TABLE OF CONTENT

1.0     INTRODUCTION                                                                    2

2.0     THE DIFFERENCE BETWEEN CONTRACT OF SERVICE

          AND CONTRACT FOR SERVICE.                                         3

          2.1     Contract of Services                                                        3

          2.2     Contract for Services                                                      4

         

3.0     CONTRACT OF SERVICE OR CONTRACT FOR SERVICE:

HOW TO DETERMINE EMPLOYER-

EMPLOYEE RELATIONSHIP?                                              7

          3.1     Control Test                                                                    9

          3.2     Independence Test                                                          10

          3.3     Integration Test                                                              10

          3.4     Multiple / Mixed Test                                                     11

          3.5     Mutual Obligation Test                                                   12

          3.6     Economic Reality Test                                                    12

4.0     EVALUATION PECUNIARY TERMS AND NON-PECUNIARY TERMS  IN THE EMPLOYMENT ACT 1955

          4.1     PECUNIARY TERMS                                                   13

          4.2     NON PECUNIARY TERMS                                          17

5.0     CONCLUSIONS                                                                     22

          REFERENCES                                                                        23

1.0       INTRODUCTION

The company manpower is below 100 persons thus they are not unionized.

2.0       THE DIFFERENCE BETWEEN CONTRACT OF SERVICE AND CONTRACT FOR SERVICE.

In any business environment, the job scope and job hiring policies may vary according to the need and trend of the business. There are organizations that seek long term, committed and loyal employees to devote their experience and time to the organizations till forever. On the other hand, there are organizations that do not seek long term committed employees but members who are hired for a temporary purpose and who are relieved from services upon completion of the tasks. In between these two scenarios, there are maybe organizations that may hire employees on both long term and short term periods. It is in the best interest of the organizations and employees to establish a detailed contract among each other in order to avoid any misunderstanding and legal complications.

            2.1       Contract of Services

In simple business terms, “Contract of Services” illustrates a contract that is established between the employer and employee for a long term services offered by the employee in return of substantial benefits and social security. The relation is often considered as a Master-Slave relationship, with obvious reference to employer as master. The contract of services allows the employee and employer to deliberately discuss and agree upon terms and conditions for a long term period. Termination of services or the service period is usually not mentioned. In cases when the validity period of contract is mentioned, it is mostly accompanied by an article for extension of services for the employer upon mutual agreement. The contract of services covers all the job scope, however generally, that an employee is expected to undertake during his tenure with the organization. These job scopes may not underline or mention the projects that he may be required to complete but the job related scopes are mentioned in order to provide him a guideline as well as to ensure obedience to organization’s goals and objectives by the new member.

The employee is made to undertake the oath to follow company policies, timings, regulations and other codes of ethic for the duration of time he is hired. Few of the terms of the contract of services are applicable even after the completion or termination of services by the employer. These may include sharing company matters, secrets and other procedural details that may affect or harm company in any way later. That is the reason the employee under contract of services is entrusted with more details and information in a company as his actions are prosecutable even when he is not member of the team. The employer bestows more benefits upon the employee as he considers him to be a long term member of the organization working in the best interest of the company. Incentives, on job training and other facilities are often rewarded to the employees hired under contract of services. It is the preferred scenario for those seeking long term commitment at their and company’s end. However, for many professionals, contract of services may not be the preferred scenario. They may opt to be affiliated with the company for specific goals and objectives and may like to be relieved upon successful completion of those goals or tenure.

