Guide: How to Calculate Overtime in Malaysia

Overtime pay is an essential aspect of fair compensation for employees who put in extra effort
beyond their regular work hours. In Malaysia, understanding how to calculate overtime accurately is
crucial to ensure both employers and employees are in compliance with employment regulations.
This guide aims to provide a step-by-step breakdown of how to calculate overtime in Malaysia,
taking into account prevailing laws.

Step 1: Determine Eligibility

First, establish whether the employee is eligible for overtime pay.

The Employment Act 1955 defines ‘overtime’ as work carried out in excess of the normal hours of
work per day.

Under the amended First Schedule of Employment Act 1955, employees with wages exceeding
RM4,000 are not statutorily entitled to overtime payment.

Therefore, the following employees are typically eligible for overtime compensation:

– Those earning wages up to RM 4,000 per month.

– Employees engaged in manual labour, regardless of wages.

– Individuals operating or maintaining mechanized vehicles, irrespective of wages.

– Employees supervising or overseeing manual labourers, regardless of wages.

Please note that specific eligibility criteria for overtime pay may vary based on the employment
contract or company policies. It’s essential for employers and employees to be aware of their rights
and obligations under the applicable labour laws and agreements.

Step 2: Understand Overtime Categories

Overtime work is categorized into three main types in Malaysia:

1. Normal Day Overtime: Work done after normal working hours on a regular workday.

2. Rest Day Overtime: Work done on a rest day.

3. Public Holiday Overtime: Work done on a public holiday.

Step 3: Calculate Ordinary Rate of Pay (ORP)

What is Ordinary Rate of Pay (ORP)?

The Ordinary Rate of Pay (ORP) is the standard or regular rate at which an employee is compensated
for their work. It typically represents the employee’s base salary per day.
Ordinary Rate of Pay (ORP) = Salary per day

To calculate the Ordinary Rate of Pay (ORP) for a monthly-rated employee, you can use the following
formula:

ORP = Monthly Rate of Pay ÷ 26

By dividing the monthly salary by 26, you get the ORP, which represents the daily rate of pay for that
employee. This ORP is used as a basis for various calculations related to their employment, such as
overtime pay or leave entitlements.

Step 4: Calculate Hourly Rate of Pay (HRP)

What is Hourly Rate of Pay (HRP)?

It is the amount of money an employee earns per hour for their work. The HRP is typically calculated
based on the employee’s total monthly salary or wages divided by the number of hours they are
expected to work in a day.

HRP (Hourly Rate of Pay) = Salary per hour

The HRP is calculated by dividing the ORP by the normal hours of work per day:

HRP = ORP ÷ (Number of Normal Working Hours Per Day)

How to Determine the Normal Working Hours Per Day?

If the employer practices a 6-day workweek and reduces the daily working hours from 8 hours to 7.5
hours, then the calculation of the Hourly Rate of Pay is:

HRP = Monthly Rate of Pay ÷ (26 days x 7.5 hours)

If the employer practices a 6-day workweek, maintains the daily working hours from Monday to
Friday at 8 hours each, and reduces Saturday’s working hours to 5 hours, then the calculation of the
the Hourly Rate of Pay is:

HRP = Monthly Rate of Pay ÷ (26 days x 8 hours)

Step 5: Determine Overtime Compensation Rates

For employees paid on a monthly basis, overtime entitlements under the Employment Act are as
follows:

1. Working in excess of normal working hours on a normal work day: 1.5 x HRP

2. Rest day:

a. Where work does not exceed half his normal hours of work: 0.5 x ORP

b. Where work is more than half but does not exceed normal work hours: 1 x ORP
c. Rest day (working in excess of normal working hours): 2.0 x HRP

3. Public Holiday

a. Follow normal workings hours: 2 x ORP

b. Excess of normal working hours: 3.0 x HRP

Calculation Examples for Monthly Rated Employee

Monthly rate of pay: RM4,000

Work hour: 10am to 7pm

Break: 2pm to 3pm

Normal hours of work per day: 8 hours

ORP = 4000 ÷ 26 = 153.8462

HRP = ORP ÷ 8 = 19.2308

Normal OT rate = 1.5 x HRP = 28.8462

Rest Day OT rate = 2.0 x HRP = 38.4615

PH OT rate = 3.0 x HRP = 57.6923

Example 1 – Work on Normal Day

The employee worked on Monday (Normal Day) from 10am until 9pm.

Normal OT hour = 2 hours

Normal OT Amount = 2 hours x 1.5 x HRP

= 2 hours x 28.8462

= RM 57.69

Example 2 – Work on Rest Day for less than or equal to 4 hours (Half Day)

The employee worked on Sunday (Rest Day) from 10am until 2pm.

Rest Day Pay = 0.5 day

Rest Day Pay Amount = 0.5 x ORP

= RM 76.92

Example 3 – Work on Rest Day for more than 4 hours, less than 8 hours

The employee worked on Sunday (Rest Day) from 10am until 4pm.

Rest Day Pay = 1 day

Rest Day Pay Amount = 1 x ORP

= RM 153.85

Example 4 – Work on Rest Day for more than 8 hours

The employee worked on Sunday (Rest Day) from 10am until 9pm.

Rest Day Pay = 1 day

Rest Day OT hour = 2 hours

Rest Day Pay Amount = 1 x ORP

= RM 153.85

Rest Day OT Amount = 2 hours x 2.0 x HRP

= 2 hours x 38.4615

= RM 76.92

Example 5 – Work on Public Holiday for less than 8 hours

The employee worked on Public Holiday from 10am until 2pm.

Public Holiday Pay = 1 day

PH Pay Amount = 1 day x 2 x ORP

= RM 307.69

Example 6 – Work on Public Holiday for more than 8 hours

The employee worked on Public Holiday from 10am until 9pm.

Public Holiday Pay = 1 day

Public Holiday OT hour = 2 hours

PH Pay Amount = 1 day x 2 x ORP

= RM 307.69

PH OT Amount = 2 hours x 3.0 x HRP

= 2 hours x 57.6923

= RM 115.38

Step 6: Record Keeping and Payroll Processing

Maintain accurate records of overtime worked by each employee. Submit approved overtime forms
to the payroll department within the specified timeframe for accurate and timely payment.

It’s important to ensure accurate payroll calculations to comply with labour laws and provide
employees with the correct compensation for their work on normal days, rest days, and public
holidays. Employees should be aware that certain deductions might be applicable to their overtime
pay.

By following these steps, employers and employees alike can ensure accurate and fair compensation
for overtime work in accordance with Malaysian employment laws and company policies. Remember
that maintaining transparent and open communication regarding overtime and its calculations is
essential to promoting a healthy and harmonious work environment.