How to Hire Employees in Malaysia

Desiring your business to begin operations in Malaysia is a good thing. Who wouldn’t want to run a business in that melting pot of Chinese, Indian, Orang Asli, and Eurasian culture? However, nobody accomplished anything worthwhile with only good intentions and wishful thinking. 

Setting up shop in Malaysia can be a smooth process or your worst nightmare. By showing you the ropes and helping you navigate the legal landscape, we’re here to ensure the former is your experience.

Setting Up a Local Entity

If Google, for instance, wanted to set up shop in Malaysia, here’s what they’d do.

Setting up a local entity in Malaysia is a great option for companies planning a long-term presence in the country. It involves registering with the Companies Commission of Malaysia (SSM) as either a Private Limited Company or a foreign branch office.

Once registered, the company must enroll with key statutory bodies such as the Employees Provident Fund (EPF), Social Security Organization (SOCSO), Employment Insurance System (EIS), and the Inland Revenue Board (LHDN) for tax compliance.

You can probably already imagine that this route is iron-clad enough to afford you full control over operations and direct employment of local staff. This, however, comes at the expense of significant investment of time and resources—the kind only multinationals with deep pockets can easily pull off.

Businesses must also comply with corporate tax laws, maintain statutory filings, and manage monthly payroll obligations in line with Malaysia’s Employment Act 1955.

This route might be overkill for small and medium-sized businesses only seeking to test the waters—and for obvious reasons.

Working with an Employer of Record (EOR)

For companies entering the market for the first time or looking to scale without the administrative overhead costs, an EOR like Remote People is the fastest, most flexible, and risk-free way to hire employees in Malaysia.

EORs help you to legally employ staff in Malaysia without setting up a local entity. They do this by becoming the legal employer on paper, handling everything from employment contracts, payroll processing, and tax filings to statutory contributions; all while you retain full control over your team’s day-to-day activities.

Between the capital-intensive establishment of a local entity and the risky hiring of independent contractors, EOR partnerships are the sweet spot; the perfect middle ground.

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Hiring Independent Contractors

Another common route to hiring talent in Malaysia is by engaging independent contractors. While this offers significant flexibility and reduced employer commitment, the arrangement carries the substantial risk of misclassification under the Employment Act 1955.

Malaysian law clearly distinguishes between employees and independent contractors, and incorrectly categorizing a worker can lead to severe repercussions for the hiring company.

The consequences of misclassification in Malaysia extend beyond mere administrative oversights. Employers found even inadvertently culpable will face mandatory back payments to key statutory bodies, including the EPF, SOCSO, and the EIS. These backdated contributions can amount to a significant financial burden, especially for companies that have misclassified multiple workers over an extended period.

Misclassified workers may also file claims for unfair dismissal, creating additional legal and financial risks. In the worst possible scenarios, employers may even face jail time.

In essence, misclassification in Malaysia is really bad news, and hiring independent contractors is not worth the risk.

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Hire in Malaysia

A multicultural ASEAN hub with EPF, SOCSO, EIS contributions, Employment Act 1955 amendments, and Malaysian compliance requirements.

We handle employment contracts, payroll, social contributions, and full Malaysian compliance.

No local entity needed. Your team can start in days.

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Malaysia EOR vs Legal Entity in Malaysia

Companies must weigh their options and make sound decisions when expanding to a new market. The most common alternative to Malaysia EOR services is to set up a legal entity. Setting up a legal entity in Malaysia involves several steps and compliance with local regulations.

First, you have to choose the type of business entity. Malaysia offers various kinds of legal entities. The most common options include a private limited company (Sdn Bhd) and a public limited company (Berhad).

Then, you register with the Companies Commission of Malaysia, “The Suruhanjaya Syarikat Malaysia” (SSM), a statutory body established by an Act of Parliament to regulate corporate and business affairs in Malaysia. They are responsible for company registration using their online portal, MyCoID. You will be required to submit the incorporation documents on this portal.

Setting up a business in Malaysia also has specific requirements, which might prove difficult for foreign companies. For an Sdn Bhd, the appointment of a licensed company secretary is mandatory, and at least one director must be a Malaysian resident (citizen or permanent resident).

