Employer of Record Guide in Malaysia
Malaysia's thriving tech ecosystem and skilled workforce make it an attractive destination for global expansion, but navigating local employment laws requires careful attention to detail. This comprehensive guide breaks down everything you need to know about hiring compliantly in Malaysia, from payroll requirements to employee benefits.
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Malaysia offers a compelling mix of technical talent and economic opportunity, with major hubs like Kuala Lumpur driving demand for cybersecurity specialists, AI engineers, and software developers. Understanding the local market dynamics—from tax structures to cultural nuances—is essential for successful team expansion.
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Your EOR guide in Malaysia
Getting payroll, benefits, and compliance right in Malaysia involves navigating everything from EPF contributions to complex leave policies. Here's your practical roadmap to managing Malaysian employment requirements without the headaches.
Minimum Wage
Malaysia has a national minimum wage that applies to all employees regardless of sector or location.
| Category | Minimum Wage (MYR/month) | Effective Date |
|---|---|---|
| All Employees | RM 1,500 | May 1, 2022 |
Note: The minimum wage applies to all employees in Peninsular Malaysia, Sabah, Sarawak, and the Federal Territory of Labuan.
Payroll Cycle
- Monthly: Most common practice, typically paid by the 7th of the following month
- Bi-weekly: Less common but acceptable
- Weekly: Rare, typically for daily wage workers
Note: Employers must pay salaries within 7 days after the last day of the salary period.
Individual Income Tax
Malaysia operates a progressive tax system for residents. Non-residents are taxed at a flat rate of 30%.
Resident Tax Rates (2025):
| Chargeable Income (MYR) | Tax Rate |
|---|---|
| First 5,000 | 0% |
| Next 15,000 (5,001-20,000) | 1% |
| Next 15,000 (20,001-35,000) | 3% |
| Next 15,000 (35,001-50,000) | 6% |
| Next 20,000 (50,001-70,000) | 11% |
| Next 30,000 (70,001-100,000) | 19% |
| Next 150,000 (100,001-250,000) | 25% |
| Next 150,000 (250,001-400,000) | 26% |
| Next 200,000 (400,001-600,000) | 28% |
| Exceeding 600,000 | 30% |
Tax Residency Criteria
An individual is considered a Malaysian tax resident if they are in Malaysia for 182 days or more in a calendar year. Tax residents are taxed on worldwide income, while non-residents are taxed only on Malaysian-sourced income.
Employer Payroll Contributions
Malaysian employers must contribute to several statutory funds:
| Contribution Type | Employer Rate | Employee Rate | Salary Cap (MYR) |
|---|---|---|---|
| Employees Provident Fund (EPF) | 12% | 11% | No cap |
| Social Security (SOCSO) - EIS | 0.2% | 0.2% | 4,000 |
| Social Security (SOCSO) - SIP | 1.25% | 0.5% | 4,000 |
| Human Resources Development Fund (HRDF) | 1% | 0% | No cap |
Total Employer Cost: Approximately 14.45% of gross salary
Note: HRDF applies to companies with 10 or more employees in specific sectors.
Working Hours
The standard working hours in Malaysia are regulated under the Employment Act 1955:
- Normal Hours: 8 hours per day, 48 hours per week
- Maximum Hours: 9 hours per day (including overtime)
- Rest Day: Minimum one full day per week
- Meal Break: Minimum 45 minutes for shifts exceeding 5 hours
Overtime Pay
- Rate: 1.5× regular hourly rate for the first 2 hours of overtime
- Extended Overtime: 2× regular hourly rate for hours beyond the first 2 overtime hours
- Rest Day Work: 2× regular hourly rate for the first 8 hours, 3× for subsequent hours
- Public Holiday Work: 3× regular hourly rate
Bonus Payments
While not legally mandated, many employers provide:
- Annual Bonus: Commonly equivalent to one month's salary
- Performance Bonuses: Based on individual or company performance
- Contractual Bonuses: If specified in employment contracts, become legally binding
Full-Time vs. Part-Time
- Full-time: Employees working more than 30 hours per week
- Part-time: Employees working 30 hours or fewer per week
- Contract Workers: Fixed-term employment with specific end dates
Annual Leave
- Minimum Entitlement: 8 days after 12 months of service
- Progressive Increase:
- 2-5 years: 12 days
- 5+ years: 16 days
- Accrual: Pro-rated based on months of service
- Carry Forward: Up to 10 days may be carried to the following year
Sick Leave
- Entitlement:
- First year: 14 days
- Second year onwards: 18 days
- Medical Certificate: Required for sick leave exceeding 2 consecutive days
- Hospitalisation: Additional 60 days per year for hospitalisation leave
Maternity Leave
- Duration: 98 days (approximately 14 weeks)
- Eligibility: Female employees who have worked for at least 90 days
- Payment: Full salary for the entire period
- Additional: 7 days paternity leave for male employees
Parental Leave
- Adoption Leave: 7 consecutive days for adoption of children under 5 years
- Paternity Leave: 7 consecutive days within 30 days of childbirth
- Flexible Arrangements: Some companies offer additional unpaid parental leave
Compassionate Leave
- Bereavement: 3 days for immediate family members
- Emergency: Discretionary leave for family emergencies
- Marriage Leave: 3 days for employee's own marriage
Summary
| Leave Type | Duration | Paid? | Eligibility |
|---|---|---|---|
| Annual Leave | 8-16 days/year | Yes | After 12 months |
| Sick Leave | 14-18 days/year | Yes | Immediate |
| Maternity Leave | 98 days | Yes | After 90 days |
| Paternity Leave | 7 days | Yes | Immediate |
| Compassionate Leave | 3 days | Yes | Immediate |
Termination Types
Termination With Just Cause:
- Immediate dismissal without notice or compensation
- Requires serious misconduct (theft, insubordination, breach of contract)
- Employer must prove just cause
Termination Without Just Cause:
- Requires notice period or payment in lieu
