Retrenchment benefits Malaysia is a topic many SME owners search when business slows down and they must reduce staff. Retrenchment means ending employees' jobs because the business no longer needs those roles, for example because of closure or redundancy. It is not the same as dismissal for bad behaviour.
This guide uses the official Frequently Asked Questions pages of the Department of Labour Peninsular Malaysia (JTKSM). It explains the minimum days of pay, when to pay, and what you must report. We only include facts that we could confirm on these pages.
Key Takeaways
- Employees covered by the Employment Act 1955 or a collective agreement can claim termination benefits when they are retrenched.
- The minimum is 10, 15 or 20 days of pay for each year of service, depending on how long the employee has worked.
- Part of a year is pro-rated, following the nearest complete month.
- Termination benefits must be paid no later than 7 days from the termination date.
- Employers must notify JTKSM of terminations caused by company closure and redundancy. Failure is an offence.
Who Can Claim Termination Benefits
According to JTKSM, a retrenched employee can claim termination benefits if the employee is covered under the Employment Act 1955 or a collective agreement. A collective agreement is a written agreement between the employer and a trade union about work terms.
The rate in the law is a minimum. The JTKSM page says the benefit cannot be lower than the minimum rate in the Employment (Termination and Lay-Off Benefits) Regulations 1980. If your employment contract gives a better rate, the better rate applies.
Minimum Days of Pay for Each Year of Service
The amount depends on the length of service. JTKSM gives three levels:
| Length of service | Minimum days of pay for each year of service |
|---|---|
| Less than 2 years | 10 days |
| 2 years but less than 5 years | 15 days |
| 5 years or more | 20 days |
If the last year is not complete, the benefit is pro-rated for the incomplete period, following the nearest complete month. The JTKSM page also prints a formula that uses a daily wage. The page does not explain in plain words how to get the daily wage from monthly pay, so ask JTKSM or your adviser before you calculate. Do not guess the number.
Other Money the Employee May Claim
Termination benefits are not the only item. JTKSM says that, in general, a retrenched employee may claim the following statutory benefits:
| Item | What it means |
|---|---|
| Pay in lieu of notice | Money paid instead of giving notice |
| Termination benefits | The minimum days of pay for each year of service |
| Annual leave balance | Payment for annual leave not yet taken |
| Salary balance | Any salary still owed |
The pages we read do not state the length of the notice period, so check your contract and the Employment Act 1955 for it.
When to Pay and What to Report to JTKSM
Pay the termination benefits no later than 7 days from the termination date. Give the employee a written note that shows the amount and how you calculated it.
You must also notify JTKSM when you terminate because of company closure or redundancy. This does not apply to disciplinary dismissal. JTKSM names the form as the Employment Retrenchment Notification 2004 (Borang PK with Lampiran 1). It is free from any JTK office and can be downloaded from the Department website. JTKSM states that failing to notify is an offence under Section 63 of the Employment Act 1955, with a fine of not more than RM50,000 for each offence.
Retrenchment Is Not the Same as Temporary Lay-Off
A temporary lay-off is different. JTKSM refers to Regulation 5(1): it happens when the employer does not give work or pay wages for at least 12 normal working days within 4 consecutive weeks. Rest days, public holidays, sick leave, maternity leave and annual leave are not counted as temporary lay-off. If you are unsure which situation you are in, ask JTKSM before you act.
Retrenchment Checklist for SME Owners
- Check if your employees are covered by the Employment Act 1955 or a collective agreement.
- List each employee's years and months of service on the termination date.
- Match each employee to the 10, 15 or 20 days level and check your contract for a better rate.
- Prepare a written note with the amount and the calculation method, and pay within 7 days.
- Submit the retrenchment notification form to JTKSM for closure or redundancy cases.
Conclusion
Retrenchment is hard for the business and for the team, but the steps are clear: know who is covered, pay at least the minimum, pay on time, and notify JTKSM. For a wider view of your duties as an employer, read our Employment Laws in Malaysia guide and our minimum wage update.
Official Sources
- JTKSM: Employees' Retrenchment (Frequently Asked Questions)
- JTKSM: How is the termination benefit payment calculated and when is the benefit payable to the employee?
Last updated: 11 November 2026. This article is general information, not tax or legal advice. Rules can change, so check with the agency before you act.
Frequently Asked Questions
If the employee is covered by the Employment Act 1955 or a collective agreement, the employee can claim termination benefits. The amount cannot be lower than the minimum rate in the Employment (Termination and Lay-Off Benefits) Regulations 1980. Your contract may give more.
The JTKSM FAQ gives 10 days for each year if service is under 2 years, 15 days if service is 2 years but under 5 years, and 20 days if service is 5 years or more. These are minimum rates.
JTKSM says termination benefits must be paid no later than 7 days from the termination date. The employee must also get the amount and the calculation method in writing.
No. The JTKSM FAQ says the retrenchment notification covers termination because of company closure and redundancy. It does not cover termination because of disciplinary action or dismissal.
Retrenchment Benefits Malaysia: A Simple Guide for SME Employers