharing: A payment method that involves the employer and employee paying a set portion of the bill in terms of a percentage or a fixed amount.

Clothing allowance: The annual guaranteed cash allowance for uniform- or other dress-related expenses.

Club subscription: An annual subscription fee for golf club or equivalent membership.

Coinsurance: An arrangement under which the covered person pays a fixed percentage of the cost of medical care after the deductible has been paid. For example, an insurance plan might pay 80% of the allowable charge, with the insured individual responsible for the remaining 20% (the coinsurance amount).

Collective bargaining agreement: An agreement between employee groups and employers that details work conditions, including work hours, vacation and holiday entitlements, termination of service provisions, and sometimes benefit entitlements. These agreements may be specific to one company or industry or apply nationally.

Company car: A car provided to an employee on the basis of status, not job need. It is a benefit only for employees who can use company cars for private use on an ongoing basis.

Compensation: Cash and non-cash remuneration provided by an employer to an employee for services rendered.

Compressed work week: An alternative work schedule, such as four 10-hour days or more complicated rotations that produces extended “weekends.”

Consumer price index (CPI): A statistical indicator of the cost of living published by an official government statistical agency, measuring the changes in prices of a fixed market basket of goods and services purchased by a hypothetical family; it usually includes housing and education costs (except where education is mostly financed by the government).

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Contracted salary: The salary stated in a labour contract.

Contributory plan: A group insurance plan issued to an employer under which both the employer and employee contribute to the plan’s cost.

Cost-of-living adjustment: An across-the-board wage and salary increase or supplemental payment designed to bring pay in line with increases in the cost of living to maintain real purchasing power.

Covered wages: The amount of employee wages or salaries used to determine corresponding benefit amounts (for example, pension calculations are usually based on salary and normally do not include variable compensation such as bonuses).

Critical illness coverage: Coverage that pays living benefits upon the diagnosis of a critical illness regardless of treatment, actual expenses, or other insurance coverage.

Death-in-service lump sum: A payment covering death due to any cause, which is provided to the spouse, registered civil partner, or family, depending on the country and plan rules.

Death-in-service pension: A pension covering death due to any cause, typically as a provision of a defined benefit (DB) plan. Post-retirement death is usually in the retirement plan value (built into the annuity factor). This pension, provided to the spouse or a registered civil partner, depends on the country and plan rules. Actual payout may be as a pension or lump-sum equivalent.

Deductible: The amount of eligible expenses that must be incurred and paid by an insured member before benefits become payable. It is a special cost-containment measure, wherein the claim is not payable up to a certain amount mentioned in the policy.

Defined benefit (DB) plan: A retirement plan where employee benefits are allocated based on a formula, using factors such as salary history and employment duration. It does not specify the level or rate of employer contributions; contributions are determined actuarially on the basis of benefits expected to become payable. The plan promises the participant a specific monthly benefit at retirement; the benefit may be accrued as a lump sum (one large payment converted to pension at retirement) or pension. There may be additional employee contributions, depending on country-specific legislation and plan design. The employer makes contributions to fund future benefits, with risks (investment, salary increases, inflation) transferred to the employer.

Defined contribution (DC) plan: A retirement plan where a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. It provides an individual account for each participant, with benefits based on the amount contributed into the plan, income, expenses, gains, and losses. The ultimate benefit is the accumulated value of the contributions paid by both the employer and employee. A DC plan with benefit at retirement age is equal to the accumulated contribution plus interest or a fixed formula benefit, whichever benefit is higher. At retirement, the employee converts collected funds into a life pension. The plan guarantees the contribution amount (fixed amount or percentage of salary), not the benefit level (which is a function of the total contribution and rate of return on accumulated capital). The contribution amount may vary depending on different factors (age, level, service), country-specific legislation, and plan construction. It transfers the risks (investment, inflation) to the employee.

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Dependant coverage: Coverage extended to the spouse and dependant children of the insured head of a family.

Disablement: Inability to work due to a substantial physical, intellectual, or psychiatric impairment.

Earnings: Total wages or cash received during a specified period (for example, pay period, month, year) for time worked or service rendered, including all regular pay, overtime, premium pay, bonuses, and so on.

Effective date: (1) The date on which a benefit plan or insurance policy takes effect, and from which time coverage is provided. (2) The date on which increases in salary or pay rate take effect.

Eligibility for plan: The basis for determining the individuals or employee classes eligible to participate in a particular plan, such as an incentive or supplemental benefit plan. The employer may base this eligibility on salary, job grade, organisation unit or function, or a number of other criteria.

Expatriate: An employee assigned to live and work outside the home or base country temporarily (usually for one-to-five years), other than for a short-term assignment or permanent transfer. Also known as a foreign-service employee or international assignee.

family (care) leave: Time off, either paid or unpaid, provided to employees (male or female) to care for their own serious medical condition or a seriously ill family member, new baby, or adopted child. Family leave policies are usually broader than parental leave policies.

flexible benefits: A programme where employees choose, within limits, the benefits provided by the employer. It follows the idea that individual employees have a better understanding of their benefit needs than the employer does.

flexible benefits component: A non-cash option to which employees can choose to allocate before- and/or after-tax salary. Employees typically take these items as salary sacrifices, which reduce taxable salary – and, hence, pay-as-you-go (PAYG) tax – as shown on the payment summary. Some items are subject to fringe benefit tax (FBT).

Health insurance: A plan that covers or shares the expenses associated with healthcare. It covers expenses for sickness or injury, including insurance for losses from accident, disability, medical expense, or accidental death and dismemberment (AD&D).

Holidays: Specific days when most employees do not work but are paid as if they did. Employees who work on such days typically receive premium pay or compensatory time off. The number of paid holidays granted by employers varies considerably by industry and, to a lesser extent, by geographic region.

Hospitalisation coverage: Expenses on hospitalisation for a minimum period of 24 hours, which are admissible under a policy. This time limit does not apply to specific treatments defined under day-care treatment in a hospital or nursing home.

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Hybrid benefit plan: A mixture of defined benefit (DB) and defined contribution (DC) features in a single plan. Companies may provide DB plans to existing employees and DC plans for new hires (in effect, two separate plans) under retirement benefits. Examples include:

•A DC plan that provides a guaranteed minimum DB payment upon retirement.

•A DC plan with benefit at retirement age equal to accumulated contributions plus interest or a fixed formula benefit, whichever benefit is higher.

Inclusions: Benefits provided in a specific policy in addition to benefits offered in the policy coverage.

Inflation: A term that refers to increases in prices for a constant market basket of goods. It is the average annual change in the consumer price index (CPI), which may differ from end-of-year figures. The cause of inflation is a general increase in the money supply, without a corresponding increase in the amount of goods and services available.

Inpatient: An individual admitted to a hospital as a registered bed patient for treatment by a physician for at least 24 hours.

Inpatient services: Services provided under the direction of a physician for at least 24 hours to an individual admitted to a hospital as a registered bed patient.

Instalment vesting: A characteristic of some retirement plans by which employees’ matching contributions are exercisable in a series of successive instalments. Vesting occurs over a period, typically three-to-five years.

Integration of benefits: In the context of retirement plans, a coordination of plan benefits or contributions with social security. Integration allows more benefits or contributions for higher-paid employees due to the fact that, once they retire, a smaller percentage of their pre-retirement earnings will be paid by social security.

Involuntary terminations: The number of employees dismissed by a company during the 12-month period of the most recently ended calendar year. It includes only full- or part-time permanent staff; it does not include contract or casual staff.

Lockout: A temporary company shutdown by the employer, or a situation whereby the employer bans a number of employees from reaching their workplace, with the aim of forcing employees and the union to abandon their claims and demands.

Long-term care (LTC): Assistance provided to employees or their family members who are unable to provide for themselves as the result of a disability or prolonged illness. Unlike other healthcare benefits, LTC premiums can be payable from the employee’s cheque only on an after-tax basis, with the premium waived while the employee is receiving benefits. The premiums increase with age. LTC involves custodial care given at home or in a nursing home for people with chronic disabilities and lengthy illnesses.

Long-term disability (LTD) coverage: Coverage that protects employees from catastrophic illness or injury that permanently disables the employee from any kind of employment. Benefits may take the form of a pension or lump sum.

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Lump-sum payment: The delivery of a compensation element, such as a mobility premium, paid in one (or more) sum(s), as compared to a foreign-service premium, which is typically paid on an ongoing basis throughout the assignment. Payment of more than one component of expatriate-related compensation without separate identification of the components.

Mandatory practice: The benefits provided by social security or mandatory employer-sponsored plans.

Mandatory termination indemnity: A lump-sum payment that must be made by the company (or that has been prefunded by the company, possibly through an outside agency other than social security) when an employee retires.

Maternity and pre-/post-natal care: Preventive care programmes for female employees that provide health coaching and improve awareness for managing maternity and labour.

Maternity benefit: The treatment taken in a hospital arising from, or traceable to, pregnancy and childbirth.

Maternity leave: A leave of absence for female employees before and after childbirth.

Meal allowance: An annual guaranteed cash allowance for subsidised meals or luncheon vouchers.

Median: The middle item in a set of ranked data points containing an odd number of items. When an even number of items are ranked, the median is the average of the two middle items. Also known as the 50th percentile.

Medical insurance: Insurance that can cover costs of hospitalisation, outpatient, surgery, and others; it is a supplemental insurance in addition to statutory health insurance.

Normal retirement age (NRA): The age at which a person may first become entitled to full or unreduced benefits based on age.

Outpatient: A provision for coverage for employees’ outpatient visits to general practitioners (GPs) and specialists. An individual who receives healthcare services on an outpatient basis and does not stay overnight in a hospital or inpatient facility. Services provided to an individual who is admitted to a hospital or clinic for treatment that does not require an overnight stay.

Overtime pay: A payment for work outside ordinary work hours or for time worked in excess of standard hours during the reporting period.

Part-time employee: An employee who may be hired for jobs other than skilled or unskilled, manual or clerical, for any period as per the terms agreed between the parties.

Paternity leave: A leave of absence for male employees after childbirth.

Pay as you go (PAyG): A system whereby businesses and individuals can pay instalments of expected tax liability on income from employment, business, or investment for the current income year.

Pension: A sum of money paid as a series of regular payments to an individual as a retirement benefit.

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Permanent employee: An employee engaged in work of a permanent nature likely to last for more than nine months and who should have satisfactorily completed a probationary period of three or six months.

Perquisite: A benefit or “perk” tied to a specific key or management level job (for example, a company car for personal use, free meals, financial counseling, or use of company facilities). A perk’s status value often exceeds its financial value. It is an incident payment, privilege, or advantage over and above the regular income, salary or wages.

Plan document: The document governing the benefit plan, and defining the benefits provided by the plan and the rules for administering it. It is a legal document, so the plan terms are binding, and usually lengthy and difficult to read.

Point of origin: The city/country of primary residence in the expatriate’s home country prior to the assignment; the location to which the company agrees to return the assignee for home leave and at repatriation.

Premium: (1) The extra pay, beyond the base wage rate for work performed outside or beyond regularly scheduled work periods (for example, Sundays, holidays, weekends, night shifts). Also known as a differential. (2) The extra pay for high-demand knowledge or skills. Also known as a differential. (3) In an international context, an incentive paid to expatriates for undertaking a foreign assignment; it is typically 10%–20% of base pay and continues month to month for as long as an employee is an expatriate. (4) In a benefits context, the amount paid to a health plan or insurance company by an employer or beneficiary for health insurance coverage; it can be a flat monthly or quarterly fee.

Probation period: An evaluation period for newly hired employees. It is usually the first three or six months of employment (as per company policy), during which an employment contract can be terminated by either party with prior notice.

Probationary contract: A contract for employees provisionally hired to fill a permanent vacancy and who have not completed a probationary period of three months.

Provident fund: A fund that pays benefits to employees who are fund members upon termination of their employment.

Public holiday: A statutory and local public holiday at the place of work in addition to holidays.

Reimbursement: A payment that compensates the employee exactly for all or an agreed part of an expense already incurred (for example, kilometre reimbursement while travelling for business), although not necessarily disbursed. The employer considers the expense to be its own, and the employee incurs the expenditure on behalf of the employer.

Remuneration: A term interchangeable with compensation, relating to all monies, perquisites, and benefits delivered to an employee in exchange for services.

Retrenchment: The process of terminating workers’ employment contracts to reduce the costs of running a business or organisation. The employees generally receive financial compensation according to law or per a formula decided by the company.

SAMPLE

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Rider: A clause that indicates whether a benefit is financed as part of another policy (for example, a dental benefit may be a rider to a medical plan).

Severance amount: The money in addition to wages and any other money an employer owes employees when their employment ends, such as through a mass layoff.

