Managing The Compensation for Employees

Employer Mar 12, 2021

As an employer, compensation should be a "well-noted" knowledge as in some period, employers will be facing a situation where employers had to perform compensation. But, what are the scenarios or conditions required for employers  to do the compensation for employees?

From this article, Seekers will do a review on 3 types of compensation-scenarios in accordance of Malaysia's related employment regulation, including the process of the compensation.

1. Compensation In Accordance of Workmen's Compensation Act 1952.

Workmen Act 1952


This Act features the compensation payment to an injured employee or workmen in situation of employees contracting fatal accident, injury or contracting an occupational disease while performing the duty or work.


Only foreign workers are covered under this Act for employment injury as well as non-employment injury.

This Act applies to foreign workers:

i. Whose earnings are not more than RM500 per month

ii. All manual workers irrespective of the wage

The Process

This Act is administered by the Department of Labour Malaysia. Once the event occurs, the employees are required to report to the nearest Labour Office.

The Labour Office will take action on reported cases of employer's neglected responsibilities on:

i. Worker's insurance

ii. Not reporting occupational accident/injury

iii. Not paying the compensation for workers

2. Compensation In Accordance of Employees Social Security Act 1969.


These schemes provide the benefits of invalidity pension, invalidity grant, survivors pension, rehabilitation, funeral benefit, constant attendance allowance and educational loan.


To note, SOCSO does not cover the following categories of persons:

i. Federal and State Government permanent employees

ii. Domestic servants

iii. Self-employed (except for self-employed taxi drivers, individuals who run similar services including e-hailing such as Grab and self-employed bus drivers)

iv. Spouses of a sole proprietor or a partnership owner

The Process

Employers are responsible for reporting all work-related accidents that befall their workers within 48 hours of notification.

SOCSO provides coverage to eligible employees through few schemes namely:

i. Employment Injury Insurance Scheme

ii. Invalidity Pension Scheme

iii. Employment Insurance System

iv. Employment Injury Scheme for Foreign Workers

A further reference on Employment Injury Scheme for Foreign Workers as below:

Socso: Employment Injury Scheme for Foreign Workers

3. Compensation Based on Employment's Termination

Termination Letter

For this type of compensation, there are 5 types of compensation regulations which employers can refer for the compensation scheme:

i. Termination and Lay Off Benefit Regulations 1980.

ii Employment Act 1955

iii. Labour Ordinance Sabah

iv. Labour Ordinance Sarawak

v. Industrial Relation Act 1967


These Acts feature the compensation payment for employees who undergo termination of the employment contract. All of these regulations are administered by Labour Department of Malaysia.


Covers Malaysian workers.

The Process

To begin the compensation process, employers are required to:

i. Prepare a valid termination/cessation of employment contract with details on termination reason, the date of effective termination and compensation amount.

ii. Report the employees' termination via PK Forms submissions:

Part I-IV 30 days prior to termination date.
Part V 14 Days after the termination date.
Part VI 30 days after the termination period

iii. Company pays the terminated employees.

iv. In case of dispute regarding the compensation amount, both parties have rights to proceed the case to either labour court or industrial court.

For reference of the employment dispute case, employers may refer to this article.

Source: Labour Department of Malaysia, Attorney General Chambers Of Malaysia, Social Security Organization (SOCSO).

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