Handling Resigning Employees With Unused Annual Leave
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As we all know, all employees covered under the Employment Act 1955 (EA) are entitled to paid annual leave depending on how long they have worked with the company.
Employees covered under EA
Keep in mind that the EA only covers workers categorised under its First Schedule.
To be covered by the EA, the worker must fall into at least one of the following:
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An employee who receives a monthly salary of RM2,000 or under,
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An employee who is engaged in manual labour,
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Domestic workers,
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A foreign worker who is legally employed in Malaysia.
Employees who do not fall into any of the above should refer to their employment contract as well as the company policy.
How many annual leave days do employees get?
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Employees who have worked 1 to 2 years get 8 annual leave days per year,
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Employees who have worked 2 to 5 years get 12 days per year,
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Employees who have worked more than 5 years get 16 days per year.
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Employees who have not worked for at least a year are not entitled to paid leave unless they resign, which then their annual leave will be prorated. For instance, an employee who has worked for 8 months and resigning should get 5 days of annual leave.
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Employees should make full use of their annual leave.
What happens if an employee does not use all of their annual leave days?
Some employers allow employees to carry over their unused annual leave days to the next year, albeit limited. However, many companies do not practice this, hence their employees must make the most out of their entitled annual leave.
What will happen to a leaving employee's unused annual leave?
Suppose the employee still has unused annual leave days when they tender their resignation, then they can use the remaining days during their notice period to fast-track until their last day of work.
Does the employer has any say in this? Yes. Since the employee is still working for the company, the employer has the right to reject their annual leave request.
However, the employer must pay the employee for their unused annual leave days at the ordinary rate of pay (a.k.a, the employee's daily wage). You can calculate the ordinary rate of pay by dividing the employee's monthly wage by 26.
Monthly rate of pay (monthly wage) / 26 = ordinary rate of pay
Can employees exchange their unused annual leave for cash?
As of writing, the labour law does not require employers to exchange the employee's unused annual leave days for their daily wage.
The employee must refer to their employment contract to see if the employer offers this type of benefit.
Both employers and employees must pay attention to the annual leave entitlements. They should also know their legal obligations and rights so they will not get taken advantage of.
Disclaimer: The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Please seek legal advice or other professional advice in relation to any particular matters you or your organisation may have.