Severance/benefits continuation: Continuation of an employee’s salary after termination, paid either in a lump sum or on a continuation basis. The amount is usually on the basis of the employee’s length of service. Benefits continuation may be part of a severance package to provide continued coverage under the medical or other benefit plans for the employee and/or dependants for a period after termination.

Severance pay: The average pay and benefits package given to employees who left the organisation during the 12-month period of the most recently ended calendar year. It includes all the necessary payments, such as leave entitlement, medical continuity benefits, and so on.

Short-term disability (STD) coverage: An insurance that covers a percentage of an employee’s lost salary in the event of a temporary injury or illness that can last for a few weeks.

Sick leave: Paid time-off for employees suffering from illness or non-occupational injury. The employer usually coordinates or integrates it with short-term disability (STD) plans.

Social security: The comprehensive federal programme of benefits providing workers and their dependants with retirement income, disability income, and other payments, funded by social security tax.

Statutory requirement: A provision or law enacted, regulated, or authorised by a legislative body.

Step-rate formula: The method for determining a benefit on compensation above the social security integration level in a defined benefit (DB) plan.

Strike: A “turn out” or cessation of work organised by employees in any industry, acting in combination, to protect their professional and economic interests. Partial stoppages of work, hunger strikes accompanied with cessation of work, sit-ins, and “pen-down” strikes all fall within the definition of strike.

Superannuation: A monthly payment to an individual who has retired from work. An organisational pension programme created by a company for the benefit of its employees, whereby employees have the option of contributing a certain amount towards their pension payment.

Supplemental plan: A plan serving as a supplement or addition to a basic plan. Also known as an ancillary plan or voluntary plan.

Term life insurance: A renewable life insurance contract that specifies beginning and ending dates for coverage and has no cash value at termination. It provides financial protection to an employee’s dependants against the employee’s loss of life due to any cause (natural, accidental, or otherwise) to the extent of the sum assured and opted for by the company.

Termination: The act of ending an employee’s employment for any reason.

Termination indemnity: A legally required payment due to the employee upon dismissal or retirement. These payments can be extremely high in certain countries and, at times, may be payable under any termination circumstances, including the employee’s voluntary resignation.

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Total permanent disability: A condition where an individual has been continuously absent from work through injury or illness for a specified period and has become incapacitated to the extent that the individual can never engage in any work for which he or she is suited by education and training.

Unemployment: Unemployment generally comprises all persons above a specified age who during the reference period were without work, currently available for work, and seeking work. National definitions of employment and unemployment differ from country to country.

vesting: Acquisition by a plan member of an absolute right to an immediate or deferred benefit by fulfilling prescribed conditions, especially service requirements. The process (time period) by which employees accrue non-forfeitable rights over employer contributions that are made to the employee’s qualified retirement plan account. The right of an employee to all or a portion of benefits accrued, attributable to employer contributions, that is not contingent upon a participant’s continuation of employment. Employer contributions vest according to a schedule defined by the plan and are usually based on years of service.

vesting period: The time required for options/shares/performance units/long-term cash to vest and (in the case of options) become exercisable in full. It refers to all plan types.

voluntary contribution: A contribution in addition to the mandatory contribution that a member can pay to the retirement scheme to increase future retirement benefits.

voluntary plan: Also known as ancillary plan.

voluntary separation: The termination of employment where the employee initiates the separation process through resignation.

voluntary termination: The number (headcount) of employees who resigned or retired voluntarily during a 12-month reporting period.

Waiting period: A specific period set forth in an insurance policy or healthcare plan document that requires an individual to wait a certain period before being eligible for coverage under the plan. For example, a healthcare plan may require an individual to wait 90 days before coverage under the plan is permitted, and to have healthcare expenses paid or reimbursed for services or treatment received from a healthcare provider.

Working hours per day: The number of hours an employee works in a day, exclusive of lunch and other breaks.

Working hours per week: The minimum hours an employee needs to work during a work week. The work week and working hours may vary based on gender, country, and industry/sector.

SAMPLE

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COUNTRY OVERVIEW

Population 29.3 million

Capital city Kuala Lumpur

2012 GDP growth 5.6%

2012 Inflation rate 1.7%

2012 Unemployment rate 3.0%

Exchange rate

Effective date: May 2013

GBP 1 = MYR 4.67

USD 1 = MYR 3.05

EUR 1 = MYR 3.97

SUMMARY OF CONTRIBUTIONS

1.1 GENERAL DESCRIPTION OF SOCIAL SECURITY SCHEME

HOW SCHEME HAS EVOLVED OVER TIME There are two major social security schemes: the Employees Provident Fund (EPF) and the Social Security Organisation (SOCSO).

EPF, formally founded after enactment of the Employees Provident Fund Act 1991 (Act 452), grants employees a lump-sum retirement benefit for members reaching age 55:

All private-sector employees must be EPF members.

Public-sector employees have the option to remain an EPF member or become members in the Public-Sector Pension Scheme after three years’ service.

EPF membership is open to the self-employed on a voluntary basis.

EPF operates as a defined contribution (DC) scheme; both employers and employees contribute at a minimum of the statutory rates. The law also allows voluntary contributions.

EPF primarily applies to retirement, but allows earlier withdrawals for purchasing a home, financing one’s own or children’s education, and paying for one’s own or children’s medical costs, which are limited to 30% of accumulated contributions.

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SOCSO is an organisation set up to administer, enforce and implement the Employees’ Social Security Act 1969 and the Employees’ Social Security (General) Regulations 1971:

It operates as a social insurance scheme, providing basic financial protection upon death or permanent disablement of members while still in employment, injury, incapacitation or death due to work-related accidents or occupational diseases.

Coverage ceases once the member is age 55. Benefits claimed before age 55 continue after age 55.

Membership is only open to private-sector employees whose monthly salary (as of their first employment) is MYR 3,000 or less. Voluntary coverage is possible for persons earning over MYR 3,000. Private-sector employees earning MYR 3,000 and below monthly and their employers must be SOCSO members and contribute at the statutory rates.

1.2 CONTRIBUTIONS TO SOCIAL SECURITY

This table summarises the employer and employee contributions to social security and any applicable salary ceilings.

EFFECTIVE DATE 1 January 2012, still in effect in 2013.

DATE WHEN FIGURES ARE EXPECTED TO CHANGE NEXT No changes are expected.

By employer (% of payroll)

By employee (% of base salary)

Salary ceiling (local currency)

Retirement

Before age 55*

After age 55 and before 75**

12.00%, 13.00%***

6.00%, 6.50%***

11.00%

5.50% None

Disability and survivors 0.50% 0.50% MYR 3,000 per month

Sickness 0.00% 0.00% –

Health 0.00% 0.00% –

Accident 1.25% 0.00% MYR 3,000 per month

* Those age 55 before 1 February 2008

** Those turning age 55 on or after 1 February 2008

*** Those earning less than MYR 5,000 a month

1.3 GENERAL DESCRIPTION OF COMPANY PRACTICES FOR EMPLOYEE BENEFITS

This table summarises benefits that companies typically provide employees over and above the statutory programmes, the reasons why companies supplement these benefits, and the typical types of supplementary benefits provided.

Benefits Do employers supplement? Why or why not? Typical supplementary benefits

Retirement

Yes. Benefits arising from the accumulated balance in EPF Account 1 are inadequate. Companies typically implement supplemental plans to provide competitive benefits and retain staff.

Benefit plans are defined benefit (DB) and defined contribution (DC), each with only one plan.

Death

Yes. EPF and SOCSO death-in-service benefits are generally inadequate. It is common for companies to provide group term life insurance coverage for employees.

Benefits are insurance for death (natural and accidental causes), dismemberment and disablement (natural and accidental causes).

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Benefits Do employers supplement? Why or why not? Typical supplementary benefits

Disability

Yes. Companies usually provide total partial/permanent disability as a rider under an insured group term life programme.

Benefits are lump sum for total partial/permanent disability and salary continuation for long-term disability.

Medical Yes. There is a social security programme with good-quality care but limited accessibility.

Benefits are outpatient services, hospitalisation and ambulance services.

1.4 CONTRIBUTIONS TO TYPICAL EMPLOYER-SPONSORED PLANS

EFFECTIVE DATE 2012

This table summarises the prevalence, eligibility and employer and employee contributions to typical employer-sponsored plans.

Prevalence: All industries Eligibility By employer (% of payroll)

By employee (% of base salary)

Retirement – defined benefit (DB) 4% of all companies All employees Full plan cost

Not required; typically none

Retirement – defined contribution (DC)

39% of all companies provide additional supplementary benefits in addition to mandatory EPF contributions All employees

Additional voluntary employer contribution to EPF up to 5% is the current tax allowable rate. Typical contribution rate is 3%–4%.

Not required; typically none

Severance

Companies follow statutory requirements at minimum when employees’ monthly salary is MYR 2,000 and below or as defined by the First Schedule under the Employment Act 1955 for eligible coverage. For employees whose monthly salary is above MYR 2,000 and not covered under the First Schedule, it is negotiated or based on company policy. All employees Full plan cost Not required

Death 90% of all companies All employees Full plan cost None

Accidental death and dismemberment (AD&D) 93% of all companies All employees Full plan cost None

Business travel accident benefits 77% of all companies All employees Full plan cost None

Short-term disability 35% of all companies All employees

Employer pays base salary and, in some cases, provides financial support. Median lump-sum limit for hospitalisation is MYR 35,000. None

Long-term disability 82% of all companies All employees Full plan cost None

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Prevalence: All industries Eligibility By employer (% of payroll)

By employee (% of base salary)

Medical

All companies provide outpatient clinical, specialist, hospital and surgical benefits; 32% provide major medical benefits. All employees

Employers typically bear employee coverage cost. They typically share cost of dependant benefits between employee and employer, 20–80.

Typically not required for employee coverage; cost of dependant benefits typically shared between employee and employer, 20–80.

Dental 86% of all companies All employees

A majority of employers cover employees up to annual median MYR 200 or maximum MYR 400, including dependants. None

Vision 40% of all companies All employees

Employers only cover employees up to annual median of MYR 200. None

Sources: Mercer’s Malaysia Benefits Survey, 2012

2 LEGISLATIVE UPDATES

2.1 RECENT LEGISLATION APPROVED AND PROPOSED

HR area Effective date New law Action required Impact

Retirement July 2013

Under the Minimum Retirement Age Act which was passed in August 2012, the law states that an employer shall not prematurely retire an employee before the individual attains the minimum retirement age of 60 years old. However, this Act does not prevent the employee from voluntary retiring upon attaining the age of optional retirement according to the collective agreement or contract of service previously agreed upon. However, the maximum age of retirement is at 75 years old.

The rules are effective July 2013.

To review and revise retirement age in accordance with statutory requirements.

Retirement January 2012

Amendment to the Employees’ Provident Fund (EPF) Act had notable changes:

The employer’s share of contribution for employees age 55 and below, earning MYR 5,000 and below, increased to 13% from 12%; employees under this category continue 11% contribution.

The employer’s share of contribution for employees age 55 and above, earning MYR 5,000 and below, increased to 6.5% from 6%; employees under this category continue 5.5% contribution.

The rules are effective January 2012.

Employers must make the additional 1% monthly contributions for employees earning below MYR 5,000.

Retirement 2008

A single-tier tax system is effective (with a provision for companies to delay adoption until 2013). Approved retirement funds (including EPF) cannot claim tax credit on dividend income.

Employers should review existing arrangements to assess potential impact.

Sponsors of approved retirement plans might have to increase contributions to make up for any loss in retirement fund income.

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HR area Effective date New law Action required Impact

Social security Various

In light of rising inpatient and outpatient treatment costs, the Malaysian Government has launched the 1Malaysia clinic and has since received overwhelming response and benefited local communities in reducing treatment cost and facilitating health services access to treatment. Following the Budget 2013 announcement, the Government will allocate MYR 20 million for an additional 70 new 1Malaysia clinics in 2013. These clinics will now provide blood test services which include cholesterol and glucose tests as well as urine tests. Besides, MYR 100 million will be allocated to upgrade 350 clinics nationwide. The Government has also placed emphasis on heath as the essence to well-being. With that, SOCSO will allocate MYR 200 million to enable its 1.4 million members to undertake free health screening in Government hospitals or SOCSO's panel clinics to detect non-communicable diseases. None To be determined

Retirement October 2010

All part-time employees must also contribute to EPF at the same rate as full-time employees.

Employers should review existing arrangements to assess potential impact.

Cost of EPF to company may rise; previously, part-timers did not need to contribute to EPF.

