Termination Benefits in Malaysia: How to Calculate Retrenchment Pay (10, 15 or 20 Days a Year)

In Malaysia, the minimum termination benefit (faedah penamatan, often called retrenchment or severance pay) is 10, 15 or 20 days' wages for every year of service, depending on how long you've worked for the employer. The usual formula is (last 12 months' wages ÷ 365) × days per year (10/15/20) × years of service, with any part year counted to the nearest month.

So someone on a fixed RM3,000 gaji with 3 years 4 months of service gets at least RM4,931.51. Below: who qualifies, how to work out a day's wages, three examples in RM, notice pay, and how EPF, tax and PERKESO's EIS come in.

The statutory rates

The Employment (Termination and Lay-Off Benefits) Regulations 1980, regulation 6, set the minimum. Your contract, a collective agreement or a VSS/MSS package can pay more, but not less.

• Less than 2 years of service: 10 days' wages for every year
• 2 years or more but less than 5 years: 15 days' wages for every year
• 5 years or more: 20 days' wages for every year

Your total length of service decides the rate, and that rate applies to every year. Someone with 6 years' service gets 20 days × 6 years. It isn't 10 days for the first two years and 15 for the next three.

An incomplete year is paid pro rata, to the nearest month. For 3 years 4 months, you use 3.3333 years (3 + 4/12).

Who qualifies

Under regulations 3 and 4, you're entitled to termination benefits if:

1. You've been employed under a continuous contract of service for at least 12 months up to the termination date. Separate stints with the same employer can add up to 12 months if the total gap between them is no more than 30 days.
2. Your contract is terminated for any reason, except the ones listed below.
3. Your wages are RM4,000 a month or less. Since the Employment (Amendment of First Schedule) Order 2022 (P.U.(A) 262/2022), section 60J of the Employment Act, the section these regulations are made under, doesn't apply to an employee whose wages exceed RM4,000 a month. If you're in a First Schedule category such as manual work, check with JTK, because those categories are treated separately.

You're not entitled to the statutory benefit if:

• you're retired by the employer at the retirement age set in your contract
• you're dismissed for misconduct after a due inquiry
• you resign voluntarily (resigning because the employer broke the contract, under section 13(2) or 14(3) of the Act, is the exception)
• your contract is renewed, or you're re-engaged on terms that are no less favourable, straight after the old contract ends
• you unreasonably refuse such an offer made at least 7 days before termination
• the business changes owner and the new owner offers to keep you on no-less-favourable terms within 7 days, and you unreasonably refuse
• you leave before your notice period ends without the employer's consent or without paying in lieu of notice

Out-workers (people who do piecework at home) are excluded entirely.

Above RM4,000? You have no statutory minimum, but what your contract, company policy or separation package says still applies. Many employers use the same 10/15/20 formula or better, so check your letter of appointment and the retrenchment offer.

How to calculate one day's wages

Regulation 6(2) says a day's wages is your average true daily wage over the 12 completed months before termination. JTKSM's FAQ turns that into a formula:

Termination benefit = (12 months' wages ÷ 365) × years of service × 10, 15 or 20 days

"Wages" here uses the Employment Act definition: basic pay and other cash payments for work done. It excludes annual bonus, travelling allowance, gratuity, the employer's own contributions to EPF or similar schemes, and the value of housing or other amenities. If your pay varied (for example commission or shift work), add up the actual wages for the last 12 months instead of multiplying one month by 12.

Worked example 1: 3 years 4 months, RM3,000

Aiman earns a fixed RM3,000 a month and is retrenched after 3 years 4 months.

1. 12 months' wages: RM3,000 × 12 = RM36,000
2. One day's wages: RM36,000 ÷ 365 = RM98.63
3. Rate: 3 years 4 months falls in the 2–5 year band, so 15 days per year
4. Years: 3 + 4/12 = 3.3333
5. Benefit: RM98.63 × 15 × 3.3333 = RM4,931.51

If the employer also skipped the notice period, Aiman can claim pay in lieu of notice on top (see below).

Worked example 2: 6 years 7 months, RM4,000

Mei Ling earns RM3,800 basic plus a fixed RM200 monthly allowance, so her wages are RM4,000. That's not more than RM4,000, so the regulations still cover her.

1. 12 months' wages: RM4,000 × 12 = RM48,000
2. One day's wages: RM48,000 ÷ 365 = RM131.51
3. Rate: 5 years or more, so 20 days per year
4. Years: 6 + 7/12 = 6.5833
5. Benefit: RM131.51 × 20 × 6.5833 = RM17,315.07

Worked example 3: 1 year 5 months, RM2,200

Hafiz earns RM2,200 and his job is made redundant after 1 year 5 months.

• One day's wages: RM26,400 ÷ 365 = RM72.33
• Rate: under 2 years, so 10 days per year
• Benefit: RM72.33 × 10 × 1.4167 = RM1,024.66

With under 12 months' service, he'd get nothing under the regulations, though his contract may still give something.

Notice pay is separate

Regulation 6(4) says termination benefits are in addition to any payment under section 13 of the Act. If no written contract term sets the notice period, section 12 gives these minimums:

• Less than 2 years: 4 weeks' notice
• 2 to under 5 years: 6 weeks' notice
• 5 years or more: 8 weeks' notice

If the employer ends your job without working out the notice, they pay wages for the notice period instead. For Aiman, 6 weeks of RM3,000 a month is about RM4,153.85 (RM3,000 × 12 ÷ 52 × 6), on top of his RM4,931.51. Any unused annual leave and unpaid salary are owed as well.

When it must be paid, and the written statement

• The employer must pay within 7 days of the termination date (regulation 11). Late payment is an offence.
• With the payment, the employer must give you a written statement showing the amount and how it was worked out (regulation 12). If you don't get one, you can ask in writing, and the employer then has 14 days to provide it.
• Disputes go to the Labour Department (JTK) under Part XV of the Employment Act.

EPF, tax and PERKESO (EIS)

EPF (KWSP): retrenchment, lay-off and termination benefits and payment in lieu of notice aren't subject to EPF contribution. Your final month's normal salary is. See EPF contribution rates explained.

Income tax (LHDN): compensation for loss of employment is taxable employment income. PCB is worked out on it as "additional remuneration", the same way as a bonus. The law gives a partial exemption for each completed year of service with the same employer or group, and a full exemption if the job loss is due to ill health. Check LHDN's current exemption amount before you plan around a net figure. Your employer may also hold back money owed to you for up to 90 days while LHDN issues tax clearance on Form CP22A.

PERKESO EIS (SIP): retrenchment, VSS/MSS, business closure and constructive dismissal count as loss of employment under the Employment Insurance System. You must apply within 60 days of losing your job to claim the Job Search Allowance and training support. Ordinary resignation isn't on PERKESO's list. See EPF vs SOCSO vs EIS for how EIS contributions work.

Common mistakes

• Stepping the rates. With 5+ years, every year is at 20 days, not 10 → 15 → 20.
• Dividing by 26 or 30. JTKSM's formula uses 12 months' wages ÷ 365.
• Using only the last month's pay when wages varied. Use the actual 12-month total.
• Including the annual bonus or travelling allowance in wages. Both are excluded.
• Assuming the RM4,000 cap applies to everyone. Above RM4,000 there's no statutory minimum, but your contract or package still binds the employer.
• Missing the EIS 60-day window. File with PERKESO soon after your last day.
• Forgetting notice pay and leave pay. They're separate from the termination benefit.

To see what your final month's salary looks like after EPF, SOCSO, EIS and PCB, use the salary calculator. If you're leaving mid-month, the prorated salary guide shows how to work out the part-month pay.