Annual Leave in Malaysia: What Employees Are Entitled to

Every employee looks forward to their next holiday, be it their long awaited trip to Japan or cuti-cuti Malaysia at Langkawi.

But for HR teams, annual leave isn’t just about beach plans and long weekends. It’s a legal entitlement that requires careful tracking, clear policies, and payroll compliance.

In Malaysia, annual leave is covered under the Employment Act 1955, yet many still get caught up in the details:

• Who exactly qualifies?
• How many days are legally required?
• Can unused leave be carried forward, or forfeited?
• And what happens to unused leave when someone resigns or is let go?

HR managers need clear policies and employees want to know their rights. This guide explains annual leave rules, entitlements, and best practices both sides should understand.

 What Is Annual Leave in Malaysia?

Annual leave in Malaysia is a paid time-off entitlement under Section 60E of the Employment Act 1955. Employees receive 8 to 16 days per year, depending on years of continuous service with the same employer.

Annual leave exists to ensure employees get the rest they need without financial penalty. It’s not a bonus, it’s a legal right.

Legal Foundation: Employment Act 1955

• Section 60E of the Employment Act 1955 governs annual leave entitlements for employees under a contract of service.
• As of the 2022 amendment (effective 1 Jan 2023), protections now apply to all employees regardless of salary, with a few exceptions.

Statutory Leave vs Extra Company Leave

• The law sets the baseline (8, 12, or 16 days), but many Malaysian employers go beyond that, especially MNCs or companies in tech, finance, and consulting.
• Some companies now offer 20–25 days annually to stay competitive or attract Gen Z talent.

Why Leave Tracking and Policy Clarity Matter

It’s not for the sake of getting that extra holiday, without a clear leave policy:

• HR may undercalculate entitlements for part-timers or probationers
• Employers may face LHDN audits or labour disputes for poor documentation
• Employees may feel guilty or unsure about taking leave

A well-drafted leave policy not only ensures compliance but it also shows your company cares about people, not in the superficial sense. 

Who Qualifies for Annual Leave in Malaysia?

Under Malaysian law, annual leave applies to employees under a contract of service, whether full-time, part-time, or on probation. But how much you get, and when you qualify, really depends on your employment terms and duration of service.

Full-Time Employees

If you’re working full-time under a valid employment contract, you’re entitled to statutory annual leave once you’ve completed 12 months of continuous service.

In other words, the longer you stay, the more days you’re entitled to.

Part-Time Employees

Part-time workers also qualify, but the leave is prorated based on hours worked compared to a full-time schedule.

Example: Jane works 20 hours a week at a café in Subang. If full-time is 40 hours/week, she’s entitled to half the statutory leave.

Probationers & Contract Staff

Even if you’re still on probation, you’re not excluded. Many companies in Malaysia allow leave accrual during probation, but it’s best to check your company handbook.

Contract staff under “contract for service” (freelancers, vendors) usually aren’t covered by the Employment Act, but can be granted leave at the company’s discretion.

Minimum Leave Entitlement by Years of Service

Leave starts accruing after 12 months of service, but some employers offer advance or monthly-accrued leave as part of their benefits. Always check what you are entitled to with your HR!

How Is Annual Leave Calculated in Malaysia?

Annual leave isn’t handed out all at once, it’s earned over time, based on your employment type and hours worked. Here’s how it’s typically calculated in practice.

Full-Time Employees

If you’re a full-time staff member under a contract of service:

• You earn your full annual leave entitlement based on your completed years of service.
• Most companies accrue leave monthly to ensure smoother payroll tracking.

Example: If your entitlement is 16 days/year, you earn roughly 1.33 days per month.

Part-Time Employees

Part-timers are entitled to annual leave on a pro-rated basis using this formula:

(Part-time hours ÷ Full-time hours) × Standard leave entitlement

Example:

• Jane works 20 hours/week
• A full-time employee works 40 hours/week
• Standard entitlement = 16 days/year

Calculation: (20 ÷ 40) × 16 = 8 days of paid annual leave per year

Accrual & Usage Rules

• Monthly or quarterly accrual is common in HR systems.
• Leave can be used once accrued unless otherwise stated in the contract.
• Unused leave may be carried forward or forfeited, depending on the company’s policy 

What Happens to Unused Leave? (Carry Forward vs Forfeiture)

Not every employee clears their leave by year-end, so what happens to those leftover days? In Malaysia, employers may either allow carry forward or enforce forfeiture of unused annual leave.

Both are legal, as long as they’re clearly stated in your employment contract or HR policy.

Carry Forward: Bringing Leave into the Next Year

Many Malaysian companies allow employees to carry over unused leave, but with conditions like:

Example: If an employee has 5 days left in 2024, they may carry it into 2025, but must use it by June, or it expires.

Forfeiture: “Use It or Lose It” Policy

Some companies enforce a no-carry-forward rule, especially in fast-paced or contract-heavy environments.

Here are some considerations:

• Must be clearly outlined in the employment contract or employee handbook
• Cannot be applied retroactively without fair notice
• Employees should be reminded in advance to use their leave

Note: The Employment Act 1955 permits forfeiture, but only if the policy is transparent and fairly communicated.

Carry Forward vs Forfeit: Summary Table

“Whichever policy you choose, make sure it’s documented clearly in your employee handbook and payroll software. Disputes over expired leave are among the most common complaints.” – HR consultant from Accounting.my

Can Employers Reject or Schedule Your Leave?

Yes, Malaysian employers have the legal right to determine when annual leave can be taken. This may come as a surprise to many employees, but it’s clearly stated in the Employment Act 1955.

Section 60E(1) of the Act provides that “the employee shall be entitled to paid annual leave at his ordinary rate of pay, and such leave shall be granted at a time convenient to the employer.”