3 TRENDS

Benefits Summary Recent changes made or considered by companies Reasons for trend

Retirement

Trend is to move towards DC in the form of additional EPF contributions. An increasing number of companies are making voluntary EPF contributions and closing existing voluntary gratuity schemes. EPF provides a cheaper alternative compared to a self-administered retirement plan. It is an advantage to employers; they can place additional EPF contributions for employees, and the EPF administers the plan at zero cost to the employer.

Simpler and cheaper administration is driving the trend.

4 DEFINITIONS EA: Employment Act

EPF: Employees Provident Fund

IRA: Industrial Relations Act

PK: Labour Department form

SOCSO: Social Security Organisation

VDR: Visa with reference

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5 CONTACT DETAILS

LOCAL MERCER OFFICES

Mercer (Malaysia) Sdn Bhd

Suite 17.06 Kenanga International

Jalan Sultan Ismail

50250 Kuala Lumpur

Phone: +60 3 2787 4900

Fax: +60 3 2142 1217

CONTRIBUTORS

LOCAL AUTHORS

LOCAL PEER

REVIEWER

INTERNATIONAL

CONSULTING PEER

REVIEWER SPONSORS

GLOBAL PROJECT

MANAGERS

Jesslyn Celest Tan

Jojico Tan Anna Chabbat Jared Hollands

Ali Kursun

Robyn Cameron

Samantha Polovina

Debrah Rath

Ramya Gomathy

Dhanya Manghat

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STATUTORY BENEFITS

1 RETIREMENT BENEFITS

NAME OF SOCIAL SECURITY SCHEME Scheme is the Employees Provident Fund (EPF).

TYPE OF PLAN Plan is a defined contribution (DC) plan.

ELIGIBILITY All local private-sector employees must be EPF members. Public-sector employees have the option to remain an EPF member or become members in the Public Sector Pension Scheme after three years’ service. Foreign employees can voluntarily elect to be covered by EPF.

NORMAL RETIREMENT AGE Males/females: Effective 1 January 2012, the normal retirement age increased from 58 to 60 for public-sector employees. Effective 1 July 2013, the retirement age for all private sector employees will be increased from 55 to 60 years of age.

PENSIONABLE EARNINGS Generally, earnings is defined as all remuneration that includes monthly base salary, bonuses, allowances, commissions, arrears of wages, payment of unused leaves, and other payments under contract of service or otherwise. Exclusions are service charge, overtime pay, gratuity, retirement/retrenchment/layoff/termination benefits and travelling allowances.

FINAL PENSIONABLE EARNINGS Not applicable

PENSIONABLE SERVICE Not applicable

CONDITIONS FOR RECEIVING BENEFIT Not applicable

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NORMAL RETIREMENT BENEFIT Benefit is accumulated contributions plus dividends. Although dividends are guaranteed at 2.5% per year, actual returns have been 4%–5%. The declared dividend for 2012 is 6.15% (highest in the last 10 years).

The employee has options for savings withdrawal under the EPF:

A one-time lump-sum withdrawal at age 55

An election for periodic withdrawals

A combination

The employee may also withdraw only dividends (accruing after age 55), without withdrawing the principal savings.

EPF is primarily a retirement fund, but savings are divided into:

Account 1: 70% of contributions for retirement purposes.

Account 2: 30% of contributions for other purposes (purchasing first house, financing one’s own or children’s education, financing one’s own or children’s medical care, early withdrawal at age 50, “Haj Withdrawal” up to MYR 3,000)

The accounts merge when the individual reaches age 55.

FORM OF PAYMENT Payment is a lump sum or periodic instalments.

EARLY RETIREMENT AGE & ELIGIBILITY CONDITIONS Employees can withdraw the entire balance in Account 2 (see “Normal retirement benefit”) upon reaching age 50. Each EPF member can make this withdrawal only once, if the employee:

Is a Malaysian citizen, or

Is a non-Malaysian citizen (expatriate) who became an EPF member before August 1998, or

Is a non-Malaysian citizen who obtained permanent resident status, and

Has savings in Account 2.

Members may withdraw EPF savings early for the following reasons:

When an expatriate or local is leaving the country permanently

For treatment of critical illnesses

To finance children’s education at an institute of higher learning at home or abroad

For building/purchasing a house or redeeming a spouse’s housing loan

To participate in approved investment funds

EARLY RETIREMENT BENEFIT Benefit is accumulated contributions plus dividends in Account 2.

LATE RETIREMENT AGE & ELIGIBILITY CONDITIONS All members age 55 and above must withdraw savings through the Age 55 Withdrawal Scheme (see “Normal retirement benefit”) unless they choose to keep their money with the EPF and opt for instalment withdrawals.

LATE RETIREMENT BENEFIT There is no specific late retirement benefit.

PENSION INCREASES Not applicable

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EMPLOYEE CONTRIBUTIONS Contribution before age 55 (those age 55 before 1 February 2008) is 11% of pensionable earnings. During 2009 and 2010, employees had the option to contribute at 8%. Contribution after age 55 and before age 75 (turning age 55 on or after 1 February 2008) is 5.5% of pensionable earnings.

EMPLOYER CONTRIBUTIONS Contribution before age 55 (age 55 before 1 February 2008) is 12% of pensionable earnings for employees earning above MYR 5,000 and 13% of pensionable earnings for employees earning less than MYR 5,000 (effective 1 January 2012).

Contribution after age 55 and before age 75 (turning age 55 on or after 1 February 2008) is 6% of pensionable earnings for employees earning above MYR 5,000 and 6.5% of pensionable earnings for employees earning below MYR 5,000 (effective 1 January 2012).

OTHER COMMENTS Members may use part of the EPF to invest with financial institutions approved by the EPF as fund managers:

To be eligible for participation in this investment scheme, contributors must be below age 55 and have at least MYR 5,000 in excess of basic savings in Account 1.

Basic savings is a minimum amount, which varies progressively by age from MYR 1,000 at age 18 to MYR 120,000 at age 55.

The minimum savings that can be invested is MYR 1,000; the maximum cannot be more than 20% of the amount exceeding the required basic savings in Account 1.

Withdrawal from EPF to invest in such a scheme is repeatable every three months, if the same conditions are satisfied.

2 DEATH BENEFITS

NAME OF SOCIAL SECURITY SCHEME The scheme is the Social Security Organisation (SOCSO).

ELIGIBILITY All employees initially earning MYR 3,000 or less per month must, by law, have coverage under SOCSO and remain members throughout their working lifetime. Once covered by SOCSO, employees remain covered irrespective of subsequent earnings. Coverage extends only to the maximum coverage earnings of MYR 3,000 per month. Voluntary coverage is possible for persons earning over MYR 3,000 per month upon agreement between the employer and employee. The schemes operate on a “once in, always in” policy.

CONDITIONS FOR RECEIVING BENEFIT Non-work-related benefits – SOCSO Invalidity Pension Scheme

A pension is payable to the widow of the deceased member who dies:

Before age 55 and did not receive a disability benefit from the SOCSO Invalidity Pension Scheme, or

At any age if the deceased member received the said disability benefit. If the deceased member was a recipient of the disability benefit, the survivor’s pension is equal to the disability benefit received by the member while living.

A full pension is payable if the member made at least 24 months’ contributions in the last 40 months, or made contributions in at least two-thirds of the months since entry into the scheme, with a minimum of 24 months.

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A reduced pension is payable if the member made contributions in only one-third of the months, with at least 24 months’ total.

Work-related benefits – SOCSO employment injury insurance scheme

Not applicable

BENEFIT DESCRIPTION Non-work-related benefits – SOCSO invalidity pension scheme

This plan covers an employee against death due to any cause not related to employment:

The full pension is 50% of monthly average earnings, plus 1% for each 12 months’ contributions over 24 months. The maximum pension is 65% of earnings; the minimum is MYR 250 per month. In calculating average earnings, a cap of MYR 3,000 per month applies.

If a reduced pension is paid, the maximum is 50% of monthly average earnings; the minimum is MYR 250 per month.

If there are dependant children of the deceased, the widow receives 60% of benefits for life or until re-marriage. The widower receives 60% if wholly or mainly dependant on the spouse’s earnings; if not, his share is divided among eligible orphans. The children of the deceased employee, while under age 21 and unmarried, receive 40% of the benefits. If there is no widow/eligible widower, this amount increases to 100%.

If there are no widow/eligible widower/orphans, the following parties may each receive up to 40% of the benefits if they were dependant on the deceased’s earnings: grandparents, parents and siblings.

Work-related benefits – SOCSO employment injury insurance scheme

This plan covers employees injured or involved in an accident during the course of employment, travelling to work or occupational diseases:

The full daily rate of the dependant’s benefit is 90% of the average assumed daily wage (a minimum of MYR 10 per day).

If there are dependant children of the deceased, the widow receives 60% of the benefits for life or until re-marriage. The widower receives 60% if wholly or mainly dependant on the spouse’s earnings; if not, his share is divided among eligible orphans. The children of the deceased, while under age 21 and unmarried receive 40% of the benefits. If there is no widow/eligible widower, this amount increases to 100%.

If there are no widow/eligible widower/orphans, the following parties may each receive up to 40% of the benefits if they were dependant on the deceased’s earnings: grandparents, parents and siblings.

EMPLOYEE CONTRIBUTIONS Total contribution for death and disability is 0.5% of earnings up to a salary ceiling of MYR 3,000 per month. Earnings includes salary, overtime payment, commissions, service charge, paid leaves and allowances, and excludes gratuity payments, annual bonus, or payments for dismissal or retrenchment.

EMPLOYER CONTRIBUTIONS Total contribution for death and disability is 0.5% of earnings up to a salary ceiling of MYR 3,000 per month. Earnings includes salary, overtime payment, commissions, service charge, paid leaves and allowances, and excludes gratuity payments, annual bonus, or payments for dismissal or retrenchment.

OTHER COMMENTS A funeral grant of MYR 1,500 is payable to the next of kin. If there is no next of kin, the person who incurred funeral expenses receives MYR 1,500 or the actual funeral cost, whichever is lower.

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3 DISABILITY BENEFITS

3.1 SHORT-TERM DISABILITY BENEFITS

NAME OF SOCIAL SECURITY SCHEME The scheme is the Social Security Organisation (SOCSO).

ELIGIBILITY All employees initially earning MYR 3,000 or less per month must, by law, have coverage by social security and remain members throughout their working lifetime regardless of subsequent earnings. Once covered by SOCSO, employees remain covered notwithstanding their earnings, although coverage extends only to the maximum covered earnings of MYR 3,000 per month. Voluntary coverage is possible for persons earning over MYR 3,000 per month upon agreement between the employer and employee. The schemes operate on a “once in, always in” policy.

WAITING PERIOD (PERIOD OF DISABLEMENT BEFORE BENEFITS BEGIN) There is no waiting period.

CONDITIONS FOR RECEIVING BENEFIT This benefit is payable to an employee who has been certified by a doctor to be unfit for work for not less than four days, including the day of the sickness or accident. It is payable for the period the employee is on medical leave, but not for days that the employee works and earns wages.

BENEFIT DESCRIPTION Work-related benefits – SOCSO employment injury insurance scheme

The SOCSO Employment Injury Insurance Scheme provides an employee with protection for commuting accidents, work accidents and sickness from occupational disease. It provides benefits for temporary disability of at least four work days, amounting to 80% of the average assumed daily wage (subject to a maximum monthly salary of MYR 3,000). The average assumed daily wage is a minimum of MYR 10 and maximum of MYR 79.

An employee who suffers from injuries or sickness as a result of work-related accidents or occupational disease has a right to medical treatment from SOCSO-appointed clinics and state-appointed hospitals and clinics.

EMPLOYEE CONTRIBUTIONS There is no contribution.

EMPLOYER CONTRIBUTIONS There is no contribution.

DEFINITION OF DISABLEMENT Disablement is inability to work due to sickness or accident.

OTHER COMMENTS Employees have a right to paid sick leave (and for dental treatment) if certified by a recognised medical practitioner or dental surgeon. The number of paid days that is granted depends on length of service. Under the Employment Act, an employee has a right to a minimum sick leave per year with full pay for:

14 days if service is less than two years

18 days if service is between two and five years

22 days thereafter

If the employee is hospitalised or deemed ill enough to be hospitalised, then the employee has a right to a maximum of 60 days’ hospitalisation leave.

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3.2 LONG-TERM DISABILITY BENEFITS

NAME OF SOCIAL SECURITY SCHEME The scheme is the Social Security Organisation (SOCSO).

ELIGIBILITY All employees initially earning MYR 3,000 or less per month must, by law, have coverage by social security and remain members throughout their working lifetime regardless of subsequent earnings. Once covered by SOCSO, employees remain covered notwithstanding their earnings, although coverage extends only to the maximum coverage earnings of MYR 3,000 per month. Voluntary coverage is possible for persons earning over MYR 3,000 per month upon agreement between the employer and employee. The scheme operates on a “once in, always in” policy.

