Introduction
Navigating payroll for incomplete months of work is a fundamental task for every employer and HR professional in Malaysia. To standardize this process and ensure fairness, the Employment (Amendment) Act 2022 introduced a specific, legally-mandated formula under Section 18A of the Employment Act 1955. This guide provides a clear explanation of this law and how to apply it correctly to calculate salaries for unpaid leave and other partial-month scenarios.
The Legal Foundation: What is Section 18A?
Gazetted in 2022 and effective from 1st January 2023, Section 18A provides a uniform calculation method for employees on a monthly rate of pay who do not complete a full month of service. This law eliminates guesswork and ensures consistent payroll practices across Malaysia.
When Must You use This Calculation?
You are legally required to apply the Section 18A formula in the following four situations:
| Situation | Description |
|---|---|
| Late Commencement | Employee starts work after the first day of the month. |
| Early Termination | Employee's contract is terminated before the last day of the month. |
| Unpaid Leave | Employee takes one or more days of leave without pay. |
| National Service | Employee is on leave for mandatory national service. |
To learn more about how unpaid leave affects statutory deductions and employer reporting, refer to our guide on Statutory Payroll Reporting in Malaysia
The Official Formula
The standardized formula prescribed by law is:
Final Salary = (Monthly Wages / Number of Days in the Wage Period) × Number of Days Eligible in the Wage Period
Breaking Down the Components:
- Monthly Wages: The employee's total fixed monthly remuneration, including basic salary and any fixed allowances.
- Number of Days in the Wage Period: The total number of calendar days in the specific month (e.g., 31 for January, 30 for April, 28 for February).
- Number of Days Eligible: The total number of calendar days the employee was employed and entitled to pay. This includes days worked, rest days, and public holidays falling within the employment period.
Step-by-Step Calculation Guide
Let’s apply the formula to the most common scenario: Unpaid Leave.
Scenario: An employee with a monthly salary of RM 4,000 takes 3 days of unpaid leave in July 2024 (31 calendar days).
Step 1: Determine ‘Days Eligible’
- Total Calendar Days in July: 31
- Unpaid Leave Days: 3
- Days Eligible for Pay = 31 - 3 = 28 days
Step 2: Apply the Formula
- Final Salary = (RM 4,000 / 31) × 28
Step 3: Perform the Calculation
- RM 4,000 / 31 = RM 129.032 (Daily Rate)
- RM 129.032 × 28 = RM 3,612.90
Result: The employee’s final salary for July is RM 3,612.90
Quick-Reference Calculation Table
| Scenario | Monthly Salary | Month & Days | Key Information | Calculation | Final Salary |
|---|---|---|---|---|---|
| New Joiner | RM 2,800 | January (31 days) | Started on Jan 16 Paid Days: 16 |
(RM 2,800 / 31) × 16 | RM 1,445.16 |
| Early Resignation | RM 3,300 | April (30 days) | Last Day: Apr 20 Paid Days: 20 |
(RM 3,300 / 30) × 20 | RM 2,200.00 |
| Unpaid Leave | RM 3,600 | June (30 days) | 2 Days Unpaid Leave Paid Days: 28 |
(RM 3,600 / 30) × 28 | RM 3,360.00 |
To understand how each salary component is calculated, including overtime, unpaid leave, and allowances, check out our detailed guide on Payroll Components & Calculation Formulas Explained
Leave Encashment (Payment in Lieu of Leave)
Encashment = (Monthly Wages / 26) X Unused Leave Days
Example: RM 2,600 salary, 5 unused days ->(2,600/26) x 5 =RM500
Leave encashment constitutes additional taxable income and is subject to EPF, SOCSO, and EIS contributions.
Calculation of Wages, ORP, Annual Leave & Unpaid Leave
| Wages / Calendar Days | Wages / 26 |
|---|---|
|
|
Frequently Asked Questions
Can my company use a different calculation method?
While Section 18A sets the legal minimum standard, employers are permitted to use a more favorable calculation method if it results in a higher salary for the employee. You cannot use a method that pays less than the statutory formula.
Why do we use calendar days instead of working days?
The law, as confirmed by regulatory guidance, specifically requires the use of total calendar days in the month. This provides a consistent and unambiguous basis for all calculations.
Does unpaid leave affect my annual leave balance?
No. Taking unpaid leave does not reduce your accrued annual leave entitlement. They are separate categories of leave.
How does unpaid leave impact EPF and SOCSO contributions?
Since contributions are calculated based on the wages paid, your EPF and SOCSO contributions for that month will be based on the pro-rated final salary, not the full monthly wage.
Is approval for unpaid leave automatic?
No. The decision to grant unpaid leave remains at the employer’s discretion based on operational needs. However, once approved, the deduction must be calculated using this formula.
Disclaimer
The information contained in this article is for general guidance and informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure the accuracy of the information, the laws and regulations in Malaysia may change.
It is strongly recommended that you consult with a qualified HR consultant, legal professional, or refer directly to the latest version of the Employment Act 1955 and its amendments for specific, up-to-date advice tailored to your situation. The author and publisher disclaim any liability for any loss or damage incurred as a consequence of relying on the information provided herein.
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