Carry out a retrenchment in Malaysia, the right way.
Answer a few questions and the toolkit builds your evidence pack — a genuine surplus, fair last-in-first-out selection, 4–8 weeks’ notice and the Regulation 6 termination benefit. Malaysia calls it retrenchment.
Malaysia — the Employment Act 1955 and the Termination & Lay-Off Benefits Regulations 1980. 10/15/20 days’ wages per year by tenure (RM2,000 ceiling removed in 2023); unfair retrenchment goes to the Industrial Court.
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Retrenchment, done right — for Malaysian employers
In Malaysia a retrenchment is a dismissal because the employer has a surplus of labour. It must be for a genuine business reason and carried out fairly; the affected employee’s entitlement is governed by the Employment Act 1955 and the Employment (Termination and Lay-Off Benefits) Regulations 1980. Since 2023 (Act A1651) the old RM2,000 wage ceiling has been removed, so termination benefits now reach virtually all employees. This free AI toolkit walks you through a fair retrenchment and builds the evidence pack.
The retrenchment process, step by step
- Business case — record the genuine reason for the surplus (reorganisation, downturn, closure of a function).
- Selection (FIFO / LIFO) — apply objective criteria; the Industrial Court expects "last in, first out" within a category unless you record sound reasons to depart from it, and expects foreign workers in the same category to be released first.
- Notice — give the contractual notice, or the statutory minimum below (4/6/8 weeks by tenure), or pay in lieu.
- Termination benefit — pay the Regulation 6 benefit (10/15/20 days’ wages per year by tenure) to any employee with at least 12 months’ service.
- Notify & settle — file the required retrenchment notification with the Labour Department and settle final wages, benefit and accrued leave.
Termination (retrenchment) benefit
Statutory termination benefit is set by the Employment (Termination and Lay-Off Benefits) Regulations 1980, Reg. 6, as a number of days’ wages for each year of service, pro-rated for part-years. The employee must have at least 12 months’ continuous service to qualify. A contract or collective agreement can provide more.
| Less than 2 years | 10 days’ wages per year of service |
| 2 years to less than 5 years | 15 days’ wages per year of service |
| 5 years or more | 20 days’ wages per year of service |
Regs 1980, Reg. 6, pro-rated for incomplete years; requires ≥ 12 months’ service. Since Act A1651 (2023) the RM2,000 ceiling is removed.
Notice periods
| Less than 2 years | 4 weeks |
| 2 years to less than 5 years | 6 weeks |
| 5 years or more | 8 weeks |
Employment Act 1955, s.12(2) minimums, unless the contract provides more. Notice may be paid in lieu.
Notification & the Industrial Court
An employer who retrenches must submit the prescribed retrenchment notification (Form PK) to the Labour Department (Jabatan Tenaga Kerja) in advance. There is no headcount that changes the entitlement, but a retrenchment carried out unfairly — wrong selection, or without a genuine surplus — can be challenged as an unfair dismissal at the Industrial Court, which can order reinstatement or compensation.
Common questions
How much termination benefit is due?
10 days’ wages per year of service under 2 years, 15 days from 2 to under 5 years, and 20 days at 5 years or more, pro-rated for part-years (Regs 1980, Reg. 6). The employee needs at least 12 months’ continuous service.
Does the benefit still have an RM2,000 wage cap?
No. Act A1651 removed the old RM2,000 monthly-wage coverage ceiling in 2023, so statutory termination benefit now reaches virtually all employees, not only lower-paid ones.
How should I select who is retrenched?
On objective criteria. The Industrial Court expects "last in, first out" within the affected category and expects foreign workers in that category to go first, unless you can record sound business reasons to depart from it.
Reference: Employment Act 1955, s.12; Employment (Termination and Lay-Off Benefits) Regulations 1980, reg. 6. General information for employers, not legal advice.