WAITING PERIOD (PERIOD OF DISABLEMENT BEFORE BENEFITS BEGIN) There is no waiting period.

CONDITIONS FOR RECEIVING BENEFIT Non-work-related benefits – SOCSO invalidity pension scheme

To be eligible for invalidity pension, an employee must:

Not be age 55 when SOCSO receives the invalidity notice; or if the employee is age 55, prove that the invalidity occurred before age 55 and the employee ceased employment at that time

Be certified as an invalid by a medical board or appellate medical board

Have fulfilled one of two qualifying conditions:

Full qualifying condition: Before the month in which the invalidity notice is received, the employee’s monthly contributions within 40 consecutive months is at least 24 months OR the employee made contributions in at least two-thirds of the months since entry into insurance, with a minimum of 24 months.

Reduced qualifying condition: The employee made monthly contributions for at least one-third of the number of full months since entry into insurance, with at least 24 months’ total.

Work-related benefits – SOCSO employment injury insurance scheme

This benefit is payable to an employee who has been certified, by a medical board or an appellate medical board, to be suffering from permanent disablement as a result of an employment injury.

BENEFIT DESCRIPTION Non-work-related benefits – SOCSO invalidity pension scheme

With regards to benefits:

The full pension is 50% of monthly average earnings, plus 1% for each 12 months’ contributions over 24 months. The maximum pension is 65% of earnings; the minimum is MYR 250 per month.

If a reduced pension is paid, the maximum is 50% of the monthly average earnings; the minimum is MYR 250 per month.

All earnings for benefit calculation are subject to a cap of MYR 3,000 per month.

A member who is not eligible for a pension, but has contributed at least 12 months, receives an invalidity grant equal to the contributions paid plus interest.

A constant attendance supplement, payable if the member is severely incapacitated and requires constant attendance of another person, is 40% of the pension, to a maximum of MYR 500 per month.

Work-related benefits – SOCSO employment injury insurance scheme

With regards to benefits:

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If earnings capacity loss exceeds 20%, the permanent disability benefit is 90% of the average assumed daily wage (subject to the maximum MYR 3,000 per month). The minimum daily rate is MYR 10. The benefit is payable as a lifetime pension or 20% of it may be commuted into a lump-sum payment.

If earnings capacity loss is less than 20%, the benefit is payable as a lump sum. A constant attendance supplement is also payable, equal to 40% of the permanent disability pension benefit to a maximum of MYR 500 per month.

EMPLOYEE CONTRIBUTIONS Total contribution for death and disability is 0.5% of earnings up to a salary ceiling of MYR 3,000 per month. Earnings includes salary, overtime payment, commissions, service charge, paid leaves and allowances, and excludes gratuity payments, annual bonus, or payments for dismissal or retrenchment.

EMPLOYER CONTRIBUTIONS For both EIIS and IPS benefits the employer contribution is approximately 1.75% of total remuneration subject to a maximum monthly contribution of MYR 51.65 per employee. This applies to most employees under age 55; however, a separate set of employer SOCSO contributions apply to prescribed employees, such as those aged 55 or over.

DEFINITION OF DISABLEMENT Disablement is inability to work due to sickness or accident.

OTHER COMMENTS In addition to SOCSO benefits, employees can also withdraw the whole amount of the accumulated balance in their EPF account upon total permanent disablement.

4 MEDICAL BENEFITS

4.1 MEDICAL & DENTAL BENEFITS

ELIGIBILITY All citizens and residents are eligible.

CONDITIONS FOR RECEIVING BENEFIT There are no conditions.

BENEFIT DESCRIPTION No national health insurance system exists, and no statutory benefits are available. But the government provides healthcare services that include outpatient and inpatient treatment at state-appointed hospitals and clinics for all residents. The services are available at nominal cost or free of charge for disadvantaged groups such as the poor, the pensioners and the elderly. Prescription charges are MYR 1 per prescription regardless of actual cost (only in government hospitals), and accommodation and medical services in such establishments are limited.

EPF members have the option to withdraw their Account 2 savings under the Medical Withdrawal Scheme to meet the cost of treating critical illnesses suffered by the member or spouse/children/parents/siblings. This type of withdrawal is permissible if the employer does not fully cover the member’s medical costs. The amount that can be withdrawn is the actual medical costs not covered by the employer or savings in Account 2, whichever is less.

SOCSO also covers medical costs resulting from employment-related injury/accident, as described under “Short-term disability benefits” and “Long-term disability benefits.”

SAMPLE

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DEPENDANT COVERAGE Members may withdraw EPF Account 2 savings under the Medical Withdrawal Scheme to meet health/medical care costs of spouse/children/parents/siblings.

EMPLOYEE CONTRIBUTIONS There is no contribution.

EMPLOYER CONTRIBUTIONS There is no contribution.

4.2 MATERNITY BENEFITS

CONDITIONS FOR RECEIVING BENEFIT A female employee who is employed for not less than 90 days in the nine months immediately preceding confinement is eligible for maternity benefits.

BENEFIT DESCRIPTION Every female employee has a right to maternity leave and full pay for at least 60 consecutive days for the first 5 surviving births. Maternity leave typically does not start earlier than 30 days immediately preceding the confinement or later than the day immediately following confinement. But if the registered medical practitioner appointed by the employer certifies that the employee cannot perform her duties satisfactorily, the employee may start maternity leave at any time during the 14 days preceding the confinement date.

5 UNEMPLOYMENT BENEFITS There is no provision for entitlement to unemployment benefits. Malaysia currently does not have unemployment benefits.

6 SOCIAL BENEFITS Family allowances: The family of the deceased employee, who had contributed to the SOCSO fund, if eligible, may receive a monthly allowance.

If the children are orphans, depending on age and marital status, they may receive an allowance if they are currently in school or pursuing tertiary education until the completion of their schooling or tertiary education.

SAMPLE

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TYPICAL BENEFITS PRACTICE

1 RETIREMENT BENEFITS

REASONS WHY COMPANIES NEED TO SUPPLEMENT STATUTORY REQUIREMENTS Benefits arising from the accumulated balance of mandatory contributions in Account 1 of the Employees Provident Fund (EPF) are inadequate. Providing supplemental plans maintains competitiveness and can also help retain staff.

TYPICAL SUPPLEMENTARY BENEFITS ARRANGEMENT PROVIDED BY COMPANIES There are multiple plans: gratuity schemes (defined benefit, or DB), voluntary additional EPF contributions, and defined contribution (DC) schemes.

1.1 DEFINED BENEFIT PLAN

Prevalence 4% of all companies provide this benefit (Source: Mercer’s Malaysia Benefits Survey, 2012).

Sponsoring employer Employer

Name of plan Plan is a gratuity scheme.

Governing documentation Trust deed, employment contract, and internal rules govern the plan.

Eligibility

The plan may be open to executives only or non-executives only or both, which is most common. Usually, an employee can join the plan on the date of hire. Non-permanent staffs are not usually eligible.

Normal retirement age Males/females: 60

Pensionable earnings Earnings are defined as basic monthly salary.

Final pensionable earnings Final earnings are defined as the last drawn monthly salary or average monthly salary over the final one or two years’ service.

Pensionable service Service is defined as service from the date of joining the company.

Conditions for receiving benefit

It applies to full-time permanent employees on normal retirement age. Some plans require completion of a minimum number of years’ service (usually five or 10). Many plans also provide supplementary benefits on resignation, disability and death in service.

SAMPLE

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1.1 DEFINED BENEFIT PLAN

Normal retirement benefit Benefit is 0.5 to 1 month’s average salary (over final one-to-two years) per year of service, payable as a one-time lump sum.

Form of payment Payment is a lump sum.

Early retirement age and eligibility conditions

It applies to full-time permanent employees on early retirement age, which can be any time before the retirement age stated by the government. Some plans require completion of a minimum number of years’ service (usually five or 10).

Early retirement benefit Benefit is a portion of the accrued retirement benefit depending on years of service, payable as a one-time lump sum.

Late retirement age and eligibility conditions Not common

Late retirement benefit Not common

Pension increases Not applicable

Disability benefit Benefit is accrued retirement benefit, payable as a one-time lump sum.

Death in service benefits – Survivor and/or lump-sum benefits Benefit is accrued retirement benefit, payable as a one-time lump sum.

Death after retirement benefit None

Leaving service benefit and vesting provisions

Gradual vesting usually starts from five years, with full vesting after 15 or 20 years’ service. Some gratuity plans have no leaving-service benefits.

Employee contributions There is no contribution.

Employer contributions Contribution is full plan cost.

Financing methods

Financing is through:

An approved trust fund has a maximum tax-deductible contribution of 7% of pensionable earnings, which is in addition to the mandatory contribution.

Book reserves, whereby the expense is charged to profit and loss account. It is not tax-effective, but payment of benefits is tax-effective.

Some operate a combination of the two.

Frequency of valuations Valuation is every three years, which is usually stated in the trust document. Nonetheless, accounting standards require periodic valuations.

Local accounting standard Standard is FRS 126 (similar to IAS 19).

Hybrid alternatives Not common

Taxation of contributions

Employer contributions to a tax-approved fund are tax-deductible up to 19% of pensionable earnings (inclusive of the mandatory 12% or 13% of pensionable earnings to EPF).

Employee contributions to approved funds, insurance policies and EPF are tax-deductible up to MYR 6,000 per year.

Taxation of benefits

All benefits from tax-approved funds are tax-free to recipients, but restrictions are placed on how benefits are paid. Benefits from unfunded gratuity schemes are taxable unless paid upon death, permanent disability or attainment of age 55, with a minimum 10 years’ service.

Other comments

The government has been looking into pension reform, but no announcement has been made yet on the future direction of reform.

One weakness of the current scheme is that benefits are paid as a lump sum that usually runs out within 10 years of retirement. There are no tax incentives to purchase annuities. The public strongly prefer lump sums; any movement towards annuities will be politically difficult.

SAMPLE

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1.2 DEFINED CONTRIBUTION PLAN

Prevalence 39% of all companies provide this benefit (Source: Mercer’s Malaysia Benefits Survey, 2012).

Sponsoring employer Employer

Name of plan Plan is the Employees Provident Fund (EPF) or DC plan.

Governing documentation Employment contract and internal rules govern the plan.

Eligibility

Most common eligibility is for management only, but since 2011, there is a trend to extend the plan to non-management. The additional EPF contribution is typically given on a fixed rate.

Normal retirement age Males/females: 60

Contributory earnings Earnings are defined as basic salary plus bonus, allowances and commissions.

Conditions for receiving benefit

Plans that are additional EPF contributions are subject to the EPF Act.

For approved DC plans: full-time permanent employees and upon attaining normal retirement age.

Normal retirement benefit Benefit is accumulated contributions plus interest, payable as a one-time lump sum.

Form of payment Payment is a lump sum.

Pension increases Not applicable

Disability benefit Benefit is accumulated contributions plus interest, payable as a one-time lump sum.

Death in service benefits – Survivor and/or lump-sum benefits Benefit is accumulated contributions plus interest, payable as a one-time lump sum.

Death after retirement benefit None

Leaving service benefit and vesting provisions

Employer contributions have immediate full vesting for additional EPF contributions. For tax-approved plans, the benefit may vest starting from five years, with full vesting after 15–20 years. Vesting rules are subject to approval of the tax authority. Benefits cannot be payable in cash, and are usually transferred to the EPF.

Employee contributions Contribution is not required; typically, there is no contribution.

Employer contributions

Contribution is up to 5% of pensionable earnings; typically, between 3% and 4%.

Supplemental employer contributions are tax deductible up to 7% of pensionable earnings. This is determined by the total maximum tax deductible contribution (19%) less the statutory employer EPF contribution (currently, 12% for those earning more than MYR 5,000).

Financing methods

The most common method involves contributions made to a central fund run by the EPF. If the funding vehicle is through an Inland Revenue-approved plan, contributions are payable to a trust fund set up by the employer.

Employee investment choice

There are no investment choices in the EPF. EPF members with more than MYR 5,000 in excess of the basic savings in their EPF Account 1 have the option to invest a portion of their Account 1 with the EPF-approved unit trust funds. Basic savings is a minimum amount in Account 1, which varies progressively by age from MYR 1,000 at age 18 to MYR 120,000 at age 55.

Hybrid alternatives Not common

Taxation of contributions

Employer contributions to approved funds, including EPF, are tax-deductible up to a total 19% of pensionable earnings (including mandatory EPF pensionable earnings). Employee contributions to approved funds, insurance policies and EPF are tax-deductible up to MYR 6,000 per year.

