Employee Benefits in Malaysia: A Complete Guide for HR

In today’s competitive business landscape, offering comprehensive employee benefits has evolved from a mere perk to a strategic necessity. Crafting the right benefits package is not just about legal compliance—it’s about aligning these benefits with your organisational objectives to drive performance, retention, and employee satisfaction.

This guide delves into not only the legal framework of employee benefits in Malaysia under the Employment Act 1955, but also the strategic implementation of these benefits. We'll explore how companies can use innovative tools like Earned Wage Access (EWA) programs to enhance employee well-being and boost business outcomes.

Understanding Employee Benefits under The Employment Act 1955

The Employment Act 1955 remains the cornerstone of employment law in Malaysia, establishing minimum employment standards for workers, including those earning up to RM2,000 per month, manual labourers, and employees in industries like transportation and construction. The Act covers essential areas such as minimum wage, leave entitlements, working hours, and overtime.

For HR leaders, compliance with the Act is crucial, but the real challenge lies in going beyond these legal obligations to offer a benefits package that is both compliant and competitive in attracting top talent.

Who is Entitled to Benefits in Malaysia?

Most employees in Malaysia are entitled to the benefits mandated by the Employment Act. However, certain categories, such as contract and part-time workers, may not enjoy the same level of coverage. Despite this, many forward-thinking companies go beyond the basic requirements and provide benefits that cater to various employee types, thereby enhancing their attractiveness in the job market.

Thus, offering flexible benefit packages tailored to different categories of employees—such as part-time workers—can bring companies as progressive employers. This can significantly boost retention, especially in industries with a mix of full-time, part-time, and contract workers.

Measuring the Impact of Employee Benefits on Business Outcomes

For HR managers, designing an employee benefits package goes beyond providing perks—it’s about measurable results. Here are key performance indicators (KPIs) to assess the impact of employee benefits:

1. Employee Retention and Turnover Rates

Comprehensive employee benefits packages have a direct impact on reducing turnover rates. When employees feel supported through benefits such as health insurance, flexible working arrangements, and financial wellness programs (like Earned Wage Access), they are less likely to leave the company. According to research by PayWatch, F&B companies using Earned Wage Access programs reported up to 89% of workers willing to work longer for an employer offering Earned Wage Access​.

Accordingly, by offering competitive benefits you can significantly reduce the costs associated with hiring and training new employees. Benefits that address financial stress and work-life balance, such as wellness programs and flexible working hours, are particularly effective in retaining top talent​.

2. Absenteeism Rates

Employee benefits like health care coverage, financial wellness programs, and Earned Wage Access (EWA) can lower absenteeism by addressing the underlying causes of absenteeism, such as financial stress or health issues. For example, according to a study by the Financial Health Network, stated that employees with access to On-Demand Pay are 28% less likely to leave their jobs and report 11% lower levels of financial stress, directly contributing to reduced absenteeism.

Here you can track absenteeism rates as a clear indicator of benefit effectiveness. Health-related benefits, such as medical insurance or mental health programs, reduce the number of sick days, while financial wellness programs can alleviate stress-related absenteeism​.

3. Employee Satisfaction and Engagement

It is clearly stated that employee benefits directly impact job satisfaction and engagement. Flexible work arrangements (FWAs) and wellness programs create a supportive work environment that fosters engagement. 

A study from Mercer Malaysia found that offering FWAs led to significant improvements in employee mental well-being and engagement, translating into higher productivity levels​. Furthermore, TalentCorp research indicated that companies offering flexible working arrangements saw increased employee well-being and a stronger connection to their organisation​.

You can run regular employee satisfaction surveys to assess how well the benefits package is meeting employee needs. An increase in engagement typically leads to better job performance and lower turnover​.

Top Employee Benefits in Malaysia

1. Pension Plans and Retirement Contributions

One of the core benefits offered in Malaysia is the Employees Provident Fund (EPF), a mandatory retirement savings scheme where both employers and employees contribute. Employers must contribute at least 13% of an employee's salary to the EPF for employees earning RM5,000 or below, and 12% for those earning more.