However, depending on your business activities, additional licenses may be needed from various regulatory bodies, such as the Ministry of International Trade and Industry (MITI) or the Central Bank of Malaysia (Bank Negara Malaysia).

Once the entity is set up, you can then either set up all the administrative functions you need to employ and pay staff yourself or outsource to a Malaysia payroll provider. 

On the other hand, when working with a Malaysian Employer of Record (EOR), you don’t have to go through these processes. The EOR acts as the legal employer in Malaysia on behalf of foreign clients. An EOR saves you time from bureaucracy since it deals with the legal aspects of employees’ hiring and payments.

Using an Employer of Record in Malaysia

You probably didn’t know before now, but Malaysia, in 2022, had an adult literacy rate of an outstanding 96%, and ranked #26 globally on the English Proficiency Index (EPI) in 2024! Expanding your business into such a region can open up access to a skilled, English-speaking workforce at impressively competitive costs.

However, navigating the country’s complex labor laws, tax systems, and statutory requirements can be quite overwhelming, and that’s where an Employer of Record comes in.

While you manage your employees’ day-to-day tasks and performance, the EOR takes care of everything related to legal employment.

This includes:

  • Drafting compliant employment contracts aligned with Malaysia’s Employment Act 1955
  • Handling payroll—ensuring employees are paid accurately and on time in local currency.
  • Filing taxes and making mandatory contributions to EPF (pension), SOCSO (social security), and EIS (unemployment insurance).
  • Managing employee benefits, including paid leave, sick leave, and maternity entitlements.
  • Overseeing statutory reporting and labor compliance, minimizing your legal risk.

How Much Do Employer of Record Services in Malaysia Cost?

The cost of using a Malaysia Employer of Record (EOR) varies depending on several factors, including the number of employees you’re hiring, the level of support you need, and the complexity of your payroll or benefits requirements. Most EORs follow one of two pricing models: a flat monthly fee per employee, or a percentage of each employee’s gross salary – typically around 10% to 15%.

This fee generally covers everything from onboarding and employment contracts to payroll processing, statutory contributions (EPF, SOCSO, EIS), and compliance management. Some providers may also include visa sponsorship, performance tracking, or customized benefits administration in their service packages, while others charge separately for those add-ons.

Although working with an EOR may seem more expensive than setting up your own legal entity or hiring contractors, it often proves more cost-effective in the long run. You avoid setup delays, legal fees, and administrative headaches, all while minimizing risk. For companies testing the waters in Malaysia or scaling their global footprint, the predictability and efficiency of EOR pricing can make it a smart investment.

Before choosing a provider, always request a detailed quote that breaks down what’s included, so you can compare apples to apples and avoid any surprise fees.

Employment and Labor Laws in Malaysia

Smooth sails on Malaysian tides are contingent on strict compliance with national labor laws, issuing compliant employment contracts, adhering to statutory benefits, and fulfilling payroll and tax obligations.

Employment Contract Requirements

Malaysia’s labor regulations are primarily governed by the Employment Act 1955, recently amended in 2022 to improve worker protections. All employment agreements must be clearly written—usually in English or Bahasa Malaysia—and should outline the core terms of employment in accordance with the Act.

Contracts must include:

  • Job title and duties
  • Working hours and location
  • Salary and benefits
  • Leave entitlements
  • Termination conditions and notice period.

Onboarding Timeline

For local hires, we can help you get a new employee ready in 1-3 working days. This timeline largely depends on how quickly the required documentation is submitted.

For foreign hires, however, additional time of up to 2-8 weeks might be required to complete Right to Work checks and process relevant employment passes via the Expatriate Services Division (ESD).

Working Hours and Overtime

Under Section 60A of the Employment Act:

  • Normal hours: 8 hours/day or 48 hours/week
  • Employees may not work more than 5 consecutive hours without a period of leisure of not less than 30 minutes.
  • Employees may not work more than 12 hours per day, including overtime
  • Work on rest days and public holidays must be paid at an enhanced rate.

