Most employees are probably unaware that when they resign or complete their contracts, they can still claim payment for unused annual leave (AL) as this entitlement is protected under Malaysian labour law.
But how exactly does one determine it to be the case? Here’s how a human resource (HR) personnel who broke it all down along with the calculation in determining the amount that can be claimed.
How is it calculated?
According to the post on LinkedIn, workers are entitled to receive Leave Encashment if they have unused annual leave before resigning.
If an employee hasn’t completed a full year of service, the unused leave must be calculated on a pro-rata basis.
The post also noted that this isn’t a bonus, but a legal right under the Employment Act 1955 (EA1955), which states that unused annual leave at the end of a contract or resignation must be compensated by the employer.
Step 1: Calculate pro-rated annual leave
Under Section 60E(1) of the Employment Act, the formula is: Annual leave days ÷ 12 x number of months worked. Here’s how it works:
- Annual leave given: 14 days
- Resignation date: Jul 31, 2025
- Months worked: 7 months
Thus, the formula will be 14 ÷ 12 x 7 = 8.166 days, where it will be rounded off to eight days.
Step 2: Subtract AL that has been taken
To know the final leave balance, subtract the leave that has already been taken. For instance, if the employee already used 2 days, the claimable balance is 6 days.
Step 3: Calculate Leave Encashment value
To know what’s the final amount to be paid, calculate the Ordinary Rate of Pay (ORP) using this formula: Monthly salary ÷ 26 = ORP, then multiply it by the number of leave days left.
For example:
- Monthly salary: RM1,700
- ORP: RM1,700 ÷ 26 = RM65.40
- Leave balance: 6 days
Thus, the leave encashment value will be = 6 x RM65.40 = RM392.40
However, it’s important to note that this amount is still subject to deductions for:
- EPF (Employees Provident Fund)
- SOCSO (Social Security Organisation)
- EIS (Employment Insurance System)
As such, the final take-home amount may be lower than the estimated total.
Exceptions
These entitlements only apply to employees under the Employment Act 1955 and not for the following conditions:
- You’ve worked less than 12 months
- You were terminated due to misconduct
- You have no annual leave balance
- You are a domestic worker (e.g. housemaids)
If your contract ends and you still have unused annual leave, the company must pay for the leftover days using the same leave encashment formula.
However, this only applies if the employee didn’t refuse to take the leave within the 12-month period.
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