Employers can legally:

• Postpone leave during peak business periods or seasonal demand
• Require employees to take leave during company-wide shutdowns
• Enforce blackout dates (year-end inventory, festive retail rush)
• Reject leave requests not submitted with proper notice (less than 7 days)

Best Practice: Balance Business Needs with Fairness

Now, just because an employer can deny leave doesn’t mean they should do so without good reason. To avoid conflict and ensure fairness (and disgruntled employees), employers should:

• Communicate blackout periods in writing
• Have a clear leave approval workflow (first-come, first-served)
• Provide written reasons if leave is denied

Remember, transparent leave policies prevent favouritism and boost greater retention. Who doesn’t want to work in a company that is generous with their leaves right?

Okay, but what If I Already Booked Flights?

For employees who locked in that AirAsia promo and maybe even snagged a hotel deal. What do you do if HR says your leave can’t be approved?

Here’s what you need to know:

Legally, Section 60E(1) of the Employment Act gives employers the right to schedule leave dates, even if you’ve already made travel plans. That promo flight? Not the law’s concern.

But don’t panic yet, most reasonable Malaysian employers will try to accommodate you, especially if:

• You applied for leave well in advance
• Your absence won’t mess up year-end closing or major projects
• You’ve discussed coverage or delegation with your team

Always get written leave approval before you confirm that booking on booking.com. 

Annual Leave vs Public Holidays vs Sick Leave

Not all paid days off are treated the same under Malaysian labour law. Annual leave, public holidays, and sick leave each have their own rules, and they are not interchangeable.

Here’s how they differ so you can manage entitlements correctly and avoid payroll or HR policy errors.

Make sure your HRIS system or payroll provider correctly distinguishes between all leave types. Misclassifying public holidays or MCs as annual leave could result in legal disputes or payroll problems.

What Happens to Leave Upon Resignation or Dismissal?

In Malaysia, if you leave your job, whether through resignation, dismissal, or retrenchment, you’re still entitled to get paid for any unused annual leave. This isn’t a goodwill gesture from HR, it’s a statutory right under Section 60E(2A) of the Employment Act 1955.

How to Calculate Your Final Leave Payout

Unused Leave Days × Daily Wage = Final Leave Compensation

Let’s break it down with an example with Faris, a social media executive:

• Basic salary: RM3,000/month
• Unused leave: 10 days
• Daily wage: RM3,000 ÷ 26 = RM115.38

Payout = 10 × RM115.38 = RM1,153.80 (To be paid out in his final payslip)

Why 26? The Employment Act uses 26 working days to calculate the daily rate (excluding rest days and public holidays).

When Must Employers Pay?

According to best practices and fair employment standards:

• The final payslip must include compensation for unused leave
• Payment should be made within 7 working days of the employee’s last day
• Delays may trigger Labour Office complaints or legal consequences

For HR: Always keep accurate leave records. Last-minute disputes over 3 leftover days? Not worth the headache.

Resigning Mid-Year

Annual leave entitlements are pro-rated based on the number of completed months worked in the current year.

Example:

• Entitled leave: 12 days/year
• Resigned after 6 months

Pro-rated entitlement = 6 ÷ 12 × 12 = 6 days

If the employee already took more than this, it may be deducted or tax from their final salary.

Common Annual Leave Mistakes HR Still Makes

Even well-meaning HR teams can overlook the finer details of annual leave policies, mainly due to how complex they are. These mistakes are more common than you think, and they often lead to payroll disputes, employee dissatisfaction, or compliance issues.

Not Stating Forfeiture or Carry-Forward Rules Clearly

• If your policy doesn’t explain what happens to unused leave, employees will assume it carries forward, or expect a payout.
  
• Under Malaysian law, forfeiture is only enforceable if clearly stated in the contract or HR policy.

Solution: Include a carry-forward cap and deadline clause in your Employee handbook.

Misclassifying Part-Timers or Contract Staff

• Many SMEs incorrectly assume part-timers aren’t entitled to leave. In truth, they are, on a pro-rated basis.
• Misclassifying contractors can also backfire if the individual legally qualifies as an employee.

Solution: Apply the correct leave formula based on hours worked.

Not Tracking Accruals Properly

• Manually updating leave balances with Excel spreadsheets? That’s a disaster waiting to happen.
• Without proper leave tracking, employees may use more leave than earned, or worse, be under-credited.

 Solution: Use payroll-integrated HR software or a structured leave calendar.

Failing to Pay Out Unused Leave on Exit

• Final payslips that exclude accrued leave will raise red flags, internally and legally.
• Employees have the right to claim cash in lieu of leave upon resignation or dismissal.

Solution: Include leave balances in your offboarding checklist.

Treating Sick Leave or Public Holidays as Annual Leave

This is one of the most commonly reported HR issues at labour offices.

• If an employee falls sick during annual leave and presents a medical certificate, the leave must be converted to sick leave.
• Similarly, public holidays (such as Raya or National holidays) cannot be deducted from annual leave.

Solution: Cross-check every leave application with the public holiday calendar and MC submissions.

Conclusion: Annual Leave in Malaysia Needs Clear Rules 

At Accounting.my, we believe annual leave shouldn’t be a source of confusion or conflict. It’s a statutory right under the Employment Act 1955, and when managed properly, it strengthens both HR compliance and employee trust. Everyone deserves a holiday and off time right?

We help HR teams set leave policies that work and make sure every employee understands what they’re entitled to, how it’s tracked, and what happens if things change.

Need help? Our accounting software helps with payroll, leave tracking, and inventory management all in one place. No more Excel headaches or messy manual records. Hooray.