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Salary Advance: What Malaysian Employers Need To Know


A photo of a man wondering what employees and employers need to know about salary advances

In today's fast-paced world, unforeseen expenses and tight cash flow can be a harsh reality for many Malaysians. Salary Advance, once a taboo topic, is gaining traction as a potential solution to bridge temporary financial gaps. But before jumping into this pool, understanding the landscape and navigating it responsibly is crucial.


1. Understanding Salary Advance

2. Legal Framework: Knowing The Boundaries


 

Understanding Salary Advance

Simply put, “Salary Advance” refers to a financial arrangement whereby an employee receives a portion of their future earnings before the scheduled payday. This is often facilitated by the employer to address immediate financial needs, such as medical emergencies to urgent car repairs.


 

Legal Framework


As per section 22(1) of the Employment Act 1955, an employer is prohibited from providing Salary Advance to employees that surpass the amount of wages earned in the previous month. This means that the employee cannot withdraw Salary Advance above his last drawn salary within the same company.


However, this amount can be exceeded for the following purposes:


  1. To purchase/build/improve a house.

  2. To purchase land.

  3. To purchase a motor vehicle.

  4. To purchase shares of the employer’s business offered for sale.

  5. To purchase a computer.

  6. To pay for medical expenses for self of immediate family members*.

  7. To pay for daily expenses pending receipt of any periodical payments for temporary disablement under the Employees’ Social Security Act 1969.

  8. To pay for educational expenses for self or immediate family members*.


Note* "Immediate family members" refers to an employee's parents, spouse, children, siblings, or any other individual under the employee's guardianship.


For any other purposes, the employer must seek written approval from the Labour Director General, who assesses if the advance truly benefits the employee.


 

Is It Mandatory For Employer To Offer Salary Advance?


The Employment Act doesn't force employers to become bankers for their employees. It simply lays out the rules for those who choose to offer Salary Advance. This gives employers the freedom to decide on a case-by-case basis or establish a company-wide policy.


So, should you offer Salary Advance? The answer, like in many aspects of business, lies in a balanced approach. There's no one-size-fits-all answer. Consider the pros and cons:


Pros:

Boosted Morale and Productivity

Employees grappling with financial anxieties often find their focus scattered. By extending a helping hand during turbulent times, employer can witness a surge in morale and productivity as employees shed their financial burdens.


Increased Loyalty and Trust

Stepping in during times of need speaks volumes about an employer's care and compassion. This can foster stronger bonds of loyalty and trust, potentially reducing employee turnover and fostering a more positive work environment.


Cons:

Financial Dependency

Frequent requests for advances can be a red flag, indicating deeper financial struggles. If left unchecked, this can create a cycle of dependence on the employer, adding a layer of complexity to managing your workforce.


Increased Payroll Burden

Managing advances and deductions adds a new dimension to your already intricate payroll system. This can translate to increased workload and potential for errors. To ensure smooth payroll, contact Synergy to explore solutions that simplify advance management and minimize error risks.


 

So, How to Handle Salary Advance Request?


When an employee requests a Salary Advance, several steps can guide an employer toward a responsible and informed decision:


1. Review Company Policy

Establish clear guidelines outlining eligibility criteria, maximum advance amounts, repayment terms, and consequences for non-repayment.


2. Understand the Need

Meet confidentially to discuss the reason behind the request. Unforeseen expenses, medical bills, or other situations can inform your decision.


3. Evaluate Eligibility

Ensure the requested amount doesn't exceed the previous month's salary. Consider past advance requests and overall financial well-being to avoid fostering dependence.


4. Make an Informed Decision

Balance the employee's immediate need with potential risks like payroll disruption or financial strain. If approved, clearly communicate the repayment terms and salary deductions.


5. Maintain Transparency

Document the request and decision process, including written requests from the employee and any necessary supporting documents. Communicate the outcome clearly and professionally.


 

FAQs


1.Can The Employer Charge An Interest?

Absolutely not! As per section 27 of the Employment Act 1955, companies in Malaysia are strictly prohibited from charging interest on Salary Advance. The employee has the right to his/her full salary remains paramount, regardless of an advance.


2. Does The Employer Need A Written Policy?

No. While it's not mandatory, having a clear policy with eligibility criteria, limitations, and repayment terms is highly recommended for transparency and consistency.


3. How Does The Employer Track And Monitor Advances? 

Maintain clear records of advance requests, decisions, and repayments to ensure compliance with policy and legal requirements. Utilizing a HRIS can streamline this process. For efficient record-keeping, consider using a HRIS. Contact Synergy to learn more about suitable HRIS.


 

Remember, knowledge is power. By understanding the nuances of Salary Advance in Malaysia, you can make informed decisions and ensure this tool serves you well. Remember, informed decisions and responsible actions pave the way for a win-win situation for everyone involved. If you have any questions, our team at Synergy is always happy to help (📞+6 010-277 0718 or 📩 info@synergy-outsourcing.com).




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