What is an HR Health Check?
An HR Health Check is a structured compliance review of your HR documents and practices. We test your employment contracts, employee handbook, payroll deductions, leave records, and disciplinary and termination files against the Employment Act 1955, the Industrial Relations Act 1967 and related laws, then show you what is non-compliant, what would not hold up in a dispute, and what to fix first.
Why do Malaysia SMEs need an HR audit?
Because most employment risk builds up quietly: documents and habits fall behind the law. The Employment Act 1955 was amended in 2022, with changes in force from 1 January 2023: normal working hours are capped at 45 a week, maternity leave is 98 days, married male employees get 7 days' paternity leave, employees may apply for flexible working arrangements, and employers must handle sexual harassment complaints. Many SMEs still use contracts and handbooks written before these changes.
The cost shows up at the Industrial Court. Under section 20 of the Industrial Relations Act 1967, a dismissed employee, including a probationer or a manager, may file a representation for unfair dismissal within 60 days. If conciliation fails, the case may be referred to the Industrial Court, which decides whether the dismissal was with or without just cause or excuse and may order reinstatement or compensation plus back wages. By then, your paperwork is your evidence.
The point of an HR Health Check is simple: bosses should know where their risks are before those risks turn into claims.
Who should get an HR Health Check?
- Growing SMEs: headcount and departments have grown, but contracts and policies are still the start-up versions.
- Companies after a dispute: once a claim or complaint has been handled, a full review stops the same problem from happening again.
- Before a restructuring: confirm contract terms, length of service and termination procedures before you act.
- Family businesses: roles for family members and long-serving staff are often never put in writing. Pay special attention to directors who also draw a salary. The Federal Court has confirmed that a director can also be an employee (see our analysis of the Acexide case), so their rights and any termination must follow the law.
What does our HR compliance check review?
We review both the paperwork and how things actually work on the ground. The main areas are:
- Employment contracts: probation, working hours, notice periods, transfers and confidentiality clauses
- Employee handbook and HR policies: whether they reflect the amended Employment Act
- Payroll statutory items: minimum wage of RM1,700 a month, EPF (employee 11%; employer 13% or 12%), SOCSO and EIS
- Leave and working hours: annual, sick and hospitalisation leave, public holidays and the 45-hour week
- Probation and confirmation records: whether reviews happen within probation and are documented
- Disciplinary files and DI records: warning letters, Show Cause Letters and Domestic Inquiry notes
- Termination letters and procedures: notice, reasons and whether the file would stand up in the Industrial Court
- Sexual harassment policy and complaint procedure (Anti-Sexual Harassment Act 2022)
- PDPA notices for employee personal data (Personal Data Protection Act 2010, amended 2024)
- Occupational safety and health (OSH) duties under the Occupational Safety and Health Act 1994 (amended 2022)
How does JP Asia run an HR Health Check?
We follow six steps, from understanding your business to helping you put the fixes in place:
- Step 1Briefing: we learn your size, structure, staff categories and the issues that worry you most.
- Step 2Document review: contracts, handbook, payroll and leave records, disciplinary and termination files.
- Step 3Interviews: we speak with the boss, HR and supervisors to find gaps between what is written and what is done.
- Step 4Risk report: each finding with its legal basis and a priority rating (high, medium or low).
- Step 5Action plan: what to fix first, who owns it, and which documents or templates are needed.
- Step 6Implementation support: we help revise contracts, the handbook and SOPs, and train HR and supervisors to apply them.
What will you receive?
You receive results you can act on, not just a list of problems. The HR Health Check is also the starting point of JP Asia's HR & IR Advisory, our HR consulting service for Malaysia SMEs:
- An HR compliance risk report, with the legal basis and priority rating for each finding
- A prioritised action plan
- A list of contract clauses, handbook sections and policies to revise
- Recommendations on probation, discipline and termination management
- A clear path for ongoing support: contracts, handbook, SOP, KPI and our HR Legal Advisor service
Red flags: get an HR Health Check now if…
- Your contracts have not changed in years
- Old working hours or leave entitlements may now fall below the legal minimum.
- You have no handbook or sexual harassment policy
- Employers must handle sexual harassment complaints; without a procedure it is hard to show you did.
- Probation "confirms itself"
- Assessing performance only after probation ends is risky; see our probation and poor performance case.
- Discipline is verbal only
- Without Show Cause Letters and DI records, a dismissal has little evidence behind it.
- You have just received a claim
- Deal with the case in front of you, then find the system problem behind it.
Lessons from the Industrial Court
The Industrial Court decides by equity, good conscience and the substantial merits of the case (IRA s.30(5)), and gaps in records often decide the outcome. In the BFM Media case, the company investigated 27 people and still lost, because of weaknesses in its evidence and charge particulars. In the Ketum case, the employer had a drug test, a Show Cause Letter and a Domestic Inquiry on file, and the dismissal was upheld.
Common mistake: waiting until an employee files a claim before organising the paperwork. Evidence needs to be created at the time things happen; documents prepared afterwards rarely persuade.
Frequently asked questions
What is an HR Health Check in Malaysia?
An HR Health Check is an HR audit that reviews a company's HR documents and practices against Malaysian employment law. It identifies compliance risks and ranks them by priority so the company knows what to fix first.
Does a small SME with only a few employees need an HR audit?
Yes. The Employment Act 1955 covers all employees in Peninsular Malaysia and Labuan, and minimum wage, EPF, SOCSO, EIS and unfair dismissal rights do not depend on company size. Smaller companies are often the ones with the fewest written policies.
What documents does an HR compliance check review?
It covers employment contracts, the employee handbook and HR policies, payroll and statutory contribution records, leave and working-hour records, probation and confirmation records, disciplinary and DI files, termination letters, the sexual harassment policy, PDPA notices and OSH documents.
What happens after the HR Health Check?
You receive a risk report with priority ratings and an action plan. JP Asia can then help revise contracts, the handbook and SOPs and train HR and supervisors, as ongoing HR & IR Advisory support.
Should directors who are also employees be included?
Yes. The Federal Court has confirmed that a director can also be an employee, so salaried directors and family members should have clear contracts and procedures to avoid disputes later.
Is JP Asia a law firm?
No. JP Asia Capital is a law-backed HR management and employment law consultancy that helps Malaysia SMEs build compliant HR systems. We are not a law firm and do not represent clients in court.
Start with an HR Health Check: see the problems clearly, then decide what to fix first.
Disclaimer: This page is general information, not legal advice for a specific case. The law is stated as at October 2026.