Annual Leave Malaysia: Entitlement, 24-Month Rule & Section 60E Guide
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What Is Annual Leave in Malaysia?
Annual leave is paid leave given to an employee after serving an employer for a period of time. It allows employees to take time off from work while still receiving their normal wages. Employers can manage annual leave efficiently using a proper payroll system such as AutoCount Cloud Payroll.
Under Section 60E of the Employment Act 1955, annual leave entitlement is based on the employee’s length of continuous service with the same employer.
In simple terms, the longer an employee works with the same company, the more annual leave they are entitled to.
Annual Leave Concept in Malaysia: Entitlement, Timeline & Carry-Forward Rule Under Section 60E
Annual leave is one of the most important employee benefits in Malaysia. However, many employers and employees are still unclear about when annual leave should be given, when it must be taken, and whether unused annual leave can be carried forward.
For businesses in Malaysia, especially SMEs, proper annual leave management is not just about giving employees time off. It is also part of payroll compliance, HR record keeping, and employee management.
This guide explains the annual leave concept in Malaysia, based on Section 60E of the Employment Act 1955, and how employers can manage annual leave more effectively using a proper payroll or HR system.
- Important !
The Employment Act 1955 applies to Peninsular Malaysia and has been extended to the Federal Territory of Labuan.
Annual Leave Entitlement in Malaysia
The minimum annual leave entitlement under Section 60E is as follows:
| Length of Service with Same Employer | Minimum Paid Annual Leave |
|---|---|
| Less than 2 years | 8 days per year |
| 2 years or more but less than 5 years | 12 days per year |
| 5 years or more | 16 days per year |
These are minimum requirements. A company may provide more annual leave if it wants to offer better employee benefits. The Employment Act also allows employers and employees to agree on terms that are more favourable to the employee
For example, if the law provides 8 days, a company may choose to provide 10, 12, or more days as part of its internal HR policy.
Example: How the 24-Month Annual Leave Concept Works
Let’s say an employee joins the company on 1 January 2026.
The employee completes 12 months of service on 31 December 2026.
If the employee is entitled to 8 days of annual leave for the first year of service, the employee should take those 8 days within the next 12 months, meaning by 31 December 2027.
In simple terms:
- Month 1: Employee starts work.
- Month 12: Employee completes 12 months of service.
- Month 13 to Month 24: Employee should use the annual leave entitlement.
- End of Month 24: Unused leave may cease to be entitled, subject to the Employment Act and company policy.
This is the core concept shown in the annual leave timeline.
Can a Company Give Annual Leave Earlier?
Yes. A company does not need to wait until the end of 12 months if it wants to provide annual leave earlier. Many companies allow employees to take annual leave before completing one full year of service, especially on a pro-rated basis.
There are three common approaches used by companies in Malaysia.
Option 1: Annual Leave After Completing 12 Months of Service
How it works:
The employee receives annual leave entitlement only after completing 12 months of continuous service.
Example:
If an employee joins the company and completes the first 12 months of service, the employee may then receive 8 days of annual leave. These 8 days should be taken within the next 12 months.
Things to take note:
- Easy for HR and payroll calculation.
- Annual leave is granted only after one full year of service.
- Less flexible for employees who need leave during their first year.
- The employee still has until the end of the 24th month to use the first year’s annual leave entitlement.
Suitable for: Companies that prefer a simple and straightforward annual leave policy.
Option 2: Annual Leave From Commencement of Employment
How it works:
The company allows employees to use annual leave from the start of employment, usually based on pro-rated entitlement.
Example:
If an employee is entitled to 8 days of annual leave per year, the company may calculate the leave monthly as the employee continues working.
Things to take note:
- Employees can apply for annual leave earlier.
- Leave is usually calculated on a pro-rated basis.
- This may improve staff satisfaction and flexibility.
- Employers should set clear rules for resignation, negative leave balance, and final salary adjustment.
Suitable for: Companies that want to offer a more employee-friendly leave policy.
Option 3: Annual Leave Upon Confirmation
How it works:
The company allows employees to start using annual leave only after they are confirmed.
Example:
If an employee is confirmed after 3 or 6 months, the company may allow the employee to apply for annual leave from the confirmation date onwards.
Things to take note:
- Common practice among Malaysian employers.
