By Dezan Shira and Associates
As Chinese wages continue to rise and the economy transitions towards a more efficiency based structure of production, the Association of South East Asian Nations (ASEAN) has increasingly been tapped as the next factory of the world.
Those looking to explore opportunities in ASEAN’s growing manufacturing base must be aware of the nuances found within the region and tailor their operations accordingly.
In conjunction with wages differentials, the ability to leverage ASEAN’s young and educated workforce is largely dependent upon regulations found within respective member states.
With direct cost implications for labour intensive investment projects, overtime limitations are among the most important considerations for potential investors.
Although regulatory convergence is certain to be among the long-term goals for the ASEAN economic community, there are still large differences between individual member states when it comes to labour regulation.
Malaysia
Labour laws in Malaysia are laid out under the Employment Act of 1955 and were updated in 2012. Under this legislation, working hours as well as overtime conditions are established.
Triggering overtime
Article 60A(1) of the Employment Act stipulates the maximum number of hours that a person may be compelled to work and thus presents the point at which overtime is to be applied.
Under this article an eight hour day (Art.60A (1)(b)) along with a 48 hour work week (Art.60A (1)(d)) are established. It is also important to note that (60A(1)(c)) mandates that the number of working hours must be completed within a 10-hour period. Any work beyond the 10-hour mark is to be considered for overtime regardless of the total hours worked in the day.
Overtime compensation
Articles 60A(3) and 60D(3) of the Employment Act cover compensation for overtime work in Malaysia.
When exceeding the aforementioned limitations on working days and work weeks, 60A(3)(a) requires that employees be compensated at a rate of 1.5 times their normal wage. If, however, overtime occurs on a public holiday, compensation at a rate of three times the normal wage is required.
Limitations
Under Article 60A(4)(a) of the Employment Act, limitations on overtime are to be decided via independent regulation. To date, existing limitations to overtime are codified in the ‘Employment (limitations on overtime work) Regulations’ laid out in 1980. Regulation two of this package places a monthly ceiling of 104 hours on the quantity of time a person may be compelled to work in excess of their normal working hours.
Indonesia
Implemented in 2003, Indonesia’s Manpower Act covers labour laws within the archipelago and therefore sets relevant restrictions on overtime.
Triggering overtime
Under the Manpower Act, Article 77 defines two ways for employers to schedule workers within a ‘normal’ work week. The first option, outlined in Article 77(2) (a), restricts employees to a seven-hour work day and 40-hour work week over the course of six days. Alternatively, Article 77(2)(b), while maintaining a 40-hour work week, allows for an eight-hour day so long as the work week is restricted to five days.
Overtime compensation
While Article 77 obliges employers to compensate their employees for overtime hours, Article 78(4) defers the specifics of payment to the Ministry of Manpower and Transmigration. Passed in 2004, ministerial decree No.102/MEN/VI/2004 is the most recent legislation addressing such compensation. Article 11 of the decree mandates that employers must compensate their workers at a rate of 1.5 times their normal wage during the first hour of daily overtime work and two times for every hour after.
Any work that is completed on holidays is subject to regulation under Article 11(b). For employees working on a five-day work week, Article 11(b)(3) stipulates that they should be compensated at a rate of twice their normal wage for the first eight hours, three times for the ninth hour of work and four times for any work afterwards.
Alternatively, workers on a six day work week are subject to compensation under Article 11(b)(1) which requires pay at twice the normal wage for the first seven hours, three times for the eighth hour of work and four times for any work there on after.
Limitations
Limitations to overtime hours are codified in the Manpower Act under Article 78. Art.78 (1)(b) restricts overtime to 3 hours in one day and 14 hours in a given week. Together with normal working hours this would total 54 total working hours in a given week.
Thailand
Labour regulation in Thailand is laid out in The Labour Protection Act 1998 and includes relevant restrictions on overtime.
Triggering overtime
Article 23 of the act restricts normal working hours to eight per day and 40 per week. Article 5 defines any work beyond these limits. Overtime may also be triggered under Article 64 in the event that adequate rest periods, specified in Articles 28, 29 and 30, are not provided. It is important to note that, pursuant to Article 24, workers may not be contractually compelled to work overtime and must be consulted on a case-by-case basis.
Overtime compensation
In the event that overtime has been agreed upon, Article 61 stipulates that workers must be compensated at a rate of no less than 1.5 times the normal working wage. Overtime hours carried out on holidays are subject to regulation under Article 63, which requires compensation at rate of three times the normal working wage.
Overtime limitations
Under the Labour Protection Act decisions regarding overtime restriction are deferred to ministerial legislation. Currently, Ministerial Regulation No.3 issued under the Labour Protection Act sets a weekly limit of 36 hours for overtime within Thailand.
While the majority of overtime is covered under this ministerial regulation, Article 11 of the Labour Protection Act sets specific protections for pregnant employees. Under this article, such employees are prohibited from working between 10pm and 6am, working overtime hours, or working on holidays.