2.2       Contract for Services

The contract of services, on the other hand, is a term that defines the contractual obligation between two businesses or a business with a self-employed individual, which in legal world is considered to be an entity when entering the contract for services. In basic terms, contract for services is a contract between two entities that binds them together for a definite period of time, for specific goals and objectives and the contract is deemed terminated upon completion of those tasks, goals or objectives. The contract of services, as understood by both parties, is for a temporary purpose, even if the duration of such a contract may last over years upon mutual agreement. But, successful completion of the objectives entitles either party for a smooth and clean break away from the contract, without jeopardizing future relations with the other party. In terms of a contract between a business and a self-employed person, he/she may hire others to carry out and assist in the work and he/she is solely responsible for the satisfactory completion of the job. The contract for services is signed between the two entities to fulfill the objectives within legal means. How and who achieves those is not considered to be important at company or employer’s end. The basic concerns are with the delivery of the goals in the predetermined time period. The “employee” or the hired business is not required to follow the policies, ethics and norms of the hiring business or the “employer” unless mentioned otherwise in the contract for services. Similarly, the employee is not functioning towards the greater objectives of the organization. They are hired to fulfill or complete a small segment or portion of the business to assist it achieve its ultimate goals via employees who are hired under contract of services. The contract for services offers more freedom of operations, flexibility of working hours and liberty to finish job prior to the given period at the same payments decided earlier. The employee under contract for services is able to accept few of such contracts, contrary to an employee under contract of services who is only allowed to operate for one such contract. Though contract for services offer greater flexibility, it reduces the long term commitment and security provided by the employer or the hiring business. The employers are at liberty, mostly, to terminate the services upon completion of one such contract. They do not have to find relevant reasons or excuses to remove such hired person under contract for services. As a result, the organizations are expected to understand the compromise they have to make on the quality of workforce and the cost it may incur to them as, usually, the services offered under contract for services cost higher than the regular services offered under contract of services. The decision, at the end of the day is with the organizations to choose the mode that suits best their needs and budget.

In order to study the importance of the two, importance of the differences of the two and importance of the implication of the two, we must first realize what the differences between the two types of contracts are. In the following paragraphs, we will study the significant differences. In each of these types of contract, both parties have specific rights and responsibilities, which differ according to the type of contract in place. Contractors should be aware of their rights and responsibilities when they have a contract for services between their limited company or contractor umbrella company and their agency or end-user client.

The difference between contract of service and contract for services can be summarized as below:

3.0       CONTRACT OF SERVICE OR CONTRACT FOR SERVICE: HOW TO DETERMINE EMPLOYER-EMPLOYEE RELATIONSHIP?

Even though there seem to be well-define definition between the two terms (of verses for), but however, when dispute occurs between the employer and the employed (employee or sub-contractor), the status of the employed must be determined before legal resolution of dispute can be commence. This is because, both the “of” (employee) and “for” (sub-contractor) employed are subjected to different set of laws, and “it determines the statutory protection that applies” (Asmah Laili et al, 2013).

An example of why the determination of employee’s status must be determined can be seen in the case of Dr A. Dutt v Assunta Hospital (1981) [1981] 1 LNS 5. In one of the point in the case, the council for the hospital argued that Dr. A. Dutt was actually an independent contractor (by the implying the employment contract as “contract for services”), however, the Industrial Court ruled that the applicant was actually an employee (contract of service). Thus, he was entitled to the compensation due to his wrongful dismissal by the hospital. And it was further (finally) supported by Court of Appeal (after 21 years of cross court battles!):

“1. The hospital argued that Industrial Relations was not meant for professionals. This was rejected at all stages. Following that decisions employees employed in the capacity of managers, executives, confidential and security come under as workman under the Act who were engaged under a contract of service.” (Emphasis is ours)

There are quite a few legal tests used for determining the actual employer-employee relationship:

Table 2: Legal Tests and Court Case Examples (Asmah et. al., 2013; Lee, 2007; Bell,2006)

3.1       Control Test

This is also called the Traditional Test, it determines how much control is being exercised over the worker by the employer. The more control that is being exercised, it is more likely that the worker is an employee regardless of what the contract says.

Traditionally ‘masters’ exercised actual control over their ‘servants.’ However, in more recent days, as technology, education and even people become more advance or specialize, employees will often know more about the subject area they are working in than their employers.

The control test does not therefore look at whether the employer is operating actual control, but rather asks whether the employer could exercise control.

For example, a manager asks his IT executive to design and maintain company website in which the manager has zero knowledge about web programming. The manager has the right to asks what must be included in the website, he/she may even choose the color and flavor of the website theme (in control). However, he/she does not tell his/her IT executive how to do the job (not in control or operating actual control). But, the manager does pay his/her employee’s monthly wages, contributes in EPF and SOCSO, and exerts control over the working hour (in control).

Essentially, the more control the employer has on the employed means the employed is more likely to be employee. The less control the employer has on the employed means the employed is less likely to be employee.