Taxation of benefits All benefits payable from approved funds, including EPF, are tax-free to recipients.

SAMPLE

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2 DEATH BENEFITS

REASONS WHY COMPANIES NEED TO SUPPLEMENT STATUTORY REQUIREMENTS EPF and SOCSO death-in-service benefits are generally inadequate. For high earners, there is a maximum pension payable covered by mandatory benefits and no protection after an employee turns age 55. It is common for companies to provide group term-life programmes.

TYPICAL SUPPLEMENTARY BENEFITS ARRANGEMENT PROVIDED BY COMPANIES Death (natural and accidental causes)

Dismemberment

Disablement (natural and accidental causes)

2.1 DEATH BENEFITS

Prevalence 90% of all companies provide this benefit (Source: Mercer’s Malaysia Benefits Survey, 2012).

Is this benefit part of another plan? It is not part of another plan.

Eligibility Typically, all employees are eligible.

Retirees covered? No

Conditions for receiving benefit Condition is death or permanent disablement.

Benefit description Lump-sum death benefit is 36 times basic monthly salary.

Employee contributions Typically, there is no contribution; employers pay the full insurance cost.

Benefit insured? Benefit is fully insured.

Overall description of plan financing Financing is through an insurance policy.

Taxation of contributions Employer premiums are tax-deductible business expenses.

Taxation of benefits Benefit is tax-free.

Other comments

If an occupational retirement plan exists, an additional benefit equivalent to the greater of the accrued retirement benefit or the insured benefit is usually payable. Benefits are also payable from EPF and SOCSO, where applicable. For EPF, lump-sum survivor benefits are payable to nominated survivors or legal heirs of a deceased EPF member.

2.2 AD&D BENEFITS (ACCIDENTAL DEATH AND DISMEMBERMENT)

Prevalence 93% of all companies provide this benefit (Source: Mercer’s Malaysia Benefits Survey, 2012).

Is this benefit part of another plan? It is not part of another plan.

Eligibility Typically, all employees are eligible.

Retirees covered? No

Conditions for receiving benefit Condition is accidental death or disablement.

Benefit description

Typically, the lump-sum benefit is 36 times the monthly salary and provided for accidental death. A proportion is payable for accidental dismemberment according to varying disability degrees.

Employee contributions Typically, there is no contribution; employers usually pay the full insurance cost.

SAMPLE

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2.2 AD&D BENEFITS (ACCIDENTAL DEATH AND DISMEMBERMENT)

Benefit insured? Benefit is fully insured.

Overall description of plan financing Financing is through an insurance policy.

Taxation of contributions Employer premiums are tax-deductible business expenses.

Taxation of benefits Benefit is tax-free.

Other comments

If an occupational retirement plan exists, an additional benefit equivalent to the accrued retirement benefit is usually payable separately from the retirement plan. Benefits are also payable from EPF and SOCSO, where applicable.

2.3 BUSINESS TRAVEL BENEFITS

Prevalence 77% of all companies provide this benefit (Source: Mercer’s Malaysia Benefits Survey, 2012).

Is this benefit part of another plan? It is not part of another plan.

Eligibility All employees who travel on business (typically, management and professionals) are eligible.

Conditions for receiving benefit The condition is a company requirement for travel.

Benefit description

Benefits may include:

Lump-sum death benefit

Costs of emergency evacuation or repatriation

Costs of healthcare

Cost of flying accompanying relatives in case of emergency

Reimbursement for loss of baggage and personal effects

Employee contributions Typically, there is no contribution; employers pay the full insurance cost.

Benefit insured? Benefit is insured.

Overall description of plan financing Financing is through an insurance policy.

Taxation of contributions Employer premiums are tax-deductible business expenses.

Taxation of benefits Benefit is tax-free.

3 DISABILITY BENEFITS

REASONS WHY COMPANIES NEED TO SUPPLEMENT STATUTORY REQUIREMENTS Long-term and temporary disability benefits from social security may be adequate for low-income individuals but not middle-to-high earners.

TYPICAL SUPPLEMENTARY BENEFITS ARRANGEMENT PROVIDED BY COMPANIES Short-term disability benefits

Total partial/permanent disability benefits (lump sum)

SAMPLE

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3.1 SHORT-TERM DISABILITY BENEFITS

Prevalence 35% of all companies provide this benefit (Source: Mercer’s Malaysia Benefits Survey, 2012).

Is this benefit part of another plan? It is not part of another plan.

Eligibility All employees are eligible.

Retirees covered? No

Waiting period (period of disablement before benefits begin) There is no waiting period.

Conditions for receiving benefit Not applicable

Benefit description

Typical practice is to provide sick leave and hospitalisation leave. Employees have a right to paid sick leave (non-hospitalisation) as per the following schedule:

14 days for less than two years’ service

18 days for two years’ service or more, but less than five years

22 days for five years’ service or more

If hospitalisation is necessary, an employee has a right to a maximum 60 days’ paid leave per calendar year (inclusive of non-hospital leave). This amount of leave is the minimum under the Malaysian Employment Act.

All sick leave and hospitalisation leave must have substantiation with medical certificates from the company-approved registered practitioner or medical officer, as stipulated by company policy.

A company’s medical benefit plan typically covers medical treatment.

The median lump-sum limit for hospitalisation is MYR 35,000 per year.

Employee contributions There is no contribution.

Definition of disablement Disablement is inability to work due to illness

Benefit insured? Benefit is partly insured.

Overall description of plan financing

Employers self-fund sick leave entitlement.

Medical treatment incurred in conjunction with sick leave (not exceeding 25 days a year) can be self-financed or covered by the company’s medical benefit plan.

An insurance plan typically covers hospitalisation benefits. If there is no insurance plan, the employer self-funds the hospitalisation benefits.

Taxation of contributions Employer’s cost is a tax-deductible business expense.

Taxation of benefits Benefit is tax-free.

3.2 LONG-TERM DISABILITY BENEFITS

Prevalence 82% of all companies provide this benefit (Source: Mercer’s Malaysia Benefits Survey, 2012).

Is this benefit part of another plan? Where provided, it is usually part of the rider to the life insurance policy.

Eligibility All employees are eligible.

Retirees covered? No

Waiting period (period of disablement before benefits begin) Benefits begin on cessation of short-term disability benefits.

Conditions for receiving benefit Not applicable

SAMPLE

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3.2 LONG-TERM DISABILITY BENEFITS

Benefit description

The average benefit level is two-to-three times basic annual salary, payable in instalments. If death occurs before the last instalment, the balance is payable in a lump sum.

Group long-term disability income insurance is rare. If a benefit is provided for prolonged illness, companies provide 100% of paid leave for the first six months, 50% of paid leave for the next six months and none thereafter.

Employee contributions There is no contribution.

Definition of disablement Disablement is inability to work due to sickness or accident

Benefit insured? Benefit is fully insured.

Overall description of plan financing Financing for total permanent disability is through an insurance policy. Long-term disability is self-funded.

Taxation of contributions Employer premiums are tax-deductible business expenses.

Taxation of benefits Benefit is tax-free.

Other comments

Almost all companies that provide group term life also provide total permanent disability coverage, as it is usually a rider to the basic group term life policy. They provide it in addition to statutory requirements.

If an occupational retirement plan is provided, the plan may include disability benefits equal to the accrued retirement benefits, or the greater of the accrued retirement benefit and the insured benefit.

4 MEDICAL BENEFITS

REASONS WHY COMPANIES NEED TO SUPPLEMENT STATUTORY REQUIREMENTS Access to state facilities is limited, and private hospitals are becoming costly. Companies have implemented plans to help provide access to medical care at more reasonable prices.

TYPICAL SUPPLEMENTARY BENEFITS ARRANGEMENT PROVIDED BY COMPANIES Benefits include outpatient services (clinical and specialist), hospitalisation and surgical benefits, ambulance services, prescription drugs and dental.

4.1 MEDICAL BENEFITS

Prevalence

All companies provide for outpatient clinical, specialist, hospital and surgical benefits. 32% provide for major medical benefits (Source: Mercer’s Malaysia Benefits Survey, 2012).

Coverage part of another plan It is not part of another plan.

Eligibility All employees are eligible. Companies typically set up more than one plan to provide different benefit levels to different employee categories.

Retirees covered? No

Conditions for receiving benefit It applies to full-time employees.

Benefit description

Private medical plans usually cover outpatient care and hospitalised medical care. Outpatient care typically includes doctor fees, hospital diagnostic tests and prescription medicines. Inpatient care typically includes hospital accommodation (room and board and ICU), operating theatre, hospital supplies and surgical fees.

Companies provide extra benefits depending on employee categories, adding physiotherapy, medical aid, preventive care and wellness, and ambulance fees.

SAMPLE

MALAYSIA – TYPICAL BENEFITS PRACTICE

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4.1 MEDICAL BENEFITS

86% of companies provide annual dental benefits up to (median) MYR 200 or maximum MYR 550 (including dependants). Besides, 40% of companies also provide vision care coverage of MYR 200 (median) for employees.

Dependant coverage Employers usually provide dependant coverage.

Coinsurance/copayment arrangements The employee typically pays half the cost of dependant coverage.

Individual/family deductible Usually, there is no deductible.

Annual/lifetime maximum Outpatient treatment typically has an annual cap of MYR 1,850 (including outpatient, dental and vision).

Exclusions Employers typically do not provide maternity benefits.

Employee contributions The employer typically bears the employee coverage. The employee and employer typically share (20–80) the cost of dependant benefits under a medical plan.

Benefit insured? Typically, only hospital, surgical and major medical are fully insured.

Overall description of plan financing

Group insurance contracts commonly provide hospitalisation benefits. Outpatient clinical benefits and dental benefits are usually self-insured. There are also health maintenance organisations.

Taxation of contributions Employer premiums are tax-deductible business expenses.

Taxation of benefits There is no taxation.

5 FLEXIBLE BENEFITS

Prevalence of flexible benefit programmes Not common

Which employee benefits programmes are typically included in a flexible benefits programme?

Typical benefits are medical, additional group term life, personal accident, annual leave, dental and optical expenses, maternity expenses and vacation.

Flexible benefits programme structure

Enrolment is usually on an annual basis. Employees can buy their choices of benefit programmes for a year from available credits. A default plan is in place for employees who do not make elections. Changes to elections are permissible at certain times of the year following pre-specified events (for example, change in marital status and birth of a child). Any balance credits usually go into a flexible spending account for purchasing other non-core flexible benefits.

6 PERQUISITES & ALLOWANCES

6.1 PERQUISITES & ALLOWANCES

Transportation programmes

Typical practice is to provide company cars to management and executives. Car models range from 2,000 cc engines for management (driver not provided) and 2,200 cc engines for executives (driver provided).

Some companies provide car allowances in lieu of a company car. Monthly amounts vary by employee categories, typically:

Management (Non Sales): MYR 1,237.50 to MYR 3,000

Management (Sales): MYR 1,000 to MYR 1,792.50

SAMPLE

MALAYSIA – TYPICAL BENEFITS PRACTICE

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6.1 PERQUISITES & ALLOWANCES

Top Management Executives (Non Sales): MYR 2,000 to MYR 5,000

Top Management Executives (Sales): MYR 1,200 to MYR 4,125

It is common to include parking fees in the car allowance.

Employers usually provide car loans to senior and middle managers. The median value for the interest subsidy is 3.5% per year. The loan amount varies:

MYR 42,500 to MYR 100,000 for senior management

MYR 42,500 to MYR 90,000 for middle management

Employers usually provide a mileage claim of MYR 0.70 per kilometre of business travel if employees travel using their personal vehicle.

Company-provided housing or allowance

Employers usually provide furnished accommodations to expatriates, local plus individuals (foreigners hired and based in a host country on a local package) or those who relocate domestically. But there are companies that provide home purchase loans to employees, limited to (median) MYR 275,000 and charged at 4% interest.

There is no requirement to provide housing, but the Workers’ Minimum Standards of Housing and Amenities Act 1990 provides minimum requirements when companies do provide housing.

Domestic help Not common

Education reimbursement

Employers often provide a tuition assistance plan, fully reimbursing the cost of job-related training courses to all full-time regular employees with at least one year’s service.

Loans to employees Apart from financial institutions, this benefit is not common.

Savings plan Not common

Club memberships Companies typically provide club memberships (golf/recreational/fitness/professional) to senior executives.

Meal allowance/subsidised eating facilities

Meal allowances are usually payable on regular working days for all employees working overtime. It is not common to provide meal allowances on rest days and public holidays except for overtime.

Uniform/dry cleaning Typically, this allowance goes to dispatch personnel, drivers and labourers.

Entertainment Typically, employers provide it to senior staff or managers for business reasons.

