Pay cuts are one of many cost-cutting measures adopted by employers as a means of reducing overheads. [1] Others include freezing new hiring, introducing unpaid leave, removing certain allowances, requiring employees to use up their annual leave, and reducing the number of working hours per day.

In relation to pay cuts, the following are some preliminary points to take note of:

    • Generally speaking, your employer cannot cut your pay without your consent [2]; and
    • If your employer has applied for PERKESO’s Wage Subsidy Programme, with regard to you, your employer cannot ask you to take a pay cut. [3]

So, what are your options when faced with a proposed pay cut?

Option 1: Agree to the pay cut

This is the simplest option. You get to keep your job and your employer gets to cut your pay thereby reducing business expenses for the month.

However, this is not really an option if you are in a difficult financial position.

Option 2: Disagree with the pay cut and continue working

If your employer does not unilaterally cut your pay, life goes on. However, in the long run, this may not be sustainable for your employer who may then resort to retrenching employees. [4] [5] If you are a recently hired employee, you are at risk because the general retrenchment principle is Last-In First-Out. [6]

If your employer unilaterally cuts your pay, you have the option of quitting [7] and reporting the matter to the Industrial Relations Department. [8] The matter may then get referred to the Industrial Court.

Option 3: Disagree with the pay cut percentage/amount and counter propose a smaller pay cut

This is an option in theory but in reality, employers are generally not open to negotiation.

Option 4: Disagree with the pay cut and propose a Mutual Separation

This is where you and your employer agree to part ways and your employer pays you RMx as separation benefits. Usually RMx is 1 month’s salary for each year of employment. However, this is negotiable.


The viability of each option depends on your particular circumstance. Know your rights and options then proceed to make an informed decision.

Disclaimer: The contents of this article are intended for general information only and should not be construed as legal advice on a specific set of circumstances. Professional legal advice should be sought separately on any specific set ofcircumstances.

Editor’s Note: This article also appeared on Malaysiakini and New Straits Times

[1] See e.g. Shaheera Aznam Shah, “Small businesses start to cut salaries to survive Covid-19.” The Malaysian Reserve. Accessed May 10, 2020.

[2] For employees not covered by the Employment Act 1955 (“EA 1955”), an exception would be where it is expressly provided for in the contract of employment. For employees covered by the EA 1955, Section 24 of the Act empowers an employer to make lawful deductions in certain circumstances (e.g. overpayment of wages)

[3] It is a condition of the Wage Subsidy Programme. See “Pekeliling Majikan Bil. 5 Tahun 2020.” Official Website Social Security Organisation. Accessed May 10, 2020.

[4] Retrenchment is a discharge of surplus labour/employees by an employer [see William Jacks & Co (M) Bhd v S Balasingam [1997] 3 CLJ 235, at page 241; see also Joshua Wu Kai-Ming, “MCO & Redundancy.” Joshua Wu. Accessed May 10, 2020.]

[5] For employees not covered under the Employment Act 1955, your employer has no statutory obligation to pay severance/termination benefits [see e.g. Dr HC Huang Consultancy Engineers Sdn Bhd v Lim Choon Ntia [2000] 2 ILR 330; Thavalingam Thavarajah & Raymond TC Low, Employment and Industrial Relations Law [Commerce Clearing House (Malaysia) Sdn. Bhd., 2014], pp.227-228]

[6] However, an employer can depart from the Last-In First-Out principle if there are valid reasons for doing so [see Dynacraft Industries Sdn Bhd v Kamaruddin Kana Mohd Sharif & Ors [2012] 9 CLJ 21, at paragraph 14]

[7] Legally, you are treating yourself as having been constructively dismissed by your employer

[8] This is pursuant to Section 20 of the Industrial Relations Act 1967. The requisite form can be found at “Files – MoHR Pouch.” Ministry of Human Resources. Accessed May 10, 2020.