Gratuity Calculator Malaysia

In Malaysia, two different things are often called "gratuity". It is important not to confuse them:

• Statutory termination & lay-off benefits — a mandatory minimum set by the Employment (Termination and Lay-Off Benefits) Regulations 1980, made under section 60J of the Employment Act 1955. This is what the calculator computes.
• Contractual gratuity — a discretionary long-service reward defined in an individual contract, company policy or collective agreement. There is no general private-sector statute that mandates gratuity.

Under Regulation 6 of the 1980 Regulations, the minimum benefit per year of service is:

• Less than 2 years of service: 10 days' wages per year;
• 2 to less than 5 years: 15 days' wages per year;
• 5 years or more: 20 days' wages per year.

Incomplete years are paid pro-rata to the nearest month. A day's wages is the average over the last 12 months; the calculator uses the common convention of monthly wages × 12 ÷ 365. You must have at least 12 months of continuous service to qualify (Reg. 3).

Example: 6 years of service at RM3,000/month → 20 days × 6 years × (RM3,000 × 12 ÷ 365) ≈ RM11,836.

Since the Employment Act 1955 amendments took effect on 1 January 2023, the Act applies to all employees regardless of wage. However, termination and lay-off benefits (along with overtime and rest-day/public-holiday pay) do not extend to employees earning more than RM4,000/month, except manual workers. Above that threshold, any severance is purely contractual.

Statutory termination benefits are not payable if (Regulation 4):

• the employee resigns voluntarily (unless it is a constructive dismissal under s.13(2));
• the employee is dismissed for misconduct after due inquiry;
• the contract stipulates a retirement age and the employer terminates on the employee reaching it;
• the employee unreasonably refuses a renewal on terms not less favourable.

They are payable on retrenchment, redundancy, lay-off, closure, or change of business ownership without equivalent re-employment.

Statutory termination benefits are treated as compensation for loss of employment, which is exempt from income tax at RM10,000 for each completed year of service(Schedule 6, Income Tax Act 1967). Any balance above the exemption is taxable as employment income.

A contractual gratuity follows different rules: it is fully exempt if you retire due to ill health, or on/after age 55 with 10 years' continuous service; otherwise it has a partial exemption of RM1,000 per completed year (Public Ruling 9/2016). This tool shows the exempt amount but does not compute the exact PCB on any taxable balance.