Nevertheless, the control test does not manifest a prima facie contract of service though the element of control is fulfilled (or inversely, contract for service though the element of control is not fulfilled).

In the case of Bata Shoe Co (Malaysia) v EPF Board (1967), the shop managers were employees of BATA due to the considerable control which the company had over the shop managers. However, the salesman employed by the manager were not. They were instead the employees of the manager!

It is actually the opposite of Control Test. It looks at how independent the employed is at doing the given task/assignment. Does the employed have independence in deciding how the work is to be done (procedurally different or different standard), can the employed adjusts or decides his/her work hours (but still complete within dateline), can he/she subcontract out work, et cetera.

This does not necessarily mean “working independently unsupervised” on a “routine” task; or being “flexible” on doing tasks; or asked someone to help with an agreed fee. Control Test and Independence Test must also look at other legal tests.

The Integration Test (or Organizational Test) refers to the fact that employees are an essential group for an organization.

Is the job/work performed under the contract integral to the operation of the business structure (as a whole), or is it only works on the side (accessory) of the main business? One feature which seems to run through the instances is that:

If the person is integrated in the “employer’s” organization structure, then most probably he is an employee (even though the agreement says otherwise e.g. contract for services).

In the case of EPF Board v M.S Ally & Co (1975), the Federal Judge held that the working assistants who managed the business of MS Ally & Co, was rewarded by a share of the profits, as they were employees of MS Ally since there was sufficient control over the working assistants.

In his word: “...the person rendering assistance forms a part of the organization and the work done is an integral part and not merely an addition to the business.”

The Multiple Test (or the Mixed Test) refers to the entire situation. In other words, all the related and relevant factors are considered.

This is explained in Ready Mixed Concrete (South East) Ltd v Minister of Pensions (1968) where the judge outlined several conditions for contract of service to exist:

(Asmah et. al.,2013)

In that case, the company which was in the business of making and selling ready mixed concrete (RMC) seem to have some measure of close control (which the workers must drive ready mixed concrete lorries they were buying on hire purchase agreement from the appellant company, which required in a detailed contract that they must among others use the lorry only on company business, maintain it in accordance with the company’s instructions and obey all reasonable orders).

However, there were no requirements about hours of work and the times at which the drivers took holidays. Moreover, they could generally hire out the driving of their vehicle to another and were paid. One Mr Latimer was under the impression of having contract of service instead use the vehicle to do his own business!

The case was ruled in the favor of the company that the workers were not employee (but independent contractor) and the company did not need to contribute in SOCSO.

In Mutual Obligation Test, it requires that:

In Carmichael v National Power Plc (1999) (2000) IRLR 43:

(Asmah et. al., 2013)

There was no obligation on both side, thus, there was no contract of service.

In short, it is the intention of both parties that is important.

Economic Reality Test (or Entrepreneur Test) has been used before as in Market Investigation Ltd v Minister of Social Security (1969) 2 WLR 1. It offers deeper advantages whereby the employer and worker have dressed up a master/servant relationship in the essence of a contract for service. The basic question asked which makes it an economic reality test (after considering the points in previous RMC case) is:

“Was the worker in business on their own account?”

However, the Court did not make this standing test as the previous tests are still relevant. An application of this test can be seen in Lee v Chung & Shun Shing Construction & Engineering Co Ltd (1990) IRLR 236.

In short, if such “employment” is an investment and entails financial risk, then it is contract for services (instead of contract of service).

4.0       EVALUATION PECUNIARY TERMS AND NON-PECUNIARY TERMS IN THE EMPLOYMENT ACT 1955

4.1       PECUNIARY TERMS

Employment Act, 1955 (AK1955) provides the minimum rights that must be provided by the employer to the employee. If the provision of the employment contract is less than what is provided by AK 1955, Section 7 will apply. One of the real terms in the contract is the terms pecuniary, the terms of the financial affairs. It includes wages and salaries, allowances, bonuses and ex-gratia payments and benefits pecuniary. Terms in respect of wages and allowances will usually be stated clearly in the service contract. Pecuniary benefits will consist of the termination of benefits, retirement or removal of benefits, termination benefits of mass employment layoffs, retirement, resignation benefits, maternity benefits, medical benefits and insurance benefits.