- Must comply with statutory requirements
- Cannot be discriminatory
Notice Period Requirements
Notice periods are based on length of service:
| Length of Service | Notice Period |
|---|---|
| Less than 2 years | 4 weeks |
| 2-5 years | 6 weeks |
| 5+ years | 8 weeks |
Termination Benefits
Statutory Requirements:
- Notice Pay: If working notice is not given
- Annual Leave: Pro-rated unused leave
- Public Holiday Pay: For holidays falling within notice period
Retrenchment Benefits:
- 10 days' wages for each year of service (minimum 10 days)
- Applies to redundancy situations with 20+ employees
Probationary Periods
- Duration: Typically 3-6 months
- Notice: 1 day's notice for each completed week of service
- Maximum: Cannot exceed 6 months
Final Pay Requirements
Employers must settle all outstanding payments within 7 days of termination, including:
- Outstanding salary
- Unused annual leave
- Any contractual benefits
National Public Holidays
Malaysia observes both federal and state public holidays:
| Holiday | Date | Type |
|---|---|---|
| New Year's Day | January 1 | Federal |
| Chinese New Year | January/February (2 days) | Federal |
| Federal Territory Day | February 1 | Federal Territory only |
| Labour Day | May 1 | Federal |
| Wesak Day | May (varies) | Federal |
| King's Birthday | June (first Monday) | Federal |
| National Day | August 31 | Federal |
| Malaysia Day | September 16 | Federal |
| Deepavali | October/November (varies) | Federal |
| Christmas Day | December 25 | Federal |
State-Specific Holidays
Each state has additional holidays based on local customs and the Sultan's birthday. Employees are entitled to public holidays observed in their state of employment.
Holiday Pay Rules
- Eligibility: Employees who have worked at least 3 out of 4 working days before the holiday
- Payment: Full day's wages for the public holiday
- Working on Holiday: 2× regular rate plus substitute holiday
Required Documents for Employment
Employment Contract Must Include:
- Job title and description
- Salary and benefits
- Working hours and location
- Leave entitlements
- Termination clauses
- Probationary period terms
Employee Documentation:
- Identity card (MyKad) or passport
- Tax file number
- Bank account details
- Educational certificates
- Medical examination (if required)
Work Permit Requirements
For Foreign Employees:
- Valid work permit or employment pass
- Passport with appropriate visa
- Medical examination results
- Educational qualification verification
- Security clearance (for certain sectors)
Language Requirements
- Bahasa Malaysia: Official language, contracts may be required in Bahasa Malaysia
- English: Widely used in business, especially in multinational companies
- Translation: Important documents should be available in both languages
Background Checks
- Criminal Record: Permitted with employee consent
- Educational Verification: Standard practice
- Employment History: Reference checks are common
- Credit Checks: Only for financial positions
Data Protection Compliance
Malaysia's Personal Data Protection Act (PDPA) requires:
- Employee consent for data collection
- Clear privacy policies
- Secure data storage and processing
- Right to access and correct personal data
Onboarding Timeline
| Step | Timeline |
|---|---|
| Offer acceptance | Day 0 |
| Document collection | Days 1-3 |
| Contract signing | Days 3-5 |
| Work permit processing (if applicable) | 2-4 weeks |
| System setup and orientation | Days 5-7 |
| Probation period begins | Day 1 of employment |
Worker Classification
Employee vs. Contractor Distinction:
- Control Test: Level of supervision and direction
- Integration Test: How integral the work is to the business
- Economic Reality Test: Who bears the financial risk
Misclassification Risks:
- Back payment of EPF and SOCSO contributions
- Tax penalties
- Employment law protections for misclassified workers
Trade Unions and Collective Bargaining
- Right to Unionise: Protected under the Industrial Relations Act
- Collective Agreements: Override individual employment terms
- Dispute Resolution: Industrial Court handles employment disputes
- Strike Regulations: Specific procedures must be followed
Cultural Considerations
Workplace Diversity:
- Malaysia is multicultural with Malay, Chinese, and Indian communities
- Religious observances are respected (prayer times, dietary requirements)
- Dress codes may vary by industry and religious considerations
Communication Style:
- Indirect communication is common
- Hierarchy and respect for seniority are important
- "Face-saving" concepts influence workplace interactions
Remote Work Framework
Legal Considerations:
- Employment Act applies regardless of work location
- Working hours and overtime rules still apply
- Occupational safety and health responsibilities extend to home offices
Practical Requirements:
- Written remote work policies
- Equipment and expense reimbursement policies
- Performance management systems
- Data security protocols
Anti-Discrimination Laws
Malaysian employment law prohibits discrimination based on:
- Gender
- Religion
- Race
- Disability (in certain circumstances)
- Pregnancy and maternity
Note: Malaysia's anti-discrimination framework is less comprehensive than some Western countries, and certain protections may be limited.
Note: This guide provides general information about Malaysian employment law. Specific situations may require legal consultation, and regulations may change. Always verify current requirements with local legal counsel or qualified HR professionals.
Built-in benefits packages for Malaysia
When the world is your competition, it pays to incentivize new hires and existing alike. Borderless AI benefits packages typically inlucde:
Medical Insurance
Dental Insurance
Retirement Contribution
Life Insurance
Vision Insurance
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