Understanding the difference between gratuity and compensation is crucial for both employers and employees. While they both involve payments, they are handled differently under Malaysian law. Here’s a clear breakdown to help you navigate these provisions.
What is the Difference?
- Gratuity: This refers to payments received for past services rendered to an employer.
- Compensation: This is a lump sum payment received for the loss of employment.
Full Exemption
You are granted full exemption for both gratuity and compensation under these specific conditions:
- The termination was due to health factors.
- The payment was received upon death or injury.
Gratuity also has an additional condition for full exemption:
- The employee has reached the age of 55 or a compulsory retirement age after 10 years of service with the same employer.
Partial Exemption
For partial exemption, the rules are as follows:
Gratuity: An exemption of RM1,000 for each completed year of service is granted when retiring from an employment or upon termination of an employment contract.
Compensation: An exemption of RM10,000 for each completed year of service is granted.
These rules are based on different public rulings:
- Gratuity: Public Ruling No. 9/2016
- Compensation: Public Ruling No. 1/2012
Source: https://www.hasil.gov.my/media/yhnnh3xy/sepintas-e-buku-hasil-2025.pdf
Contact Us
Staying informed about these provisions is key to sound financial and HR management. By understanding the distinction between gratuity and compensation, you can ensure your company remains compliant and your employees are treated fairly.
For a deeper dive into these topics or to get expert advice on your specific situation, feel free to reach out to our team.
Email: enquiry@mywave.biz
Website: www.mywave.biz