For employees earning RM4,000/month or less, overtime pay is mandatory and calculated as follows:

Day TypeOvertime Rate
Normal workday1.5x hourly rate
Rest day2x hourly rate
Public holiday3x hourly rate

Probationary Period

While the Employment Act does not prescribe a fixed probation period, most companies in Malaysia enforce a 3 to 6-month probationary term. During this period, either party can terminate the employment with shorter notice – typically one week – unless stated otherwise in the contract.

Probationary Period

While the Employment Act does not prescribe a fixed probation period, most companies in Malaysia enforce a 3 to 6-month probationary term. During this period, either party can terminate the employment with shorter notice – typically one week – unless stated otherwise in the contract.

How an Employer of Record Helps You Hire in Malaysia

Whether you’re hiring one remote Malaysian worker or you’re building an entire Avengers team, EORs ease the burden of setting up a legal entity while giving you the freedom to scale quickly and compliantly.

EORs help you successfully navigate the minefields of local labor laws, statutory requirements, and tax obligations without breaking a sweat or losing a limb.

Payroll and Employment Taxes in Malaysia

Fiscal Year

Malaysia follows the typical calendar fiscal year, running from 1 January to 31 December, for both corporate financial reporting and tax filing purposes. Annual tax returns should be submitted to the Inland Revenue Board (LHDN) per this schedule.

Payroll Cycle

The standard payroll cycle in Malaysia, as it is in most places, is monthly. As mandated by Section 19(1) of the Employment Act 1955, employers must pay salaries no later than the 7th day of the following month.

Minimum Wage

The minimum wage in Malaysia is regulated and enforced by the Ministry of Human Resources through the Labour Department. Under the Minimum Wages Order 2024, the minimum wage is RM1,700 per month.

Implementation occurs in two phases:

  • Phase 1 (1 February 2025): Applies to companies with five or more employees and those in professional services.
  • Phase 2 (1 August 2025): Applies to all remaining businesses.

The minimum wage applies to all workers, including local and foreign employees, part-timers, and gig workers. Domestic helpers and apprentices are excluded.

The term “wage” refers to basic pay only and does not include allowances, bonuses, or commissions. Employers who fail to comply may face fines of up to RM10,000 per employee for a first offence.

Bonus Payments

Employers are under no legal requirement to pay employees annual bonuses or 13th-month salary. Performance-based bonuses governed by company policy and employment contracts are, however, characteristic of some sectors like Sales and Finance.

Employer Tax Contributions

Employers in Malaysia are required to make several statutory contributions for their employees. The contributions vary depending on whether the employee is a local (Malaysian citizen or permanent resident), a foreign worker, or a domestic worker.

Contribution TypeLocal Employees (Malaysian/PR)Foreign Employees (from Oct 2025)Domestic Workers
EPF (Retirement)12–13% of monthly salary2% of monthly wages (gradual increase over 6 years to match local rates)Exempt (voluntary only)
SOCSO (Injury/Invalidity)~1.75% (capped at RM 6,000)1.25–1.75% (includes foreign workers under Invalidity Scheme from July 2024)Mandatory 1.75%
EIS (Unemployment)0.2%ExemptExempt
HRDF (Training Levy)1% (for 10+ employees)ExemptExempt
  • EPF for Foreign Workers: Contributions start from wages earned on 1 October 2025, with the first payment due by 15 November 2025. Employer 2% + Employee 2%.
  • Domestic Workers: Exempt from EPF and EIS, but SOCSO registration and contributions are mandatory.
  • SOCSO (PERKESO): The wage ceiling increased to RM 6,000 on 1 October 2024. The maximum monthly employer contribution is now RM 104.15, and the maximum employee deduction is RM 29.75.
  • Distinct Categories: Foreign employees and domestic workers have different statutory obligations, particularly for EPF and SOCSO.

Employee Payroll Contributions

Employees are equally mandated to make monthly contributions to these statutory schemes. Employers are to make the payments to the government on behalf of their employees as reflected in their payslips.

Tax TypeEmployee RateNotes
EPF11% of the monthly salaryMandatory for only Malaysian citizens and permanent residents.
SOCSO0.5–1%Based on wage classification and shared with the employer
EIS0.2%Same as the employer’s rate

Individual Income Tax Contributions

Aside from the payroll taxes, individuals are expected to remit a portion of their monthly income as personal income tax.