Service awards Companies typically offer a service award on the anniversary of every five-year milestone.

Discounted company products It is common to offer discounted prices on company products.

Flexible spending accounts Not common

Other perquisites and allowances Employers usually provide cellular phones based on the company’s business needs. Corporate credit cards are common.

Taxation of contributions Perquisites and allowances constitute part of the total costs of employment for the employer and, hence, are tax-deductible.

Taxation of perquisites and allowances Some perquisites are taxable, but not usually on the full value.

SAMPLE

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EMPLOYMENT CONDITIONS

1 SEVERANCE CONDITIONS & TERMINATION INDEMNITIES

1.1 INDIVIDUAL TERMINATION

DEFINITION AND CONDITIONS OF FAIR AND UNFAIR TERMINATION Termination of employment or dismissal of an employee must be for just cause. Essentially, it means there must be a sufficient and recognised reason to justify dismissal of an employee. Accepted dismissal reasons include misconduct, poor performance, medical incapacity and redundancy. Each case is reviewed individually to determine whether a particular termination is fair or unfair. An employer must be in a position to justify that the termination is for a just cause or excuse, failing which the dismissal is viewed as unfair by the Industrial Court.

Termination with just cause is broadly divided into three categories:

Termination on grounds of non-performance

Termination for gross misconduct

Retrenchment/redundancy arising out of re-organisation, closures or transfers of businesses

A dismissed employee has the option of bringing an action to the Industrial Court if the employee believes the dismissal was without just cause. But the employee must file the action within 60 days from the date of dismissal, after which the claim cannot be entertained by relevant authorities. Once the reasons for dismissal are determined, the Industrial Court must be satisfied that the worker did indeed commit the acts for which the worker was dismissed and determine whether dismissal was merited. In determining if the dismissal was with cause, the Industrial Court examines the reasons provided and whether the action taken was in proportion to the gravity of the misconduct.

COMPANY NOTICE PERIOD The Employment Act (EA) generally covers employees who earn monthly wages of MYR 2,000 and below, as of 1 April 2012. The EA also applies to the following employees, even though their monthly salary may exceed MYR 2,000:

Employees engaged as manual labour

Employees who supervise manual labour

Drivers

Domestic servants

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The EA provides that the notice period follows the notice period in the employment contract. In the absence of such a provision, the required notice period per the EA is:

Four weeks’ notice if the employee is employed less than two years on the date the notice is given

Six weeks’ notice if the employee is employed two years or more, but less than five years on the date the notice is given

Eight weeks’ notice if the employee is employed five years or more on the date the notice is given

Notice must be in writing, and the day the notice is given is included in the notice period. Probationers also come within the EA’s purview, although the category is not expressly defined in the EA.

There is no statutory notice period for employees outside the EA’s purview. A notice period in such a situation depends on the employment contract terms.

PAY IN LIEU OF NOTICE PERMITTED For employees covered under the EA, pay in lieu of notice must not be less than:

Four weeks’ pay in lieu of notice if the employee is employed less than two years on the date the notice is given

Six weeks’ pay in lieu of notice if the employee is employed two years or more, but less than five years on such a date

Eight weeks’ pay in lieu of notice if the employee is employed five years or more on such a date

Under the EA, a notice can be partly payable in lieu of notice. For employees not governed by the EA, their contract of service must specifically provide for the above.

OTHER REQUIREMENTS (FOR EXAMPLE, CONSULTATION REQUIREMENTS, GOVERNMENT APPROVAL) A collective agreement may contain certain provisions stipulating that the union must be consulted before any retrenchment exercise is carried out. If there is such a provision, the obligation must be complied with.

The EA also provides that a company must complete and submit the Labour Department PK form one month before employee retrenchment.

If an employee is terminated due to misconduct, it is prudent for the company to conduct a due inquiry to look into the allegations of misconduct before termination. This requirement is premised based on case law and Section 14(1) EA.

EMPLOYEE NOTICE PERIOD The required employee notice period as per the EA is:

Four weeks’ notice if the employee is employed less than two years on the date the notice is given

Six weeks’ notice if the employee is employed two years or more, but less than five years on the date the notice is given

Eight weeks’ notice if the employee is employed for five years or more on the date the notice is given

There is no statutory notice period for employees outside the EA’s purview. The notice period in such a situation depends on the employment contract.

BENEFITS PAID ON INVOLUNTARY TERMINATION OF SERVICE An employer need not provide an employee with any severance payment if the employee is terminated for misconduct after a due inquiry that can be in the form of a domestic inquiry conducted against the employee. A due inquiry essentially means taking steps to enquire into the matter. It may include issuing a cause letter and conducting a formal domestic inquiry (oral hearing).

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If the employer fails to conduct a due inquiry, the employee may have a right to termination benefits in accordance with the Employment (Termination and Lay-Off Benefits) Regulations 1980 if the employee claims termination benefits at the Labour Office. Benefits are:

10 days’ wages for every year of employment for service of no less than one year, but less than two years (one who served less than a year is not entitled to termination benefits)

15 days’ wages for every year of employment for service of two years or more, but less than five years

20 days’ wages for every year of service of five years or more

Benefits are prorated, with an incomplete year calculated to the nearest month. The employee will receive payment no later than seven days from the termination/layoff date.

BENEFITS PAID ON VOLUNTARY RESIGNATION (ONLY INCLUDE BENEFITS NOT DESCRIBED ELSEWHERE) If an employee voluntarily resigns, there is no legal obligation on the employer’s part to pay any form of payment unless stipulated in the employment contract or collective agreement.

DESCRIPTION OF FINANCING There is no advance financing. Benefits are payable when required from company assets.

1.2 COLLECTIVE DISMISSAL

DEFINITION AND CONDITIONS OF REDUNDANCY AND RETRENCHMENT The employer retains the prerogative to restructure its business. The courts are generally reluctant to interfere in such an exercise as long as it is conducted in a bona fide manner.

A company undertaking a restructuring exercise might have to retrench some or all employees for various reasons:

Need for fewer people to do the job

Redundancy of some employees

Downsizing

Termination due to closure or transfer of business

The court has found these reasons to be justifiable grounds for termination/retrenchment as they concern a business decision.

Generally, to justify a retrenchment exercise, the employer must establish the following:

There must be a valid basis to justify the reorganisation, such as business losses, reduced profits and increased costs.

The re-organisation resulted in a redundancy or surplus of employees.

The employer carried out the selection process of redundant employees in accordance with accepted industrial principles and practices, such as “last in, first out.

The retrenchment is conducted in accordance with guidelines stipulated under the Code of Conduct for Industrial Harmony.

The Code of Conduct for Industrial Harmony recommends that prior to a retrenchment exercise, the employer should, in consultation with employees’ representative, trade union and Ministry of Labour, take positive steps to avert or minimize reductions of work force by the adoption of appropriate measures, such as limitation on recruitment, restriction of overtime work, restriction of work on weekly day of rest, reduction in the number of shifts or days worked in a week, reduction in the number of hours of work or retraining or transfer to other department. Although the Code has no legal force, a blatant refusal to follow the code may result in the court viewing the retrenchment as unfair.

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COMPANY NOTICE PERIOD The notice applicable in such a situation is the same as that under “Company notice period” for individual termination.

PAY IN LIEU OF NOTICE PERMITTED The notice applicable in such a situation is the same as that under “Pay in lieu of notice permitted” for individual termination.

OTHER REQUIREMENTS (FOR EXAMPLE, CONSULTATION REQUIREMENTS, GOVERNMENT APPROVAL) If retrenchment, redundancy or plant closure is necessary, it is good industrial relations practice for the employer to take the following measures:

Give as early a warning as practicable to the workers concerned.

Introduce schemes for voluntary retrenchment and retirement, as well as for payment of redundancy, retrenchment and retirement benefits.

Retire workers who are beyond the normal retirement age.

Assist workers to find work.

Spread the termination over a longer period.

Ensure that no announcement is made before workers and their representatives or trade unions have been informed.

RETRENCHMENT BENEFITS Regulation 3(1)(a) of the Employment (Termination and Lay-Off Benefits) Regulations 1980, a subsidiary EA legislation, stipulates:

An employer must pay termination benefits under Regulation 6 to an employee who has been employed under a continuous contract for not less than 12 months (ending with the relevant date) if the termination is for any reason other than retirement, misconduct and voluntary abandonment of employment.

When an employee is terminated for redundancy, the employer must pay the necessary termination benefits.

Regulation 6 provides the basis of calculation for termination benefit. The benefits to which an employee is entitled cannot be less than:

10 days’ wages for every year of employment under a continuous contract of service if employed by the employer for less than two years

15 days’ wages for every year of employment under a continuous contract of service if employed by the employer for two years or more, but less than five years

20 days’ wages for every year of employment under a continuous contract of service if employed by the employer for five years or more

For an incomplete year of service, the payment of termination benefits is pro-rated to the nearest month. The employer should calculate a “day’s wages” to give the employee the average true day’s wages calculated over 12 completed months of service.

Wages, under Section 2(1) of the Act, is basic wage and all other payments in cash payable for work done according to the contract of service, but excludes:

The value of any house accommodation or supply of food, fuel, light or water, or medical attendance, or any approved amenity or service

Contributions by employers on their own account to any pension or provident fund; superannuation, retrenchment, termination, layoff or retirement scheme; thrift scheme or any other fund or scheme set up for the employee’s welfare

Travelling allowance or value of any travelling concession

Sums payable to the employee to defray special expenses resulting from the nature of employment

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Gratuity payable on discharge or retirement

Annual bonus or part of any annual bonus

In computing “a day’s wages,” the employer should take into account commissions earned by the employee and service charges, where applicable.

DESCRIPTION OF FINANCING There is no advance financing. Benefits are payable when required from company assets.

OTHER REQUIREMENTS (FOR EXAMPLE, CONSULTATION REQUIREMENTS, GOVERNMENT APPROVAL) Written particulars of termination benefits payment: Under Regulation 12 of the Employment (Termination and Lay-Off Benefits) Regulations 1980, the company should provide employees with a written statement of the payment amount and how it is calculated. Failure to comply with this requirement is an offence under the EA.

Notification to the ministry: The Company must notify the Director General of Labour at least 30 days before retrenchment of employees by submitting the statutory PK form required under the Employment Retrenchment (Notification) 2004. Failure to do so is an offence under section 99A of the EA.

Employees outside the scope of EA: For employees outside the EA’s scope, the obligation to pay retrenchment benefits only arises if there is a contractual clause to such effect, which may be reflected in the employment contract or collective agreement.

There may be an implied requirement obligating the employer to pay retrenchment, if it has been a practice of the company or industry to pay retrenchment benefits. In the absence of such practice or requirement, the company does not have a legal obligation to pay retrenchment benefits; all the company must do is to give proper notice of employment termination in accordance with the employment contract.

Other requirements under the Employment Act 1955: Section 60N of the Employment Act mandates all employers to terminate the services of its foreign workers first before retrenching its local workers in the similar category. In the event that this requirement is not complied with, the aggrieved local employee has the option of lodging a complaint at the Labour Office. The Labour Office, after investigating the matter, may issue a directive as may be necessary and expedient to resolve the matter.

2 WORKING TIME

2.1 WORKING HOURS

An employer cannot require an employee under the contract of service to work:

More than five consecutive hours without a break of at least 30 minutes

More than eight hours in a day

More than ten hours over the course of a single day

More than 48 hours in a week

For work that is continuous in nature, it can be eight consecutive hours with a paid rest period not less than 45 minutes. There are provisions for exceptions by the nature and environment of the work.

Generally, working hours are:

Monday to Friday: 08:30 to 17:30 (a five-day week)

Monday to Saturday: 09:00 to 17:00; Saturdays from 09:00 to 13:00 (a five-and-a-half-day week)

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2.2 OVERTIME

Hours in excess of normal work time constitute overtime, which is limited to a maximum 104 hours in any single month.

Employees employed on monthly rate who work in excess of normal working hours receive pay as follows:

Overtime work on a rest day: two times the employee’s hourly rate

Overtime work on public holidays: three times the employee’s hourly rate

2.3 NIGHT WORK

Employees cannot work more than 12 hours in any one day. The law prohibits female employees from working in any industrial or agricultural sites between 22:00 (night) and 05:00 (morning), unless exemption is obtained under regulation 2 of the Employment (Employment of Women) (Shift Workers) Regulations 1970. One of the conditions to obtain the exemption is to ensure that no female employee starts work without having had 11 consecutive hours free from such work.

2.4 REST PERIODS

An employee has a right to a break of at least 30 minutes after five consecutive hours of work. The general practice is usually one hour from 13:00 to 14:00, or 12:30 to 13:30.

An employee also has a right to a single day of rest per week, which is usually Sunday.