- Suitable for companies with a probation period.
- Easier to control leave usage during probation.
- The company must ensure the policy does not reduce the employee’s legal annual leave entitlement.
Suitable for: Companies that want to link annual leave usage with employee confirmation.
Choosing the right annual leave approach helps ensure fairness, clarity, and compliance. Whatever method your company adopts, make sure employees understand their entitlement and have the opportunity to use their leave within the allowed period.
Important Reminder for Employers
Even though unused annual leave may cease after the allowed period, employers should not treat leave forfeiture casually.
- Compliance Warning
The law states that the employer must grant annual leave and the employee must take it within the required period. If an employer fails to grant annual leave as required under Section 60E, it may be treated as an offence, and the employer may be ordered to pay the employee the ordinary rate of pay for the annual leave not granted.
This means employers should keep proper records and actively manage leave balances.
Good HR practice includes:
- Informing employees of their annual leave balance;
- reminding employees before leave expires;
- stating the leave carry-forward rule clearly in the employee handbook;
- keeping approval records for every leave application;
- ensuring payroll calculation is accurate when an employee resigns.
What Happens If the Employee Resigns?
When an employee resigns or the employment contract is terminated, unused annual leave must be handled carefully.
Section 60E provides that when employment is terminated before the employee has taken paid annual leave, the employer shall pay the employee at the ordinary rate of pay for every day of such leave, except in certain dismissal situations stated in the Act.
This is why payroll and HR teams must ensure leave balances are updated before preparing the final salary.
A wrong annual leave balance can cause:
- overpayment;
- underpayment;
- employee disputes;
- payroll adjustment problems;
- compliance issues during inspection or audit.
Annual Leave and Sick Leave or Maternity Leave
Another important rule is that if an employee is on annual leave and becomes entitled to sick leave or maternity leave during that annual leave period, the sick leave or maternity leave should be granted, and the annual leave is treated as not taken for those days.
For example, if an employee applies for annual leave but later obtains valid sick leave during that same period, the employer should update the leave record correctly. This is another reason why manual leave tracking using Excel can become risky as the company grows
Best Practice for Malaysian Employers
To manage annual leave properly, every company should prepare a clear written leave policy. Your annual leave policy should explain:
Your annual leave policy should explain:
- how unused leave is treated upon resignation;
- how employees should apply for leave;
- who approves leave applications.
- how annual leave is earned;
- whether leave is available from commencement, confirmation, or after 12 months;
- how pro-rated leave is calculated;
- how long unused leave can be carried forward;
- what happens when leave expires;
A clear policy protects both the employer and the employee. It also reduces misunderstanding because everyone follows the same rules.
Conclusion: Annual Leave Must Be Managed Properly
Annual leave in Malaysia is not just an employee benefit. It is part of proper HR and payroll compliance.
The key concept is simple: after every 12 months of continuous service, the employee’s annual leave should be taken within the next 12 months. Companies may choose to provide annual leave upon completion of 12 months, from commencement of employment, or upon confirmation, but the policy must be clear and compliant.
For SMEs, using a proper payroll and leave management system can save time, reduce mistakes, and improve employee trust.
Frequently Asked Questions
How many days of annual leave must an employee get in Malaysia?
Under Section 60E of the Employment Act 1955, the minimum is 8 days, 12 days, or 16 days per year, depending on the employee’s length of service with the same employer.
Can annual leave be carried forward in Malaysia?
Annual leave should be taken not later than 12 months after the end of every 12 months of continuous service. If the employee does not take it within that period, the entitlement may cease, subject to the Employment Act and company policy.
Can a company give annual leave before the employee completes 12 months?
Yes. A company may provide a more favourable policy, such as allowing annual leave from commencement or upon confirmation, as long as the policy does not reduce the employee’s statutory rights.
Is annual leave paid leave?
Yes. Annual leave is paid leave. The employer must pay the employee the ordinary rate of pay for every day of paid annual leave.
Should SMEs use payroll software to manage annual leave?
Yes. Payroll software helps reduce manual errors, track leave balances, manage approvals, and ensure final salary calculations are more accurate.
Need help managing payroll, leave entitlement, and HR compliance more efficiently?
Contact SL Software Solutions today to learn how AutoCount Payroll can help your business streamline payroll and leave management.
