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Unused Leave in Malaysia: Can You Encash or Carry It Forward? (2025 Guide)

The end of the year often brings a common dilemma for many employees in Malaysia. You check your leave balance and discover a stockpile of unused annual leave days. This naturally leads to an important question: what can you do with them? Can you convert them to cash, or can you save them for a longer holiday next year?

Understanding your options for unused leave is crucial for both employees and employers. For employees, it’s about making sure you don’t lose a hard-earned benefit. For employers, it’s about managing financial liabilities and ensuring company policies are fair and legally compliant.

This guide will explain everything you need to know about unused leave in Malaysia. We will cover leave encashment, carry-forward policies, and forfeiture, all within the framework of Malaysian law. Furthermore, we will explore how modern tools like an HRMS can eliminate confusion and streamline the entire leave management process.

What Exactly is Unused Annual Leave?

Unused annual leave, sometimes called accrued leave, refers to the paid time off an employee is entitled to but has not taken by the end of a specific period, usually the calendar year. Every employee who has worked for more than a year is entitled to a certain number of paid leave days. When these days aren’t used, they become “unused leave.”

This situation often creates challenges. For employees, the rules can be unclear, leading to anxiety about losing their leave. For employers, accumulated leave represents a financial liability and can cause workforce planning headaches if many employees decide to take long holidays at the same time.

Your Options for Unused Leave in Malaysia: A Clear Breakdown

When you have unused leave at the end of your company’s leave cycle, there are generally three possible outcomes. These are typically determined by your employment contract and internal company policies.

Leave Encashment: Getting Paid for Your Unused Days

Leave encashment is the process of receiving a cash payment equivalent to your salary for your unused leave days. Essentially, your employer “buys back” your untaken holidays.

However, it is important to note that, unless you are leaving the company, your employer is not legally required to offer leave encashment. It is a benefit offered based on your employment contract or the company’s internal handbook.

Carry Forward Leave: Saving It for Next Year

Another common option is to carry forward your unused leave to the next year. This allows you to add your leftover days to the following year’s leave entitlement, giving you the chance for a longer vacation later.

This policy is also not automatic. It is entirely dependent on your company’s rules. Many companies that allow this practice set specific conditions, such as:

• A limit on the number of days you can carry forward (e.g., a maximum of 5 days).
• An expiry date for the carried-forward leave (e.g., must be used by March 31st of the next year).

Leave Forfeiture: The “Use It or Lose It” Policy

Leave forfeiture means that if you don’t use your annual leave within the entitlement year, you lose it completely without any compensation. While this might sound unfair, it is permissible under certain conditions.

According to the Employment Act 1955, paid annual leave is a mandatory benefit. However, the Act also states that an employee must take their leave within twelve months after the end of the service year. If they fail to do so, their right to that leave is forfeited. Therefore, companies can implement a “use it or lose it” policy as long as they give employees ample opportunity to take their leave.

The Law on Unused Leave: What the Employment Act 1955 Says

To fully understand your rights, it’s essential to know what the law says. The Employment Act 1955 provides the legal foundation for leave policies in Malaysia.

Your Minimum Annual Leave Entitlement

Section 60E of the Act mandates the minimum number of paid annual leave days an employer must provide. This entitlement is based on an employee’s length of service:

• Less than 2 years of service: Not less than 8 days per year.
• 2 to 5 years of service: Not less than 12 days per year.
• 5 years or more of service: Not less than 16 days per year.

For a complete overview of your rights, you can refer to this detailed leave entitlement Malaysia guide.

The Golden Rule for Unused Leave When You Resign

The law is very clear on what happens to your unused leave when your employment ends. Section 60D of the Employment Act states that an employer must pay the employee for any unused annual leave upon termination or resignation.

This is known as payment in lieu of leave, and it is a legal requirement, not a company perk. Your employer cannot forfeit these leave days, regardless of the company’s carry-forward policy. For more details, you can read about what happens to annual leave when employees resign.

How Worksy HRMS Ends the Confusion Over Unused Leave

For businesses, managing different leave policies, tracking balances, and ensuring compliance can be a significant administrative burden. This is where an effective HRMS like Worksy transforms the process.

Automate Leave Tracking and Balances

Worksy HRMS completely automates leave management. It removes the need for manual spreadsheets and paper forms, providing real-time, accurate leave balances for both employees and managers. This transparency ensures everyone knows exactly where they stand at any given moment.

Implement Your Leave Policy with Clarity

Whether your company offers leave encashment, sets carry-forward limits, or has a forfeiture rule, you can configure these policies directly in Worksy. The system then enforces these rules automatically and consistently, leaving no room for human error or unfair treatment.

Simplify Reporting and Financial Planning

With just a few clicks, HR managers can generate detailed reports on accrued leave across the organization. This data is invaluable for financial planning, as it helps the company understand its liabilities related to unused leave. It also allows managers to proactively encourage employees to take their well-deserved breaks.

Empower Employees with a Self-Service Portal

One of the key benefits of an eLeave management system is employee empowerment. Through the Worksy portal, employees can apply for leave, view their leave history, and check their balances anytime, anywhere. This drastically reduces the number of routine queries sent to the HR department, freeing them up for more strategic tasks.

Conclusion: Make Your Unused Leave Work for You

In summary, what happens to your unused leave depends almost entirely on your employment contract and company policy, grounded within the framework of the Employment Act 1955. Your main options are encashment, carrying it forward, or, in some cases, forfeiture.

For employees, the best advice is to be proactive. Review your company handbook and employment contract to understand the specific rules that apply to you.

For employers, the key is to establish a clear, fair, and compliant leave policy. More importantly, using a reliable system like Worksy HRMS can automate and simplify the entire process, ensuring accuracy, transparency, and peace of mind.

Ready to streamline your leave management? Discover how Worksy can help you manage your team’s leave entitlements with ease and precision.