Unused annual leave in Malaysia: use it, carry it forward or cash it out?

It's November, and Farah has just had a gentle reminder from HR: "Please clear your leave balance before year-end." She opens the leave portal and sees nine days left. Between a big project and a colleague on maternity leave, she isn't sure when she can take them. Will those days simply disappear? Can she be paid for them instead?

If you're looking at your own leave balance with the same question, you're not alone. The good news is that the Employment Act 1955 gives you more protection than many people realise, and a short, friendly chat with HR can often sort out the rest.

Let's go through it together.

This guide is general information, not legal advice. It follows the Employment Act 1955, which applies to Peninsular Malaysia and Labuan. Sabah and Sarawak have their own Labour Ordinances, so the details may differ there. For your specific situation, the Labour Department or a qualified lawyer can help.

In this article

• The short answers

• Your leave has two layers

• Does your leave really expire on 31 December?

• Can you carry it forward?

• Can you cash it out?

• What happens to your leave when you resign

• When your manager says "not now"

• Two small rules that can save you a leave day

• A message you can send to HR

• Your year-end leave checklist

The short answers

• Does the Act have a 31 December deadline? No. The Act's deadline depends on your service, not the calendar. Your company's policy may set its own date, especially for extra leave.

• Can you demand cash for unused leave while still employed? Generally not. It depends on your company's policy, or on an arrangement your employer requests and you agree to in writing.

• Do you get paid for unused leave when you leave the job? Generally yes, whether you resign or your employer ends the contract. The main exception is dismissal for misconduct.

Your leave has two layers

Many leave questions become easier once you split your balance into two parts.

The first layer is your legal minimum. Under Section 60E of the Employment Act, the minimum depends on how long you've been with the same employer:

Since 1 January 2023, the Act has covered employees whatever their salary, so this minimum also applies if you earn above RM4,000 a month. Domestic employees are the main exception, as this part of the Act doesn't apply to them.

The second layer is anything extra your employer gives you. If you have 18 days a year and 5 years of service, then 16 days are your legal minimum and 2 are a company benefit. That extra leave generally follows your contract or company policy.

A contract can be more generous than the Act, but under Section 7, any term less favourable than the Act is void to that extent. That's why it helps to know where your minimum sits.

Does your leave really expire on 31 December?

Here's the part that surprises many people. Section 60E(2) says the employer shall grant, and the employee shall take, annual leave "not later than twelve months after the end of every twelve months continuous service."

In other words, the Act's clock runs on your service years, and it gives you a full extra year to use the leave you've earned.

For example, say you joined on 1 March 2024. Your service year from 1 March 2025 to 28 February 2026 earns you your minimum leave. Under the Act, you would have until 28 February 2027 to take it.

Many companies use a calendar-year system because it's simpler to run, and that's fine for many purposes. But one Malaysian law firm, Donovan & Ho, has cautioned that policies which shorten the time allowed under the Act may not be compliant. So if a year-end rule would wipe out part of your legal minimum, it's fair to ask HR, kindly, how the policy treats it.

There is still a real deadline, though. If you don't take your statutory leave within that period, the Act says you "shall thereupon cease to be entitled" to it. So it's best not to let it drift.

One thing to keep an eye on: in November 2024, the Human Resources Ministry told Parliament it would review labour laws, including Section 60E. We haven't found any change to the rules so far, and we'll update this guide if that changes.

Can you carry it forward?

"Carry forward" is a workplace term rather than a legal one. You won't find the phrase in the Act. In practice, there are two things to separate:

• The Act's extra 12 months described above, which applies to your statutory leave.

• Your company's carry-forward policy, such as "up to 5 days, to be used by 31 March."

HR guides and legal commentators don't all describe the relationship between the two in the same way, so we'd suggest looking at your own policy first. Check how many days can be carried, when they expire and whether you need approval. Limits like these are most clearly a company matter for leave above your legal minimum.

Can you cash it out?

While you're still employed, cash for unused leave isn't an automatic right. The Act allows payment in lieu when, at your employer's request, you agree in writing not to take some or all of your leave. Your company policy may also offer leave encashment, so it's always worth asking.

How is it calculated? For statutory leave, the Act uses your ordinary rate of pay. If you're paid monthly, that is your monthly rate of pay divided by 26.

