Leave Encashment in Malaysia: How to Calculate Payment for Unused Annual Leave

Have unused annual leave that you have not taken? You might be wondering whether you can convert those remaining days into cash.

This is called leave encashment, which means receiving payment instead of taking your unused annual leave.

In Malaysia, employees may be entitled to payment for unused annual leave when they resign or leave a company. However, there are certain rules that both employees and employers should understand.

Here's how leave encashment works and how to calculate the payment.

What Is Leave Encashment?

Leave encashment means converting unused annual leave days into money instead of taking time off.

For example, if you have five unused annual leave days when leaving your company, you may be entitled to receive payment for those remaining days.

There are two common situations:

• During employment: An employer requests an employee not to take their annual leave, and the employee agrees in writing to receive payment instead.
• When resigning: An employee leaves the company with eligible unused annual leave remaining.

Is Leave Encashment Allowed in Malaysia?

Yes. Under Section 60E of the Employment Act 1955, leave encashment is allowed in certain situations.

If you are still working, you cannot automatically request to exchange your annual leave for cash. Payment in lieu during employment requires the employer's request and the employee's written agreement.

However, when employment ends, employers generally need to pay eligible unused annual leave at the employee's ordinary rate of pay.

An exception applies to employees dismissed for misconduct under Section 14(1)(a).

You can refer to Section 60E of the Employment Act 1955 for more details.

How to Calculate Leave Encashment in Malaysia

For monthly-rated employees, the ordinary rate of pay is generally calculated using this formula:

Daily Rate = Monthly Rate of Pay ÷ 26

Then:

Leave Encashment = Daily Rate × Unused Annual Leave Days

Example: RM3,000 Salary with 5 Unused Leave Days

Based on this example, the employee may receive approximately RM576.92 for five eligible unused annual leave days.

The actual amount depends on the employee's applicable rate of pay and employment circumstances.

How Many Annual Leave Days Are You Entitled To?

Under the Employment Act 1955, minimum annual leave entitlement depends on your length of service.

Not sure how many annual leave days you have?

Use our Annual Leave Calculator Malaysia to estimate your leave entitlement and pro-rated annual leave based on your employment start date.

What Happens to Unused Annual Leave When You Resign?

If you are planning to resign, check your remaining annual leave balance before your last working day.

Generally, you may:

• Take your eligible remaining annual leave before your employment ends, subject to the applicable arrangements.
• Receive payment for eligible unused annual leave when your employment ends.

Remember to check your final payslip to make sure your outstanding salary and unused annual leave payment have been accounted for.

FAQs

Can I exchange annual leave for cash in Malaysia?

Yes, in certain situations. During employment, payment in lieu requires an employer request and the employee's written agreement. When employment ends, eligible unused annual leave is generally payable.

Is my employer required to pay unused annual leave when I resign?

Generally, yes. Under Section 60E(3A) of the Employment Act 1955, eligible unused annual leave must be paid at the ordinary rate of pay when employment ends, subject to the statutory exception for misconduct dismissal.

How much is one day of annual leave worth?

For monthly-rated employees, the ordinary rate of pay is generally calculated by dividing the monthly rate of pay by 26.