How to Calculate Overtime (OT) Pay in Malaysia

If you run a business in Malaysia, you’ve probably had employees working extra hours at some point.

But do you know the correct overtime rates and how to calculate them?

Many employers get confused about when to apply 1.5x, 2x, or 3x pay rates. Mistakes in overtime payments can lead to complaints or fines.

Don’t worry! This article simplifies everything you need to know about overtime pay and how to calculate it correctly.

Types of Overtime and Overtime Pay Rates in Malaysia

Overtime applies when employees work beyond the standard working hours set by the Employment Act of 1955.

The overtime pay rate depends on when the extra work is performed. Below are the different types of overtime and the corresponding pay rates.

1. Overtime on Normal Workdays (1.5x Pay Rate)

Employees who work beyond their standard working hours on a regular workday are entitled to overtime pay at 1.5 times their hourly rate.

Example:

If an employee earns RM12.50 per hour, their overtime rate would be:

RM12.50 × 1.5 = RM18.75 per hour

2. Overtime on Rest Days (Up to 2x Pay Rate)

Employees in Malaysia are entitled to at least one rest day per week. If they work on their designated rest day, the pay rate depends on how long they work:

Up to half of their normal working hours: Half a day's wages.
More than half but within normal working hours: One full day's wages.
Beyond normal working hours: 2 times their hourly rate.

Example:

If an employee’s hourly rate is RM12.50, their overtime pay for working extra hours on a rest day is:

RM12.50 × 2 = RM25 per hour

3. Overtime on Public Holidays (Up to 3x Pay Rate)

Public holidays are considered special rest days, and employees who work on these days are entitled to:

Normal working hours: Two days' wages in addition to their usual holiday pay.
Beyond normal working hours: 3 times their hourly rate.

Example:

If an employee’s hourly rate is RM12.50, their overtime pay for extra hours on a public holiday is:

RM12.50 × 3 = RM37.50 per hour

Summary of Overtime Pay Rates:

Overtime Type	Overtime Pay Rate
Normal Workday OT	1.5x hourly rate
Rest Day OT (Beyond Hours)	2x hourly rate
Public Holiday OT (Beyond Hours)	3x hourly rate

These rates apply to employees covered under the Employment Act, which includes those earning RM4,000 or less per month or engaged in manual labor.

Who is Eligible for Overtime Pay?

Not all employees qualify for overtime. According to the Employment Act, overtime pay applies to:

Employees earning RM4,000 or less per month.
Employees engaged in manual labor, supervisors of manual laborers, and those operating machinery.
Employees in specific industries such as banking, hospitality, and transportation (subject to industry-specific regulations).

Who is NOT eligible?

Employees in managerial or executive positions are typically exempt from overtime pay.
Employees earning above RM4,000 per month (unless specified in their contract).

Legal for Overtime Rules

There are some overtime rules that employers should pay attention to:

1. Maximum overtime hours allowed

According to the Employment Regulations 1980, an employee can work up to 104 overtime hours per month (about 4 hours per day).

2. Employer responsibility for overtime pay

Employers are legally required to pay employees for all eligible overtime hours worked.

Failing to compensate correctly can lead to penalties under the Employment Act, including fines up to RM50,000.

3. Employee rights regarding overtime

Employees cannot be forced to work overtime unless stated in their contract. However, some exceptions apply, such as:

Essential services (e.g., healthcare, security).
Emergency work (e.g., disaster recovery, urgent machinery repairs).

Step-by-Step Guide with Example on How to Calculate Overtime Pay

Calculating overtime pay correctly is important for both employers and employees.

Employers must follow the guidelines under Malaysia’s Employment Act 1955 to pay employees fairly for extra hours worked.

Below is a step-by-step guide on how to calculate overtime pay, along with examples for different situations.

Step 1: Determine the Employee's Hourly Rate

Before calculating overtime pay, you need to know the employee’s hourly rate.

This is based on the employee’s monthly salary and the number of working hours per month.

The formula for hourly rate calculation is:

Hourly rate = Monthly Salary ÷ Number of working hours per month.

According to the Employment Act, employers should use 26 days per month as the basis for salary calculation.

Example:

Employee Name: Ali
Monthly Salary: RM2,600
Workdays per Month: 26 days
Daily Work Hours: 8 hours

Ali’s hourly rate is calculated as follows:

Daily rate = RM2,600 ÷ 26 days = RM100

Hourly rate = RM100 ÷ 8 hours = RM12.5

Now that we have Ali’s hourly rate, we can move to the next step.

Step 2: Identify the Overtime Rate

The overtime rate depends on when the overtime is worked. The following overtime rates apply:

Overtime on a Normal Workday: 1.5 times the hourly rate
Overtime on a Rest Day: 2 times the hourly rate
Overtime on a Public Holiday: 3 times the hourly rate

Example of overtime rates for Ali (hourly rate: RM12.50)

Normal Workday OT: RM12.50 × 1.5 = RM18.75 per hour
Rest Day OT: RM12.50 × 2 = RM25 per hour
Public Holiday OT: RM12.50 × 3 = RM37.50 per hour

Step 3: Calculate the Overtime Hours Worked

Now, let’s calculate how many overtime hours the employee has worked. This is based on the additional hours worked beyond the standard daily working hours.

Example 1: Overtime on a Normal Workday

Ali works an extra 2 hours after his normal shift.
Overtime Pay: RM18.75 × 2 = RM37.50

Example 2: Overtime on a Rest Day

Ali works 6 hours on a Sunday (his rest day).
Overtime Pay: RM25 × 6 = RM150

Example 3: Overtime on a Public Holiday

Ali works 8 hours on a public holiday.
Overtime Pay: RM37.50 × 8 = RM300

Step 4: Add Overtime Pay to Regular Salary

After calculating overtime pay, it must be added to the employee’s monthly salary.

Example of Ali’s monthly salary including overtime

Base Salary: RM2,600

Example 1: Overtime Pay on a Normal Workday

Overtime Pay (Normal Workday OT → 2 hours): RM37.50
Total Salary = RM2,600 + RM 37.50 = RM2,637.5

Example 2: Overtime on a Rest Day

Overtime Pay (Rest Day OT → 6 hours): RM150
Total Salary = RM2,600 + RM150 = RM2,750

Example 3: Overtime on a Public Holiday

Overtime Pay (Public Holiday OT → 8 hours): RM300
Total Salary = RM2,600 + RM 300 = RM2,900

Frequently Asked Questions (FAQ)

Can an employee be forced to work overtime?

Yes, unless their employment contract includes an overtime requirement. However, in some industries, refusing overtime can be a breach of contract.

What happens if overtime is not paid correctly?

If an employer fails to pay overtime, employees can file a complaint with the Labour Department or Small Claims Tribunal. Employers who violate overtime laws may face fines and legal action.

Are there any special overtime rules for different industries in Malaysia?

Yes. While the Employment Act of 1955 applies to most employees, certain sectors such as hospitality, banking, and transportation have their own overtime rules.

What is the maximum number of overtime hours an employee can work?

Employees are legally allowed to work up to 104 overtime hours per month.

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