This article was first published on ASEAN Briefing. Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile fullservice consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
By Dezan Shira and Associates
As Chinese wages continue to rise and the economy transitions towards a more efficiency based structure of production, the Association of South East Asian Nations (ASEAN) has increasingly been tapped as the next factory of the world.
Those looking to explore opportunities in ASEAN’s growing manufacturing base must be aware of the nuances found within the region and tailor their operations accordingly.
In conjunction with wages differentials, the ability to leverage ASEAN’s young and educated workforce is largely dependent upon regulations found within respective member states.
With direct cost implications for labour intensive investment projects, overtime limitations are among the most important considerations for potential investors.
Although regulatory convergence is certain to be among the long-term goals for the ASEAN economic community, there are still large differences between individual member states when it comes to labour regulation.
Malaysia
Labour laws in Malaysia are laid out under the Employment Act of 1955 and were updated in 2012. Under this legislation, working hours as well as overtime conditions are established.
Triggering overtime
Article 60A(1) of the Employment Act stipulates the maximum number of hours that a person may be compelled to work and thus presents the point at which overtime is to be applied.
Under this article an eight hour day (Art.60A (1)(b)) along with a 48 hour work week (Art.60A (1)(d)) are established. It is also important to note that (60A(1)(c)) mandates that the number of working hours must be completed within a 10-hour period. Any work beyond the 10-hour mark is to be considered for overtime regardless of the total hours worked in the day.
Overtime compensation
Articles 60A(3) and 60D(3) of the Employment Act cover compensation for overtime work in Malaysia.
When exceeding the aforementioned limitations on working days and work weeks, 60A(3)(a) requires that employees be compensated at a rate of 1.5 times their normal wage. If, however, overtime occurs on a public holiday, compensation at a rate of three times the normal wage is required.
Limitations
Under Article 60A(4)(a) of the Employment Act, limitations on overtime are to be decided via independent regulation. To date, existing limitations to overtime are codified in the ‘Employment (limitations on overtime work) Regulations’ laid out in 1980. Regulation two of this package places a monthly ceiling of 104 hours on the quantity of time a person may be compelled to work in excess of their normal working hours.
Indonesia
Implemented in 2003, Indonesia’s Manpower Act covers labour laws within the archipelago and therefore sets relevant restrictions on overtime.
Triggering overtime
Under the Manpower Act, Article 77 defines two ways for employers to schedule workers within a ‘normal’ work week. The first option, outlined in Article 77(2) (a), restricts employees to a seven-hour work day and 40-hour work week over the course of six days. Alternatively, Article 77(2)(b), while maintaining a 40-hour work week, allows for an eight-hour day so long as the work week is restricted to five days.
Overtime compensation
While Article 77 obliges employers to compensate their employees for overtime hours, Article 78(4) defers the specifics of payment to the Ministry of Manpower and Transmigration. Passed in 2004, ministerial decree No.102/MEN/VI/2004 is the most recent legislation addressing such compensation. Article 11 of the decree mandates that employers must compensate their workers at a rate of 1.5 times their normal wage during the first hour of daily overtime work and two times for every hour after.
Any work that is completed on holidays is subject to regulation under Article 11(b). For employees working on a five-day work week, Article 11(b)(3) stipulates that they should be compensated at a rate of twice their normal wage for the first eight hours, three times for the ninth hour of work and four times for any work afterwards.
Alternatively, workers on a six day work week are subject to compensation under Article 11(b)(1) which requires pay at twice the normal wage for the first seven hours, three times for the eighth hour of work and four times for any work there on after.
Limitations
Limitations to overtime hours are codified in the Manpower Act under Article 78. Art.78 (1)(b) restricts overtime to 3 hours in one day and 14 hours in a given week. Together with normal working hours this would total 54 total working hours in a given week.
Thailand
Labour regulation in Thailand is laid out in The Labour Protection Act 1998 and includes relevant restrictions on overtime.
Triggering overtime
Article 23 of the act restricts normal working hours to eight per day and 40 per week. Article 5 defines any work beyond these limits. Overtime may also be triggered under Article 64 in the event that adequate rest periods, specified in Articles 28, 29 and 30, are not provided. It is important to note that, pursuant to Article 24, workers may not be contractually compelled to work overtime and must be consulted on a case-by-case basis.
Overtime compensation
In the event that overtime has been agreed upon, Article 61 stipulates that workers must be compensated at a rate of no less than 1.5 times the normal working wage. Overtime hours carried out on holidays are subject to regulation under Article 63, which requires compensation at rate of three times the normal working wage.
Overtime limitations
Under the Labour Protection Act decisions regarding overtime restriction are deferred to ministerial legislation. Currently, Ministerial Regulation No.3 issued under the Labour Protection Act sets a weekly limit of 36 hours for overtime within Thailand.
While the majority of overtime is covered under this ministerial regulation, Article 11 of the Labour Protection Act sets specific protections for pregnant employees. Under this article, such employees are prohibited from working between 10pm and 6am, working overtime hours, or working on holidays.
This article was first published on ASEAN Briefing. Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile fullservice consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