           

1.      Payroll deductions

Section 24(1) AK 1955 states that employers are not allowed to make any deduction of the salaries of its employees, except those provided by the Act only, The conditions of the salary deduction made in accordance with the Act under Section 24(2) is the following;

a) Deductions from salary to the extent that any payment is made for errors employer within three months earlier.

b) deduction for the indemnity to be paid by the employee to the employer under Section 13(1)

c) Deduction for recovery of salary advances of wages made under Section 22 with no interest charged d) The deduction allowed by law to another.

Section 24(3) lists the deductions to be made only with prior written request from the employee. Some pay cuts are:

a) Deduction in respect of salary payments to a registered trade union or society, and loan association for any fee, instalment and fardah or other debt, and

b) Deduction in respect of any payment for any shares in the employer's business offered to employees.

Section 24 (4) stipulates that the deductions that cannot be made except upon written request of the employee, together with the written permission of the Director General. Deductions are:

a)      any deduction for payment of pension, provident funds, employee welfare schemes, insurance schemes and other payments for employee benefits

b)       any deduction for the repayment of advances of wages made to employees under Section 22, which bears interest

c)       any deduction in respect of the payment to a third party on behalf of employees

d)      any deduction for goods business of the employer

e)      Any deduction in respect of rental payments and cost of accommodation services, food and drinks provided by the employer to the employee at the request of the employee, or under the terms of service.

The Director General will only allow a deduction under Section 24 (4) (e) if he is satisfied that the provision of accommodation, service, food / drink is for the benefit of employees (Section 24 (5). However, Section 24 (7) has jurisdiction of the Director General to disallow any deduction for wages, at the request of the employer, subject to certain conditions as it thinks fit. In addition to the matters under Section 24 (9), the total deduction will be not more than fifty percent of the wages earned by employees during the month (Section 24 (8)).

In accordance with the provisions of the Act, the Teganu Indah Batik Company deduct all workers' wages to EPF is to ensure the future of the workers at the rate per set. Employers also are charged EPF for employees. Because this company did not release specific salary slips, no certain deductions made by employers. Employees only receive a total salary after deducting EPF. All savings and debt payments made by the employee. I strongly agree in respect of each wage cuts made after obtaining consent from the employee with a letter of application to make deductions. This step can prevent abuse from happening to workers. EPF deduction is also an effective measure to ensure the future of the workers.

2.      Bonus

A provision relating to the bonus is not specified in the contract of employment. This is because the bonus is the right employer. Employers have the right to include a provision on this matter, or otherwise. However, many awards were given in relation to the bonus question. According to the Oxford Dictionary, the bonus is defined as "a reward to employees other than salary." In other words, not a duty upon employers to provide bonuses to its employees, but it can be given as an incentive for services rendered by employees. Most of the questions raised in the court was whether the bonus must be provided or otherwise.

In the case of Malaya States of Insurance Association and the National Union of Commercial Workers (Award 157/1980), the court ruled that the bonus is not required is the payment is uncertain. It is only paid when the employer that profitable.

Type of bonus is contractual bonus is considered mandatory. This means that this bonus has been specified in the contract of service as a compulsory payment made by the employer, other than salary. Time and manner of payment usually have been determined in the agreement. That amount was also determined. It will still be paid whether the employer derives profit or otherwise. The employer also can state that a change in form and amount of the bonus should be changed from time to time. This depends on the economic situation that is sometimes brilliant and sometimes not very satisfactory.

Teganu Indah Batik Company also provides bonuses to its employees depending on the profit earned by the company. If the company reaches a considerable profit, then the bonus amount will be increased. Normally, bonuses are awarded at the end of the year. The bonus payment, a bit of a drive and can improve the spirit of the workers to work better. The bonus is also able to guarantee the lives of workers as well as to meet the shortage of labour income. In my opinion, this bonus is very effective in improving the quality of their performance in improving their productivity. This will help the company improve a company's profit. (Kamal Halili Hassan (1994) Relations Law Employers and Employees. London. Oxford University Press.)

