Comprehending the Essentials of Overtime Compensation

On 1st January 2023, the Employment (Amendment) Act 2022 took effect, bringing major reforms to increase and improve the protection and wellbeing of employees in the country in accordance with the International Labour Organisation’s (ILO) standards. Amongst some of the changes, the Employment Act 1955 was revised to increase the number of workers eligible for overtime compensation if they exceed their contracted working hours (normal working hours).

Much discussion sparked on how the overtime system would operate since its implementation this year. Additionally, since the amendment has reduced the normal working hours to 45 hours per week, there is a high likelihood that it would attract more overtime payments compared to the previous normal working hours of 48 hours per week. I’d like to address two (2) key issues surrounding overtime compensation; (i) are employees obligated to work overtime?; and (ii) how to calculate overtime pay for employees.

(i) Are Employees Obligated to Work Overtime?

In evaluating whether it is legitimate for an employee to reject overtime work, employers should be aware that the Industrial Court will often consider:

1. The conventional practice in the specific industry; and
2. The reasonableness of the employer’s demand for overtime.

In the case of Cathay Organisation (M) Sdn Bhd v D National Union of Cinema & Amusement Workers [1985] 1 ILR 721, the Industrial Court upheld the Company’s decision to terminate the Claimant for refusing to carry out overtime work. The Court reasoned that it was customary in the theatre industry to require employees to work for additional or midnight shows. Therefore, the Claimant was found to have committed insubordination, and his dismissal was warranted, since the employer’s request was reasonable and the Claimant’s mala fide intention was to compel the corporation to bend down to his demands.

Per contra, in Subramaniam Mookayah v Nestle Products Sdn Bhd [2008] 2 ILR 223, where the Claimant was directed to perform overtime, the Claimant informed the employer that he could not instantly guarantee his availability since he intended to confer with his unwell wife first. The Claimant was thereafter dismissed for refusing to work overtime. The Industrial Court found that the Claimant was unfairly dismissed. The Court elaborated that the Claimant had just sought further time to check his availability and had not really refused to do overtime work. In addition, the Claimant was typically willing to work overtime whenever the firm requested it over his 17 years of employment. This is the first time his supervisors have filed a complaint against him for refusing to work extra. Due to his need to attend to family concerns, the Claimant’s request for more time to confirm his availability for overtime work was not unreasonable.

(ii) How to Calculate Overtime Compensation for Employees

As of 1st January 2023, the categories of employees listed below are entitled to overtime payments:

(i) All employees with wages up to RM4,000/month; and

(ii) all employees with wages above RM4,000 and considered as:

a) Engaged in manual labour;

b) Engaged in operation or maintenance of any mechanically propelled vehicle for passenger or goods;

c) Supervising or overseeing other employees engaged in manual labour employed by the same employer in and throughout his performance;

d) Engaged in any capacity in any vessel registered in Malaysia; and

e) Engaged as a domestic employee.

As such, below is a table of the current rate for OT, work done on rest day and public holiday.

The “Ordinary Rate of Pay” and “Hourly Rate of Pay” for an employee may be calculated as below:

• ORP: monthly rate of pay / 26
• HRP: ORP / normal working hours per day

A company has the discretion to require its workers to work overtime to satisfy commercial demands, as long as it does so in accordance with the law, and is under reasonable conditions. Employers are advised that they should clearly communicate their company’s policies regarding overtime to all employees and ensure when an employee is entitled to overtime compensation under the law, they shall receive at least the minimum overtime rate set out by the law.