Malaysia runs quite a complex progressive taxation system, spanning categories A-J.

CategoryChargeable Income (RM)Tax RateTax on This Bracket (RM)Cumulative Tax (RM)
A0 – 5,0000%0.000.00
B5,001 – 20,0001%150.00150.00
C20,001 – 35,0003%450.00600.00
D35,001 – 50,0006%900.001,500.00
E50,001 – 70,00011%2,200.003,700.00
F70,001 – 100,00019%5,700.009,400.00
G100,001 – 400,00025%75,000.0084,400.00
H400,001 – 600,00026%52,000.00136,400.00
I600,001 – 2,000,00028%392,000.00528,400.00
J> 2,000,00130%VariesVaries

Personal relief of RM9,000 automatically applies to all resident taxpayers, and individuals with chargeable income of RM35,000 or less are eligible for a RM400 tax rebate. Employee EPF contributions are deductible from taxable income, subject to applicable relief limits. Foreign-sourced income remitted into Malaysia is currently tax-exempt until 31 December 2036, except for income derived through partnership businesses.

Malaysia’s tax system can be complex, but most employers handle calculations through payroll deductions. To simplify things, you can use our payroll calculator to estimate the correct amounts.

Pension System

The Employees Provident Fund (EPF) is a compulsory retirement savings scheme for private-sector employees in Malaysia and serves as a primary source of pension funds. As previously noted, contributions to the EPF are jointly made by both employers and employees.

How an EOR Simplifies Payroll in Malaysia

Processing payroll in Malaysia demands strict compliance with employment laws and regulations. We simplify this by managing all administrative and legal responsibilities, guaranteeing accurate and timely payments.

Employee Onboarding

We collect documents and register employees with EPF, SOCSO, EIS, and LHDN.

Payroll Calculation

We calculate gross and net pay based on salary, overtime, bonuses, and statutory deductions (EPF, SOCSO, EIS).

Salary Disbursement

We pay net salary in MYR not later than the 7th of the following month and issue monthly payslips.

Statutory Filings and Remittance

We submit contributions and taxes to government bodies (EPF, SOCSO, EIS, PCB) by the 15th via online portals.

Year-End Reporting

We issue employee annual compensation forms and submit tax returns to LHDN.

Work Permits and Visas in Malaysia

Hiring foreign employees in Malaysia can be complex, but that’s where we help. Employers must first secure the appropriate work authorization, typically one of the following: Employment Pass (EP), Professional Visit Pass (PVP), or Temporary Employment Pass (TEP).

  • Employment Pass (EP): For skilled expatriate professionals, executives, and specialists earning RM 5,000+/month; valid for 5 to 10 years depending on the category.
  • PVP (Professional Visit Pass): For short-term assignments (e.g., consultants, trainers, or technical experts) who remain on their foreign home-country payroll; valid for up to 12 months (non-renewable).
  • PLKS (Temporary Employment Pass): For semi-skilled workers in approved sectors (e.g., construction, plantation, or manufacturing) with sector-specific wages; valid for 12 months (renewable up to 10 years).

Starting 1 June 2026, Malaysia will update the Employment Pass (EP) salary thresholds:

  • Category I: Minimum monthly salary increases from RM10,000 to RM20,000 (valid for up to 10 years).
  • Category II: Salary range rises from RM5,000–9,999 to RM10,000–19,999 (up to 10 years, with a succession plan).
  • Category III: Salary range increases from RM3,000–4,999 to RM5,000–9,999 (up to 5 years, with a succession plan).

Processing times vary depending on the pass, typically 2 to 8 weeks.

Time Off and Leave in Malaysia

Mandatory Annual Leave

After the Employment (Amendment) Act 2022 (effective 1 January 2023), the Employment Act 1955 now applies to all employees, regardless of salary. The previous RM2,000 threshold no longer applies. This means every employee is entitled to statutory minimum annual leave based on their length of service:

Years of Continuous ServiceMinimum Annual Leave
Less than 2 years8 days
2 to 5 years12 days
More than 5 years16 days

An employee must have been employed for at least 12 months to qualify for a full annual leave.