4.2       NON PECUNIARY TERMS

Terms not pecuniary in an employment contract will cover the following matters:

1.      Period of work

2.      Overtime

3.      Day of rest

4.      public holidays, annual leave and sick leave

5.      Other Benefits

The law of the period of work, rest days, public holidays, annual leave, sick leave and maternity leave provided for in Part XII of the Employment Act, 1955 (AK 1955). Leave about managing the affairs of Trade Unions has been provided by the Industrial Relations Act 1967 (APP 1967) Benefits other than those specified in the act, many determined by the Industrial Court to take into account the current situation.

(Comments Zaharah Cho (1997) Introduction to Work Act, 1955 K. Lumpur, Universiti Malaya)

a)      Duration of Work

Employment Act, 1955 has set a maximum period of work for an employee. Section 60 A (1) provides that a period of work shall not be required under his contract of service work:

·         More than five consecutive hours without a plenty of not less than 30 minutes duration.

·         More than eight hours a day

·         More than ten hours a day

·         More than 48 hours per week

However, the employer may require employees to work for eight consecutive hours for work involving continuous attention. The requirement here is that employers have to give a rest period of not less than 45 minutes so that it has a chance to eat. To do so, too, must have the prior agreement between the employee and employer, which allows employees required to work eight hours on one day, but less than eight hours on other days of the week. However, no employee may be compelled to work more than nine hours per day or forty-eight hours in one week. All these provisions are contained on Section 60A (1) (i), (ii) and (iii).

Employers are also allowed to increase the working time in excess of ordinary working hours, but no more than the limit prescribed in Section 60A (1) (a), (b) and (c), provided the written permission of the Director General, after stating neutral conditions that require more work time than the normal working time. This is set out in Section 60 A (1A). The Director General may at any time revoke this approval.

Directed employees to work more than the period in question will be considered as 'overtime'. Section 60A (3) (a) states that overtime work performed in excess of normal working hours of employees, shall be paid not less than 1 ½ times the rate per hour.

For example, in cases of Sun Mix Concrete Sdn Bhd and Non Metallic Mineral Products Manufacturing Employees Union (Award 115/1987), the court has recognized the management of the employer to determine or modify the work. However, this power is subject to the law to be according to what exists in the act and in accordance with the situation or the type of work.

Based on the provision of the Act, the Teganu Indah Batik Company has set working hours for all employees is to start from 8.30 am to 5.00 pm. Each employee is given time off for an hour for lunch on a rotation that will start at 12:00 noon to 2:00 pm. After 5.00 pm, no overtime incurred. With properly working hours, it will not burden the employees while employees have adequate rest periods. This action will affect the performance of some employees, especially working with full energy and attention. Rest periods in turn also makes a job is not interrupted and continues to run and under the surveillance of workers. Based on the provision of the Act, the Teganu Indah Batik Company has fixed working hours for all employees is to start from 8.30 am to 5.00 pm. Each employee is given time off for an hour for lunch on a rotation that will start at 12:00 noon to 2:00 pm. After 5.00 pm, no overtime incurred. With properly working hours, it will not burden the employees while employees have adequate rest periods. This action will affect the performance of some employees, especially working with full energy and attention. Rest periods in turn also makes a job is not interrupted and continues to run and under the surveillance of workers.

I strongly agree with what has been provided in the Act to work period. This is because the existence of this act, employers are not just arbitrary to persecute the poor people to work with regardless of the actual time worked. This measure also would create jobs and ensure the effectiveness of worker safety.

b)     Day of Rest

Provision of rest days is contained in Part XII of the Employment Act, 1955. Section 59 (1) states that each be allowed one rest day per week full day as may be prescribed from time to time by the employer, and if an employee is allowed more than one rest day in a week, then break the last day of the days the rest should be a rest day for the purposes of this section.

For employees who do not have regular rest days, Section 59 (2) states that employers must provide a schedule to inform employees when their rest days, to allow employees to choose whether to work or not. Any employer who violates this provision shall be guilty of an offense under the Act (Section 59 (4).

This has been proved in the case V. Sundram. Veemah (1972) MLJ 83, which shows the court, stated that Section 59 does not provide other options for employers, but set the rest of the days specified in advance to employees, and provides a schedule of these holidays to be displayed to the employee. This will facilitate the employees to plan and know-day holiday which they are eligible analogue or overtime allowances.

