How to Handle Salary Payout After Resignation in Malaysia

Final salary payout is a crucial part of offboarding in Malaysia. It involves calculating the last month’s pay, statutory entitlements, and deductions according to the Employment Act and contractual agreements. Employers who handle this correctly can avoid disputes, protect their company’s reputation, and close employment records cleanly.

What is Final Salary Payout After Resignation?

The final salary payout is the total payment due to an employee when they leave the company. It generally covers the last month’s wages, payment for unused annual leave, overtime, shift allowances, and other entitlements stated in the employment contract. It can also include pro-rated bonuses, commissions, or gratuity if the employment terms provide for them.

Statutory Entitlements Under Malaysian Law

Employees who leave are entitled to certain payments under the Employment Act and contractual terms:

Annual Leave Pay

Any unutilised annual leave must be compensated. If the employee hasn’t completed a full year of service, annual leave is calculated on a pro-rated basis. Fractions of less than half a day are disregarded, while half a day or more is counted as one day.

The minimum daily rate is based on 26 workdays (monthly wages ÷ 26), although companies with a 5-day work week often use 22 or 21.75 workdays if this is more favourable to the employee. Leave pay is subject to EPF, SOCSO, EIS, and PCB deductions.

Public Holidays

Any public holiday that the employee is entitled to but hasn’t taken can be compensated based on the agreed daily rate.

Overtime and Allowances

Unpaid overtime, shift allowances, or other agreed allowances must be included.

Bonus or Commission

If contractually due, these must be paid, even if the employee has resigned.

Notice Pay

If the employee doesn’t serve the full notice period, the value of the unserved notice can be deducted from their final pay if the employment contract allows it.

Gratuity

If your company policy includes gratuity at the end of service, it is exempt from EPF and SOCSO/EIS. PCB exemptions may apply depending on the circumstances, such as retirement due to ill health or reaching the age of 55 with at least 10 years of service.

Steps to Calculate the Final Payout

The final payout should be calculated in a structured way:

Confirm the Last Working Day

Use the resignation letter and HR records to establish the exact final day of service.

Calculate Pro-rated Salary

Determine the salary for the final month based on actual days worked.

Add Unused Annual Leave Pay

Compute payment for accrued but unused annual leave using the agreed daily rate (at least wages ÷ 26, or more favourable if company policy applies).

Include Compensable Public Holidays

Add payment for public holidays the employee was entitled to but did not take.

Add Other Outstanding Payments

This includes overtime, shift allowances, bonuses, commissions, and any contractual terminal benefits such as gratuity.

Deduct Unserved Notice Period

If the employee did not work the full notice period, deduct the payment in lieu of notice as specified in the contract.

Apply S tatutory Deductions

Make the necessary deductions for EPF, SOCSO, EIS, and PCB, where applicable.

Document the calculation

Keep a clear breakdown of all items included and deducted for transparency and to avoid disputes.

How to Process Payout

Once the calculation is complete, issue a final payslip that shows a detailed breakdown of all payments and deductions.

Process the payment through your payroll system or a secure bank transfer. Issue a termination or offboarding acknowledgement letter, confirming that all dues have been settled.

Common Employer Mistakes

Some of the most common errors in salary payout after resignation include:

Omitting Unused Leave Payouts

Some employers overlook paying for accrued but unused annual leave, either due to poor record-keeping or a misunderstanding of the law. This is a statutory entitlement, and failure to pay can lead to legal claims or complaints to the Labour Department.

Failing to Deduct Mandatory Contributions

EPF, SOCSO, EIS, and PCB must still be applied to eligible components of the final payout, such as leave pay. Missing these deductions can result in compliance issues, penalties, and the need to make backdated contributions.

Delaying Payment Beyond the Legal Timeframe

While the Employment Act doesn’t set a fixed deadline, withholding the final salary for too long can cause disputes and damage your company’s reputation. Best practice is to pay on or before the last working day, or within a few days of termination.

Not Documenting the Payout Breakdown

If you don’t provide a detailed payslip or written breakdown of the calculation, employees may question whether the payout is correct. This can lead to mistrust or disputes that could have been avoided with clear records.

Importance for Employers

A fair and accurate final payout is more than just a legal requirement. It helps maintain positive relationships with departing employees, reduces the risk of disputes, and reflects well on your company’s professionalism. Proper handling of the final salary payout also supports smooth internal transitions, as it closes the employment record cleanly.

FAQs

What should I pay an employee who resigns without serving the full notice?

You can deduct the unserved notice period’s value from their final salary, if the employment contract includes such a clause.

Can I deduct unpaid leave from the final payout?

Yes. If the employee has taken more leave than they are entitled to, you may deduct the value of the excess leave from their final pay.

How soon must the final salary be paid after resignation?

The Employment Act does not set a fixed deadline, but best practice is to settle all payments on or before the final working day, or at the latest within seven days of termination.

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