Understanding annual leave entitlement in Malaysia

Written by: Izz Murtada

If you’ve ever wondered exactly how many days of annual leave you’re supposed to get, or what happens to those days if you leave your job without using them all, you’re not alone. It’s one of those topics that everyone assumes they understand, until they actually try to explain it.

So let’s clear things up. Here’s what the Employment Act 1955 (Act 265) actually says about annual leave in Malaysia, explained in plain language that anyone can follow.

1. What Is Annual Leave?

Annual leave is paid time off that you earn for every year you work with the same employer. It exists to make sure you can rest, handle personal matters, or just take a proper break, and you still get paid your normal wages while you’re away. One thing worth knowing is, annual leave is completely separate from your rest days and public holidays like Hari Raya or Chinese New Year. It’s an entitlement on its own, on top of the days off you already get every week and every year. 

2. How Many Days of Annual Leave Are Employees Entitled To?

How many days you get depends on how long you’ve been with the same employer. Section 60E of the Employment Act breaks it down into three simple tiers.

Length of Service	Annual Leave Entitlement
Less than 2 years	8 days for every 12 months
2 years to 5 years	12 days for every 12 months
5 years or more	16 days for every 12 months

In other words, the longer you stay with a company, the more leave you build up each year. Someone who just started their job gets 8 days, but someone who’s been with the company for six years already enjoys double that.

One thing to note: certain groups, such as domestic employees, are not covered by this particular entitlement under the Act, along with a few protections in the law.

3. How Is Annual Leave Calculated?

Not everyone starts or leaves a job exactly on their anniversary date, and some leave before completing a full 12 months. So, the law also spells out how leave should be worked out for a partial year. 

If your service is less than a year, your annual leave is calculated in direct proportion to the number of completed months you worked, not just given in full or withheld entirely.

Rounding works like this:

• If the result comes to less than half a day, it gets rounded down. For example, if your proportional calculation came out as 6.3 days, you’d end up with 6 days.
• If it’s half a day or more, it gets rounded up to a full day. For example, if the proportional calculation came out as 6.6 days, you’d get 7 days.

A word of caution: if you’re absent from work without your employer’s permission and without a reasonable excuse for more than 10% of the working days in that 12 month period, you could lose your annual leave entitlement for that year altogether.

A bit of good news too: if you happen to fall sick, or need to go on maternity leave, while you’re already on annual leave, those particular days won’t be counted as annual leave. They get reclassified as sick leave or maternity leave instead, and your annual leave is treated as though it was never used for those days.

4. What Happens to Unused Annual Leave?

This is usually where people get confused, so here’s the short answer.

• You need to use it within 12 months. Employers are required to let you take your leave, and you’re expected to take it, within 12 months after the year it was earned. Leave that isn’t used within that window is usually forfeited.
• You can’t just demand cash instead. Some people think they can skip their leave and ask for money instead. The truth is, this only happens if your employer specifically requests it and you agree in writing. It’s a two way agreement, not one sided demand.
• Leaving the company changes things. If your employment ends before you’ve used up your annual leave, your employer has to pay you your ordinary rate of pay for every day left unused, whether you resigned or the company ended your contract. The main exception is if you were dismissed for misconduct.
• You can use it before your last day. If you’re leaving the company, you’re allowed to actually take your remaining leave before your final day, rather than only getting paid for it afterward. 

So to put it simply, annual leave either gets used as time off or gets paid out. By law, it shouldn’t just disappear.

5. Common Questions About Annual Leave

• Is annual leave the same as sick leave or public holiday?

Answer: No, there are three separate things under the Employment Act. One doesn’t replace or cancel out the other.

• Can my employer refuse to let me take annual leave? 

Answer: Not really, employers are required to grant employees the annual leave they’ve earned within the timeframe set by the law. Refusing to do so is actually an offence under Section 100(4).

• What if I only worked a few months before resigning? 

Answer: You’d still be entitled to annual leave, just calculated proportionately based on how many months you actually completed.

• Can unused annual leave be carried over the next year? 

Answer: Generally, no. It needs to be used within 12 months of being earned, unless both you and your employer have agreed to cash payout instead.

• Does every company give the same amount of annual leave?

Answer: The employment Act sets the minimum standard that employers must follow. Plenty of companies choose to offer more generous leave as part of their benefits package, but none can legally offer less than what’s required for employees covered under the Act. 

 

Annual leave is just one small part of staying compliant with the Employment Act, and there’s a lot more that goes into getting HR and payroll right. If you’re an HR person trying to make sense of leave policies, or a business owner who just wants to be sure things are being done properly, that’s exactly the kind of thing Kita Strategies helps with every day. Feel free to reach out to our team if you ever want a second opinion on your HR practices.