Section 60 (1) states that in accordance with the provisions of Section 60A, shall any employee be forced to work on rest days, unless it involves a kind of continuous or shift work. Section 60 (3) (a) also provides that in the event of an employee required to work on rest days and paid according to a daily wage, he shall be paid for any period of work:

·         Not more than half the normal working hours, he will get wages for a day’s wages at ordinary rate of pay, or

·         More than half but not exceeding the normal working time, two days wages at ordinary rate of pay

Section 60 (3) (b) also provides for the wages of workers required to work on rest days and paid in monthly wages. It shall be paid for any period of work:

·         Not more than half the normal working time, wages are equal to half the normal working wage, or

·         More than half but not exceeding the normal working time, a day’s wages at ordinary rate of pay.

Section 60 (3) (c) provides for the overtime work done on rest days. The employee shall be paid at a rate not less than two times the rate of wages, by the hour. Section 60 (3) (d)

stipulates that, if the employee is employed and paid in proportion to follow the work, he shall be paid double the wage rate which is usually for a job.

As provided for in the Act, the Teganu Indah Batik Company has set Friday was a rest day for all employees. On that day, the premises did not operate. Teganu Indah Batik Company also does not provide additional time after normal working hours on employees. All employees should only work on normal working hours. So in the company, no problem to pay overtime or ask employees to work on rest days. With this leave, all employees will not feel stressed and have time to relax their body and mind after six working days, and it can also restore the lost energy while working. This leave can provide employees an opportunity to spend time with their families.

I agree with the act that has been made on this rest day. Employers must provide a rest day at least one day a week to each employee. On that day, employees have the opportunity to rest their bodies and minds of busy work. Without leave, may be able to threaten the performance of the workers. Employers also need to consider the rights of other employees to obtain profits. With this act, workers will feel happy about having their rights should they be.

5.0       CONCLUSIONS     

Today, with the growing awareness among the people is high, widespread media exposure the courage and firmness of the government and non-governmental organizations (NGOs) saw the fate of workers in this country increasingly championed. Variety of policies, laws and acts enacted to ensure the rights and privileges of workers are constantly defended. Each employee has their own special privileges and are able to enjoy the pleasure, through the power received. Touching on the privileges acquired by the workers, still many others who do not know to what extent workers in Malaysia get the right defenses.

The relationship between employees and employers are protected under the Employment Act 1955 (Employment Act 1955). This Act generally covers and protects the rights of workers in employment relationships. It provides the minimum benefits and workers' rights, such as working time limit, the number of day’s annual leave and public holidays, overtime minimum, the number of days’ sick leave, hospitalization, maternity leave, and so on.

Each employee should learn and know the contents of this Act and does not hesitate to remind your employer and if necessary take action against employers who fail to comply with all the details contained in the laws and regulations that have been set. Various acts have been enacted to protect the rights and privileges you as an employee. However, many do not want to know about it. You need to know, easy to take advantage of employers felt that employees do not know about their rights. Consequently, you will be suppressed unnoticed. It became the responsibility to know your rights as an employee.

Having made a survey of Teganu Indah Batik Company States, found the company has fulfilled all stipulated in the act of workers and employers. All rules and agreements contained in the contract workers, very clear that there is no violation of the act. Workers' rights are taken into consideration and attention and the responsibility of the employer to employees is satisfactory.

ATTACHMENT

REFERENCES

Assoc Prof Dr Asmah Laili Yeoh, Che Thalbi Md Ismail, Khadijah Mohamed dan Asiah Bidin (2008), Employment and Industrial Law,Meteor Doc. Sdn Bhd, Selangor

Siti Zaharah Jamaluddin (1997) Pengenalan Kepada Akta Kerja, 1955 K. Lumpur, Universiti Malaya

Maimunah Aminuddin (1999) Malaysian Industrial Relations ang Employment Law.McGraw-Hill

TEGANU INDAH BATIK COMPANY. [On-line], Retrieved on 13/10/2011, available: http://www.teganuindahbatik.com/profil.php

Panduan pemberhentian pekerja. Undang-undang Buruh Sabah. . [On-line], Retrieved on 13/10/2011, available: http://www.mohr.my/pdf/panduan_pemberhentian.pdf