For example, on a monthly rate of RM3,900:

• RM3,900 ÷ 26 = RM150 a day

• 5 unused days × RM150 = RM750

Expect the final amount to be a little lower. KWSP lists payment for unutilised annual leave as a wage that is subject to EPF contribution, and the payment can also be subject to income tax. Your payslip will show the details.

What happens to your leave when you resign

This is where the Act is especially clear.

You can take it before you go. Under Section 60E(2A), when your contract is ending, you're entitled to take your leave before the end date. This covers leave due from the previous 12 months of service, plus leave accrued for your completed months in the final year.

Or you can be paid for it. Under Section 60E(3A), if the contract is terminated "by either party" before you've taken your leave, your employer must pay you for each of those days at your ordinary rate of pay. So this generally covers resignation too. The exception is if you're dismissed for misconduct under Section 14(1)(a).

How do you work out the final year? It's in direct proportion to your completed months. Less than half a day is ignored, and half a day or more counts as a full day.

For example, with an 8-day entitlement and 7 completed months in your final year:

• 8 × 7 ÷ 12 = 4.67, which rounds up to 5 days

• Take away any leave you've already used that year, and the balance is what you can take or be paid for

Using leave during your notice period? Talk to HR early and agree the dates in writing, including your last working day and your last day of employment. Our guide to notice periods in Malaysia can help you plan this, and a well-written resignation letter is a good place to raise it.

When your manager says "not now"

Your manager isn't being unkind if they ask you to move your dates. Employers can generally manage leave schedules for genuine reasons, such as peak periods or too many people away at once. But that isn't the same as refusing your statutory leave indefinitely, because the Act also says the employer "shall grant" it.

If your dates are declined, try these gentle next steps:

1. Offer two or three alternative dates and ask which would work best.

2. Keep the conversation in writing, so you have a record of when you applied and what you were told.

3. Raise it early if your deadline is close. The Act doesn't spell out exactly what happens if leave keeps being refused until the deadline passes, so a written record really helps.

What if you're told to use your leave because the company is closing? After Chinese New Year 2025, the Human Resources Ministry reminded employers that they cannot force employees to take annual leave or unpaid leave to reduce business costs during closures beyond the gazetted holidays. It said annual leave must be granted at the employee's own request, and advised affected employees to report to their nearest Labour Office under Section 69.

Section 69 is also the route for a dispute over cash due to you, including unpaid leave money. We hope you'll be able to settle things with a friendly conversation first, but it's reassuring to know that help exists.

Two small rules that can save you a leave day

If you fall sick during your leave. Under Section 60E(1B), if you become entitled to sick leave or maternity leave while on annual leave, you're given that leave instead, and those days count as annual leave not taken. So if you get an MC on holiday, keep it and let HR know. Do check your company's reporting rules too.

If a public holiday falls during your leave. Under Section 60E(1A), annual leave is in addition to rest days and paid holidays, so these shouldn't use up your leave days. Our 2027 public holidays guide can also help you plan next year's breaks.

One more to be aware of: being absent without permission or reasonable excuse for more than 10% of working days in the relevant 12 months can cost you that period's annual leave entitlement.

A message you can send to HR

Not sure where you stand? A short note like this keeps things friendly and gives you a helpful record:

"Hi Puan Lim, I hope you're well. I have 9 days of annual leave left and would like to plan them properly. Could you let me know how many can be carried into next year and by when they need to be used? Also, is leave encashment an option for any remaining days? I'd like to make sure my team is well covered, so I'm happy to work around busy periods. Thank you!"

Your year-end leave checklist

• Check your leave balance, and when each portion expires

• Find your contract and the leave section of your employee handbook

• Work out your statutory minimum and any extra days from your employer

• Note your service-year dates, not only the calendar year

• Apply early for year-end dates, as many people want the same ones

• Ask HR about carry-forward and encashment, and keep the reply

• If you're resigning, agree your leave and last day in writing

• Check your final payslip for any leave payment

The bottom line

Annual leave is not a favour. It's part of what you've earned, and it's there so you can rest, recharge and spend time with the people you care about.

So check your balance, ask your questions early and book those days while you can. If the leave portal is still showing nine days in December, you now know exactly what to ask. And if a break helps you realise it's time for something new, we'll be here. Browse jobs on Eternity Job whenever you're ready, and take a look at our guide on whether to resign before or after your bonus.

Enjoy your well-deserved time off!