2.5 ANNUAL VACATION & LEAVE

MANDATORY VACATION ENTITLEMENT An employee under the purview of EA has a right to annual leave:

8 days for every 12 months’ continuous service with the same employer for less than two years

12 days for every 12 months’ continuous service with the same employer for two years or more, but less than five years

16 days for every 12 months’ continuous service with the same employer for five years or more

For employees not governed under the EA, it is prudent for the employer to provide annual leave entitlement not less than that provided under the EA.

SUPPLEMENTARY VACATION PROVIDED Companies do not have an obligation to supplement statutory requirements. If a company would like to supplement the statutory requirements, the employer needs to specifically state that in the contract of service.

OPTIONS FOR CARRY-FORWARD OF UNUSED VACATION DAYS The EA provides that an employee shall take such leave no later than 12 months after the end of every 12 months’ continuous service. An employee who fails to take the vacation entitlement within the one year loses entitlement to it once that one year is up, unless the failure to use the leave was at the employer’s request.

For those employees not governed under the EA, their employment contract needs to state whether they are entitled to carry forward unused vacation days.

OPTIONS FOR PAY-OUT IN CASH OF UNUSED VACATION DAYS The EA provides that an employee has a right to payment in lieu of such annual leave if, at the employer’s request, the employee agrees in writing not to use any or all the annual leave entitlement.

For those employees not governed under the EA, their employment contract needs to state whether they will be paid for unused annual leave entitlement.

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LEAVE PASSAGE Sections 13(1)(b)(ii)(A) and (B) of the Income Tax Act 1967 provides that a leave passage given to employees as a benefit is exempt from tax, as follows:

(A) Leave passages including meals and accommodation for travel in Malaysia not exceeding three times in any calendar year

(B) One leave passage for travel between Malaysia and any place outside Malaysia in any calendar year, limited to a maximum MYR 3,000

MANDATORY PUBLIC HOLIDAYS’ ENTITLEMENT Under the Employment Act, an employee is entitled to the following public holidays in a calendar year:

11 gazetted public holidays, five of which shall be-

the National Day;

the Birthday of the Malaysia King;

the Birthday of the State ruler or Head of a State;

the Workers’ day;

Malaysia Day; and

on any day declared as a public holiday under section 8 of the Holidays Act 1951.

The Gazetted Public holidays are:

Public holiday 2013 2014

New Year’s Day 1 January 1 January

Birthday of Prophet Muhammad 24 January 14 January

Federal Territory Day (only for Federal Territories) 1 February 1 February

Chinese New Year (one day in states of Kelantan and Terengganu, two days in other states) 10 February 31 January

Labour Day 1 May 1 May

Wesak Day 24 May 6 May

Malaysian King’s Birthday 1 June 7 June

Hari Raya Puasa 8 August 29 July

Public holiday 2013 2014

(end of Ramadan)

National Day 31 August 31 August

Malaysia Day 16 September 16 September

Hari Raya Haji (two days in states of Kelantan and Terengganu, one day in other states) 15 October 5 October

Deepavali 2 November 24 October

Christmas Day 25 December 25 December

Birthday of the Ruler or Yang di-Pertua Negeri Differs by state Differs by state

SUPPLEMENTARY PUBLIC HOLIDAYS PROVIDED Companies typically do not supplement statutory requirements. Companies that do may increase the employees’ annual leave entitlement for the days on which the public holidays fall on a non-working day.

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SICK LEAVE Employees have a right to paid sick leave (non-hospitalisation) in each calendar year as follows:

14 days for service of less than two years

18 days for service of two years or more, but less than five years

22 days for service of five years or more

If hospitalisation is necessary, an employee has the right to a maximum 60 paid days per calendar year (inclusive of non-hospital medical leave in the aggregate).

All sick leaves must have substantiation with medical certificates from the company’s approved registered practitioner or medical officer as stipulated by company policy.

MATERNITY LEAVE A female employee has a right to paid maternity leave of 60 consecutive days, for her first five children, if both conditions are satisfied:

She has been employed by the employer at any time in the four months immediately before confinement.

She has been employed by the employer for a period(s) in the aggregate, not less than 90 days during the nine months, immediately before confinement.

Maternity leave shall not commence earlier than 30 days immediately preceding confinement of a female employee or later than the day immediately following confinement.

PATERNITY LEAVE It is common practice to provide one-to-two paid days for paternity leave. There are no specific EA provisions for paternity leave; an employee is only entitled to paternity leave if the employment contract or collective agreement specifically provides for it.

PARENTAL LEAVE There are no specific EA provisions for parental leave; an employee is only entitled to parental leave if the employment contract or collective agreement specifically provides for it.

BEREAVEMENT LEAVE It is common to provide one-to-three paid days for the death of an immediate family member. There are no specific EA provisions for bereavement leave; an employee is only entitled to bereavement leave if the employment contract or collective agreement specifically provides for it.

MISCELLANEOUS PAID LEAVE Employers are not required to provide other paid leave, but the following are commonly provided:

Type of leave Entitlement

Marriage 3–5 days

Flood/fire 1–2 days

MISCELLANEOUS UNPAID LEAVE There are no EA provisions for the above. A company that wants to include miscellaneous unpaid leave must include it as a term in the employment contract or collective agreement.

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3 CONDITIONS OF ENTRY & RESIDENCE

3.1 CONDITIONS OF ENTRY

The government allows entry for social or limited business purposes for 14 days up to 90 days for citizens of almost all countries except Israel. Generally, visitors who are not prohibited immigrants only require a passport valid for six months beyond entry, proof of return travel tickets and sufficient funds.

Those with passports not recognised by the government must apply for a document in lieu of a passport and a visa issued by Malaysian consulates abroad. A document in lieu of a passport is rarely given; if given, it is usually restricted to a small class of people such as refugees and stateless people. Examples of a document in lieu of a passport are Certificate of Identity, Laisser Passer and Titre de Voyage. One can apply for a document in lieu of a passport at any Malaysian representative office abroad.

In general:

Nationals of certain countries do not require a visa to enter for social/limited business visits: Argentina, Albania, Australia, Algeria, Austria, Bahrain, Belgium, Bosnia and Herzegovina, Brazil, Croatia, Cuba, the Czech Republic, Denmark, Egypt, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Jordan, Kyrgyzstan, Kuwait, Lebanon, Liechtenstein, Luxembourg, Morocco, Netherlands, Norway, Oman, Peru, Poland, Qatar, Romania, Saudi Arabia, Slovakia, South Korea, Spain, St. Marino, Sweden, Switzerland, Turkmenistan, Tunisia, Turkey, United Arab Emirates, United Kingdom, Uruguay and Yemen (including North Yemen).

Nationals of certain countries require a visa to enter for social/limited business visits of more than one month: Armenia, Azerbaijan, Barbados, Benin, Bolivia, Cambodia, Cape Verde, Chad, Chile, Costa Rica, Ecuador, El Salvador, Gabon, Georgia, Guatemala, Guinea Republic, Haiti, Honduras, Hong Kong SAR, Kazakhstan, Macau SAR, Macedonia, Madagascar, Mauritania, Mexico, Moldova, Monaco, Mongolia, Nicaragua, North Korea, Panama, Paraguay, Russia, Sao Tome and Principe, Senegal, Sudan, Surinam, Tajikistan, Togo, Ukraine, Upper Volta, Vatican City, Venezuela and Zaire.

Nationals of certain countries do not require a visa for visits of not more than 14 days for social/limited business visits: Libya, Macao (Travel Permit/Portugal CI) and Sierra Leone.

Nationals of the United States do not require a visa to enter for social, limited business or academic visits (except for employment).

Commonwealth citizens (except Bangladesh, Cameroon, Ghana, India, Mozambique, Nigeria, Pakistan, Rwanda and Sri Lanka) do not need a visa to enter. But social/limited business visits longer than three months may require a visa.

A Visit Pass (Social) may be issued at the point of entry, if the person is not a prohibited immigrant and has a valid passport and visa (where applicable).

All foreigners wishing to study or work in Malaysia must generally first obtain the necessary approval of Student’s Pass application, Employment Pass application and Visit Pass (Professional) application, in addition to the visa application for entry.

In general, foreigners wishing to reside permanently must live in Malaysia for a minimum of three years under a valid Pass before applying for permanent residency. The Entry Permit is issued to foreigners who are entering to reside in Malaysia. The application of an Entry Permit is eligible only for certain categories, such as those who possess professional qualifications or who obtained a certificate from the Minister of Home Affairs, certifying that their admission is for Malaysia’s economic interest, or is a spouse or dependant of such persons. Approval of the application is at government discretion.

3.2 EMPLOYMENT OF EXPATRIATES

Foreigners wishing to work in Malaysia must apply for one of the following:

Professional Visit Pass, issued to professionals and experts, or artists performing in the entertainment business

Employment Pass, issued to any person who holds Key Post, Executive Post or Non-Executive Post

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Apart from expatriate professionals, there has been a growing trend to hire foreign semi-skilled and unskilled workers:

These workers are limited to nationals from Cambodia, India, Indonesia, Laos, Philippines, Sri Lanka, Thailand and Vietnam.

They can only work in industries such as plantations, construction, manufacturing, services [pump attendant, supermarket, cleaning and sanitation, restaurant (cooks only)], agriculture and as domestic helpers.

Any employer who wishes to hire foreign and unskilled workers must first submit an application for a Visit Pass (Temporary Employment) and Visa with Reference (VDR) to the nearest State Immigration Office.

The employer is fully responsible for all payments associated with deposits, visas and passes for obtaining relevant passes from the Immigration Department. With effect from 30.1.2013, the foreign worker shall be responsible for the payment of levy. When applying for a Temporary Visit Pass, employers must pay a personal bond of MYR 250– MYR 1,500 per year, depending on the foreign worker’s country of origin and a MYR 10–MYR 50 processing fee.

For domestic help, the employer’s monthly income must be at least MYR 3,000 to qualify for employing Cambodian, Indonesian or Thai domestic helpers, or have a minimum monthly income of MYR 5,000 to qualify for employing an Indian, Philippine or Sri Lankan domestic helper.

New applications for a Temporary Visit Pass or pass for a Foreign Maid take 3 working days to be approved; other sectors take seven days. Renewals take one-to-seven days.

A foreign worker entering with a Visit Pass (Temporary Employment) cannot bring family to live in the country; but they can enter for a social visit. Foreign workers must return to their country of origin as soon as possible after resigning, being dismissed or on expiration/cancellation of the Temporary Visit Pass. But if an extension is required, application must be made at least 3 months before the Temporary Visit Pass expires.

The government grants Employment Passes or Professional Visit Passes to foreigners with some acceptable professional and/or academic qualification and experience/expertise that is scarce in Malaysia. But the onus is on the employer or sponsor to demonstrate that every effort has been made to hire local labour. Professional Visit Passes usually have a maximum 12-month period (non-extendable); Employment Passes, a maximum 5 years (extendable).

A Student’s Pass is for any person who enters to take up studies in any approved educational institution.

An Employment Pass holder may apply for a Dependant’s Pass for spouse and children (under age 21) to accompany them during the tenure. They can apply for this pass when applying for the Employment Pass or after its issuance. It generally takes three-to-five days to process a new Employment Pass application, including renewals.

A manufacturing company with a foreign paid-up capital of:

USD 2 million and above, is automatically allowed up to 10 expatriate posts, including five key posts (additional expatriate posts are given, if necessary, on request).

Less than USD 2 million is considered for expatriate posts on the following basis: Key posts can be considered if the capital is at least MYR 500,000, which is a guideline only; the number of key posts depends on the merits of each case.

4 CONTRACT OF EMPLOYMENT

4.1 GENERAL CHARACTERISTICS

Although EA covers only employees within its umbrella of protection (those earning MYR 2,000 per month or less or engaged in manual labour), it is also a reference for employment contracts of all other employees.

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An employment contract need not be in writing to be binding. But if special terms are agreed to (for example, a trial period), it is advisable to document the agreement in writing. It is usual practice to provide all employees with employment letters outlining the employment terms.

The EA provides special protection for female employees:

No female employee may work in any industrial or agricultural facility between 22:00 and 05:00, or start work for the day, without having 11 consecutive hours free from such work.

No female employee may work between 22:00 and 01:00 in public service vehicles, or start work for the day, without having 11 consecutive hours free from such work.

Women have a right to 60 days’ maternity leave for each confinement, limited to a maximum of five surviving children.

The employer cannot dismiss a female employee who remains absent after the end of maternity leave due to illness arising from pregnancy, up to 90 days after the end of maternity leave.

Women cannot work underground.

Applications for exceptions to the first and second situations must go in writing to the Director General or Minister of Human Resources.