If you are a savvy HR leader, you can use retirement contributions as a retention tool, particularly for senior-level employees. Some companies offer additional contributions or matching programs above the legal requirement, incentivising long-term commitment to the organisation. For instance, companies in high-turnover industries like IT or finance might provide higher contributions after five years of service to retain skilled employees.

2. Minimum Wage

The minimum wage in Malaysia is set at RM1,500 per month as of 2022, with certain regional variations. This regulation ensures a basic standard of living for employees and prevents underpayment, which is particularly important for industries with lower wages, such as manufacturing and hospitality.

While the minimum wage sets a basic standard, you can go beyond compliance by benchmarking wages against industry standards and offering performance-based incentives. This can differentiate your company in competitive labour markets. For example, offering an Earned Wage Access (EWA) solution can provide your employees with financial flexibility, reducing financial stress and improving engagement.

3. Paid Leave

Paid leave is an essential component of employee benefits. Employees are entitled to different types of leave based on their tenure with the company.

Beyond statutory requirements, companies that offer additional leave days or flexible leave options, such as unpaid sabbaticals or extended parental leave, can significantly enhance employee satisfaction and retention. For instance, implementing flexible leave policies has been shown to improve work-life balance and employee loyalty, especially among younger workers prioritising work-life integration.

4. Public Holidays and Insurance

Malaysian employees are entitled to a minimum of 11 paid public holidays annually. In addition, many companies offer supplementary benefits like group medical and life insurance, covering healthcare costs and providing financial security. 

Offering comprehensive medical and life insurance plans can drastically reduce absenteeism due to health issues and increase loyalty among employees. In competitive industries, companies that provide extensive health benefits are more likely to retain top talent.

Other Supplementary Benefits

Aside from mandatory benefits, many employers in Malaysia offer a range of supplementary perks to attract and retain top talent. These benefits go beyond legal requirements and demonstrate a company's commitment to employee well-being. Popular supplementary benefits include wellness programs, gym memberships, mental health support, and flexible working arrangements. Offering such benefits helps companies foster a positive workplace culture, boost productivity, and enhance employee loyalty.

Additionally, employee development programs, such as training and professional growth opportunities, are becoming increasingly valuable. Companies that invest in the upskilling of their workforce often see higher levels of job satisfaction and employee retention. Thus, providing a well-rounded benefits package not only keeps employees motivated but also reduces turnover and creates a more engaged and productive workforce.

Staying Competitive with a Strong Employee Benefits Package

While it is essential to comply with Malaysia’s employment laws, as HR leaders you need to go beyond compliance to remain competitive. Offering innovative benefits, such as wellness programs, mental health support, and EWA, can set a company apart in today’s talent market.

As global trends shift towards greater employee empowerment and wellness, Malaysian companies should consider benchmarking their offerings against international standards to remain attractive to top-tier talent. In the post-pandemic world, benefits like remote work, mental health days, and financial wellness programs are becoming increasingly important.

To sum up, understanding and providing employee benefits in Malaysia is essential for maintaining compliance with the law and enhancing employee morale. Comprehensive benefits not only fulfil legal obligations but also boost employee retention and attraction.

Offer Employee Benefits through Earned Wage Access (EWA) Program with Paywatch

To take employee benefits to the next level, you can consider incorporating an Earned Wage Access (EWA) program. This can improve your employee well-being and productivity by reducing financial stress. Offering EWA alongside traditional benefits packages gives companies a competitive edge in attracting and retaining talent, particularly in a challenging economic environment.

As the leading Earned Wage Access service provider, Paywatch delivers reliable and secure EWA software that seamlessly integrates with your payroll system. Our solution ensures full compliance while providing your employees with financial flexibility, boosting their overall well-being and engagement.

Ready to enhance your employees' work-life balance? Contact us today to learn more about how Paywatch can help.