Termination and Lay-Off Benefits: How Much Must Employers Pay?

Under the Employment (Termination and Lay-Off Benefits) Regulations 1980, eligible employees with at least 12 months’ service must be paid a minimum of 10 days’ wages per year of service (under 2 years), 15 days (2 to under 5 years) or 20 days (5 years or more) when their employment is terminated for redundancy or prolonged lay-off.

Who is entitled to statutory termination benefits?

The Regulations apply to employees within the monetary scope of the Employment Act — broadly, those earning RM4,000 per month and below, plus manual labour categories — who have been employed under a continuous contract of service for at least 12 months.

Employees earning above RM4,000 have no statutory entitlement, but may have contractual retrenchment benefits under their letters of employment, handbooks or collective agreements, and in practice the Industrial Court expects reasonable severance in any retrenchment affecting them.

How are the benefits computed?

The minimum rates are 10 days’ wages for each year of service where the employee has served less than 2 years; 15 days’ wages per year for 2 years but less than 5; and 20 days’ wages per year for 5 years or more, with pro-rating for incomplete years. ‘Wages’ for this purpose is calculated on the ordinary rate of pay.

Payment must be made within 7 days of the relevant date. Late or absent payment is an offence and is separately claimable in the Labour Court.

When are termination benefits not payable?

No benefit is payable where the employee is dismissed for misconduct after due inquiry, retires, resigns voluntarily, or unreasonably refuses an offer of re-employment on terms no less favourable. In a business sale, benefits are also excluded where the new owner offers continuous employment on no less favourable terms within 7 days of the change and the employee unreasonably refuses.

Employers running voluntary or mutual separation schemes should remember that the statutory amounts are a floor: a VSS payout cannot validly be set below what the Regulations would require for eligible employees.

Key Takeaways for Employers

• Statutory benefits apply to EA-scope employees with 12+ months’ continuous service.
• Rates: 10/15/20 days’ wages per year of service depending on length of service.
• Payment is due within 7 days of termination; delay is an offence.
• No benefits for misconduct dismissals after due inquiry or voluntary resignation.
• Business transfers require careful structuring — a compliant offer of continued employment can exclude liability.

Frequently Asked Questions

Do employees earning above RM4,000 get statutory retrenchment benefits?

No statutory entitlement applies, but contractual schemes may, and the Industrial Court generally expects fair severance in genuine retrenchments. Many employers apply the statutory scale voluntarily as a benchmark.

Are termination benefits payable on expiry of a fixed-term contract?

Generally no, where the contract genuinely expires by effluxion of time. Disguised fixed-term arrangements may, however, be treated as permanent employment.

When must termination benefits be paid?

Within 7 days of the relevant date of termination. Failure to pay on time is an offence under the Regulations.