An employment contract plays a big part in a start-up. Without a proper employment contract between an employer and employee, the border of relationship will become blurry, and many problems will start to surface bit by bit down the time.

How would an employment contract affect start-ups?

Usually, the problem is that there would not be a written employment contract between both parties, and this is very dangerous because the section 10 of the Employment Act 1955 actually specifically states that there must be a written employment contract between parties. But even if some of the company does indeed have a written employment contract, it is usually a contract that they normally just copied and pasted from samples we take online. Business owners should pay attention in this matter as the materials from online might not be as precise as it should originally be, it is recommended that research and studies should be made before-hand to better prepare a legal document for the employees.


Now that we know how important is an employment letter to a company, what are the very essential terms or essential benefits that must be contained in an employment contract?

First of all, it will be wages, as in the salary that the employee is given. This applies to all employees that work under the owner. This is to let both parties adhere to the guidelines, terms and conditions or the statutory provisions under the Employment Act so that they do not run file of the law.

In the contract also it should consist of overtime. In Malaysia, the maximum allowed hours per week under the Employment Act is 48 hours per week, about 8 hours per day from Monday to Friday. Anything that is over and above 48 hours, will be considered as overtime. In the matter of overtime, the maximum allowed overtime hours of an employee are 108 hours per month, and the rate of pay for overtime hours is 1.5 times higher than the normal wage rate, per hour basis. Thus for example, if an employee is paid for RM10 per hour, he/she will be receiving RM15 per hour for every overtime hour.  

Besides that, entitled leaves, specifically Public Holidays should be stated clearly within the contract. This is a crucial but usually missed section within the contract. The proper calender regarding this is actually specifically provided under Section 60D of the Employment Act. According to it, within one calendar year, every employee is allowed up to 11 days of leaves. 5 of which is compulsory, that includes Merdeka, the Agong’s birthday, your respective State Ruler’s birthday, Labour Day and Malaysia Day. Annual Leave Entitlement is also specifically provided under Section 60E of the Employment Act. If an employee is under 2 years of service with the company, the minimum allowed annual leave entitlement is 8 days. If he/she is anywhere within 2 to 5 years of service, minimum annual leave entitlement is 12 days. Anything over and above 5 years of service, minimum annual leave entitlement is 16 days.


Last but not least, a notice of termination of the contract should be included if there is any per discussion, to specify which date will the contract officially ends.
If an employer were to search for this employment contract online, all the materials available are usually very employees’ centric. Thus it is recommended for employers to consult a specialist for advice on how to protect the company’s interest in respect of all these issues.