EMPLOYMENT OF YOUNG PERSONS AND MINORS IN WEST MALAYSIA Young Person

A young person, under the Children and Young Persons (Employment) Act 1966 (Revised 1998), is a person who has completed the 15th year but not the 18th year.

The law generally prohibits employment of young persons, except in certain industries specified in Section 2(3) of the Children and Young Persons (Employment) Act 1966 (Revised 1998). The Act generally prohibits any minor or young person from being employed in any hazardous work or employment other than those specified in the Act.

The Act provides that a young person may be engaged in employment:

Involving light work suitable to their capacity (whether or not the undertaking is carried out by the family)

In any public entertainment, in accordance with the terms and conditions of a licence granted in that behalf under the Act

Requiring them to perform work approved or sponsored by the federal or state government and carried on in any school, training institution or training vessel

As an apprentice under a written apprenticeship contract approved by the Director General with whom a copy is filed

As a domestic servant

In any office, shop (including hotels, bars, restaurants, stalls), go-down, factory, workshop, store, boarding house, theatre, cinema, club or association

In an industrial undertaking suitable to their capacity

On any vessel under the personal charge of a parent or guardian

The Act does not allow any female young person to be employed in hotels, bars, restaurants, boarding houses or clubs unless such establishments are managed or controlled by her parent or guardian. The female young person cannot work in these establishments without the approval of the Director General.

Child (Minor)

A child in West Malaysia is a person who has not completed the 15th year. The Children and Young Persons (Employment) Act 1966 provides that a child in West Malaysia may work in employment:

Involving light work suitable to the capacity carried out by the family

In any public entertainment in accordance with the terms of a licence granted under the Children and Young Persons (Employment) Act 1966

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Work approved or sponsored by the federal or state government and carried out in any school, training institution or training vessel

As an apprentice under an apprenticeship contract approved by the Director General

4.2 CONTENTS

An employment contract typically contains:

Employee name and identification number

Employer name

Employee position title and salary, bonus and allowance

Starting date of employment and working hours

Trial or probation period

List of benefits and eligibility criteria

Trade or secrecy agreement

Notice of termination and resignation or wages in lieu

Employee acknowledgement and acceptance

Entitlement to holidays and annual leave with pay

Transfer and secondment clause

Retirement age

The company’s personnel policies are part of the employment contract. The employer usually briefs the employee on these policies upon hire or at orientation.

4.3 TYPES OF CONTRACTS

PART-TIMERS The statutory protection under the EA extends to part-time employees. Part-time employees are persons included in the EA’s first schedule, whose average hours of work do not exceed 70% of the normal hours of work of a full-time employee engaged in a similar capacity in the same enterprise. The Employment (Part-Time Employees) Regulations 2010 provide that a part-time employee has a right to overtime pay, paid holidays, paid annual leave, paid maternity leave and a rest day.

WHITE-COLLAR WORKERS There are no specific provisions relating to white-collar workers.

BLUE-COLLAR WORKERS There are no specific provisions relating to blue-collar workers. Most blue-collar workers come within the purview of the EA.

4.4 DURATION

An employment contract can be for a definite or indefinite period. If it is for a specified period, it is deemed to be terminated when such contract expires under the EA or contract.

FIXED-TERM CONTRACTS Fixed-term contracts may be for performance of a specific job. An employee on a fixed-term contract may receive different employee benefits from those on indefinite contracts. Wages should be payable no later than the day on which the contract of service terminates.

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4.5 TRIAL PERIOD

The employment contract may specify a probation period. It is typically three-to-six months for non-executives and six-to-12 months for executives, and may be extended if necessary.

4.6 INVALID CONTRACTS

Individual employment contracts are subject to relevant laws. When a term in the employment contract violates any written law or is against any public policy, the term is void and unenforceable.

4.7 OBLIGATIONS OF THE PARTIES

EMPLOYER OBLIGATIONS The employer has an obligation to:

Pay the employee in full and on time.

Supervise the employee’s work in accordance with the employment contract terms.

Comply with the implied term of mutual trust and confidence, which requires the employer to not act in any manner to harm the employment relationship.

EMPLOYEE OBLIGATIONS The employee has an obligation to:

Perform, personally, the work for the employer in a diligent and faithful manner.

Comply with the implied term of mutual trust and confidence, which requires the employee to not act in any manner to harm the employment relationship.

MINIMUM WAGES Malaysia has just implemented national minimum wage legislation. Under the Minimum Wages Order 2012, the minimum wages rates payable to employees are:

Monthly Rate Hourly rate

Peninsular Malaysia RM900 RM4.33

Sabah, Sarawak & Labuan RM800 RM3.85

There are two significant dates on the implementation of the minimum wages. With effect from 1 January 2012, the Minimum Wages Order came into force to apply to (i) an employer who employs more than five employees; and (ii) regardless of the number of employees employed, an employer who carries out a professional activity classified under the Malaysia Standard Classification of Occupations (MASCO) as published officially by the Ministry of Human Resources. With effect from 1 July 2013, the Order will apply to an employer who employs five employees or less.

5 OCCUPATIONAL HEALTH & SAFETY

5.1 MEASURES OF OCCUPATIONAL HEALTH AND SAFETY

Employers with more than 40 employees must establish workplace safety and health committees. Companies with fewer than 40 employees may also have a requirement to do so if directed by the Director General.

The committee must ensure the safety and health of all individuals at the workplace, and is also responsible for investigating any matter pertaining to industrial accidents or breaches of safety and health regulations.

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WOMEN There are provisions prohibiting employment of a female employee in any underground work, and in any industrial or agricultural undertaking between 22:00 and 05:00. The Director General may exempt, in writing, any female employee or class of female employees from this restriction, subject to conditions the director may impose.

5.2 RULES AND IMPLEMENTATION

The Occupational Safety and Health Act:

Provides policies and guidelines for the general duties of employers, employees, the National Council for Occupational Safety and Health, and the Safety and Health Organisation.

Secures the safety, health and welfare of persons at work, and protects others against risks to safety or health in connection with the activities of persons at work.

Provides guidelines for employer and employee conduct.

Outlines safety and health practices, including investigation procedures, notification of accidents and occupational diseases, and use of dangerous machinery and substances.

Under the Act, it is the duty of every employer and self-employed person to ensure employees’ health and welfare at work. Employees must take all reasonable precautions for ensuring safe practices at work, and must comply with any employer instructions regarding occupational safety and health.

NATIONAL RETIREMENT AGE Malaysia has recently passed a national retirement age legislation to impose a national retirement age on private sector employees. Under the Minimum Retirement Age Act 2012, which comes into force on 1 July 2013, the retirement age for all private sector employees shall be 60 years of age. The statutory retirement age will supersede all existing contractual retirement age which is less than 60 years.

However, the statutory retirement age of 60 years will not apply to the following categories:-

governmental sector employees;

probationers;

apprentices;

non Malaysian citizen employees;

domestic servants;

part time employees;

students who are employed under temporary employment contracts;

an employee engaged on a fixed term employment contract, inclusive of any extension, of not more than 24 months;

a retiree who retired before the coming into force of the statutory retirement age and is re-employed after retirement.

NATIONAL COUNCIL FOR OCCUPATIONAL HEALTH AND SAFETY The National Council for Occupational Safety and Health consists of 12–15 members appointed by the Minister of Human Resources. The council is responsible for many aspects of safety and health in the workplace, including monitoring and implementing changes in safety and health regulations.

6 INDUSTRIAL RELATIONS Two main acts govern industrial relations:

Industrial Relations Act, 1967 (IRA)

Industrial Relations Regulations, 2009

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The Trade Unions Act 1959 and the Employment Act 1955 are also applicable. The IRA regulates relations between employers, workers and trade unions, and the prevention and settlement of differences or disputes.

6.1 SOCIAL PARTNERS

EMPLOYER ORGANISATIONS The Malaysian Employers Federation (MEF) is the central representative organisation for employers. Its objectives are to:

Be part of the joint consultative council with the Ministry of Human Resources and the Workmen’s Union to influence policies on industrial and employment matters.

Advise and represent its members in disputes.

Provide advisory and development services to its members.

TRADE UNIONS The Malaysian Trade Union Congress represents the general interests of all employee trade unions. Its affiliates comprise the national industry unions such as:

Congress of Unions of Employees in the Public And Civil Services (CUEPACS)

Electrical Industry Workers’ Union (EIWU)

National Union of Bank Employees (NUBE)

National Union of Commercial Workers (NUCW)

National Union of Plantation Workers (NUPW)

National Union of Teaching Professionals (NUTP)

Transport Workers’ Union (TWU)

The role of the unions has largely focused on:

Being part of the joint consultative team with the Ministry of Human Resources and the MEF, to influence policies on industrial and employment matters

Advising and representing its members in disputes and collective bargaining

WORKS COUNCILS There are no binding guidelines for in-house works council or in-house unions; in-house unions may be formed to forward their members’ views collectively.

6.2 COLLECTIVE AGREEMENTS

Under the Industrial Relations Act of 1967, only a collective agreement in writing, duly signed by the appropriate authorised personnel, duly deposited in court and recognised by the Industrial Court under the IRA, is enforceable. A collective agreement generally has three-year duration, but will continue until superseded by a new collective agreement.

BARGAINING PROCEDURES If a trade union has been recognised by an employer, the union may invite the employer to start collective bargaining. The employer must respond to the invitation within 14 days. If the employer agrees to start collective bargaining, both parties must start bargaining within 30 days from receipt of the reply accepting the invitation.

If the employer fails to respond to the invitation or start collective bargaining within the 30 days, the party making the invitation may notify the Director General, in writing, to request further action. The Director General then takes the necessary steps with a view to have the parties start collective bargaining without delay. If such steps fail, a trade dispute exists, and the parties may ask the minister to refer the matter to the industrial court for adjudication.

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INDUSTRIAL COURT For arbitrating over industrial disputes, the industrial court consists of:

A president appointed by the king

A panel of employers and workers appointed by the minister

Any awards met by the industrial court, which are disputed, may be referred to the high court on a question of law under IRA Section 33A. The alternative is for the aggrieved party to challenge the award by way of judicial review proceedings in the high court.

6.3 INDUSTRIAL ACTION

STRIKES & PICKETS Strike and pickets are industrial actions recognised by the IRA. But before such actions can be taken, the trade union must comply with procedural and substantive requirements as prescribed under the Industrial Relations Act 1967 and the Trade Unions Act 1959. Failure to comply renders the strike and pickets illegal.

LOCKOUTS A lockout is the shutting down of the workplace during a dispute, by the employer, usually in retaliation to a strike. The IRA regulates lockouts. Failure to comply with mandatory requirements renders the lockout illegal.

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DATA MINING & INsIGhTs

Global Compensation Planning Report

Selected Function Salaries around the World

Mercer provides a wide range of publications to help you develop and implement human resource strategies on a local, regional, and global basis.

COMPENSATION

Compensation Handbook Global Pay SummaryInternational Geographic Salary Differentials

Pay Differentials within BRIC Structures of Salaries around the World

Short-Term Incentives around the World

Total Employment Costs around the World

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© 2013 Mercer LLC.

DATA MINING & INsIGhTs, coNTINueD

For further information, please visit:

www.imercer.com/global

BENEFITS

Global Car Policies Severance Pay around the World

Worldwide Benefit & Employment Guidelines

Benefits Survey for Expat-riates and Internationally Mobile Employees

Global Mobility Metrics: Focus on Retaining Key Talent

Global Mobility Handbook Global Mobility Benchmarking Guide

Worldwide Survey of International Assignment Policies and Practices

GlOBAl MOBIlITy

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© 2013 Mercer LLC.

Global HR Factbook HR Atlas Asia Pacific HR Management Terms

DATA MINING & INsIGhTs, coNTINueD

For further information, please visit:

www.imercer.com/global

HR POlICIES AND PRACTICES

M&A HR Issues around the World

Survey on Corporate Social Responsibility and Sustain-ability Policies and Practices

Survey Report of Workforce Readiness: When Disaster Strikes

Workforce Composition Metrics – Regional Report

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For further information, please contact your local Mercer office or visit our website at:www.mercer.com

Argentina

Australia

Austria

Belgium

Brazil

Canada

Chile

China

Colombia

Czech Republic

Denmark

Finland

France

Germany

Hong Kong

India

Indonesia

Ireland

Italy

Japan

Malaysia

Mexico

Netherlands

New Zealand

Norway

Peru

Philippines

Poland

Copyright 2013 Mercer LLC. All rights reserved. 13-WBEGAS-PU

Portugal

Saudi Arabia

Singapore

South Korea

Spain

Sweden

Switzerland

Taiwan

Thailand

Turkey

United Arab Emirates

United Kingdom

United States

Venezuela

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