Public Holidays

Under the Employment Act 1955, employers in Malaysia must provide employees with at least 11 paid public holidays each year. Five of these are compulsory:

  • Merdeka Day (National Day) – 31 August
  • Yang di-Pertuan Agong’s Birthday
  • Federal Territory Day – 1 February (Federal Territories only)
  • Labour Day – 1 May
  • Malaysia Day – 16 September

The remaining six public holidays can be selected by employers from the official gazetted national holiday list.

Malaysia observes a mix of fixed-date and moveable public holidays.

Common Fixed-Date Holidays

  • New Year’s Day – 1 January
  • Labour Day – 1 May
  • National Day (Merdeka Day) – 31 August
  • Malaysia Day – 16 September
  • Christmas Day – 25 December

Moveable Holidays (Dates Vary Each Year)

  • Chinese New Year – two days (January or February)
  • Hari Raya Aidilfitri – two days (Islamic lunar calendar)
  • Hari Raya Haji – one day (Islamic lunar calendar)
  • Awal Muharram (Islamic New Year) – one day
  • Prophet Muhammad’s Birthday – one day

Additional state-specific holidays may also apply depending on location, such as Thaipusam, Gawai Dayak, or Kaamatan.

Employees who work on a public holiday are entitled to double pay (2× their daily wage) or a replacement day off. Any overtime worked on a public holiday must be paid at three times (3×) the normal hourly rate.

Always consult the official holiday calendar for the current year.

Sick Leave

Ill employees are entitled to sick leave. Medical leaves must be certified by a registered medical practitioner.

The length of your leave is dependent on the years of service and the severity of your illness:

Years of ServiceSick Leave Without HospitalizationWith Hospitalization
< 2 years14 daysUp to 60 days total
2–5 years18 days—
> 5 years22 days—

Other leaves, e.g., study, marriage, bereavement, etc., are given at the discretion of employers.

Maternity Leave

All female employees are entitled to 98 consecutive days of fully paid maternity leave (effective 1 January 2023, Employment Amendment Act 2022 — increased from 60 days). Maternity allowance is payable for up to 5 confinements. Employers cannot terminate a pregnant employee during maternity leave.

Paternity Leave

Under the Employment (Amendment) Act 2022 (effective 1 January 2023), married male employees with at least 12 months of continuous service are entitled to 7 days of paid paternity leave. The entitlement is limited to five confinements per employee.

Employees must notify their employer at least 30 days before the expected confinement, or as early as possible if earlier notice is not feasible. The leave is taken as seven consecutive calendar days, not working days.

Using an Employer of Record to Administer Benefits in Malaysia

To remain compliant and competitive in Malaysia, businesses must offer employees a healthy combination of legally required and supplementary benefits. Errors in managing these benefits, such as incorrect leave, healthcare, or payment schedules, can result in disputes, decreased employee retention, and damage to the company’s reputation.

To foster a positive employee experience and ensure compliance, our EOR service meticulously designs and clearly explains all employee benefits from the outset, effectively setting expectations for the entire duration of employment.

Terminations and Severance in Malaysia

Termination Process

Under the termination provisions of the Malaysian labor law, termination must be with just cause and excuse. Acceptable reasons include but are not limited to misconduct, poor performance despite documented warnings, redundancy, and mutual agreement.

In Malaysia, employers must adhere to proper procedures, including written notice, warnings, and providing an opportunity for defense, when pursuing disciplinary dismissals. Non-compliance can lead to unfair dismissal claims being filed with the Industrial Court.

Notice Period

Here’s a summary of minimum statutory notice times in Malaysia as required by law:

Length of ServiceNotice Period
Less than 2 years4 weeks
2 to 5 years6 weeks
More than 5 years8 weeks

Severance Pay

An employee is entitled to severance pay only if termination of employment is on the grounds of redundancy, retrenchment, closure, or downsizing.

No severance is required for termination due to misconduct, poor performance, or resignation by the employee.

Years of ServiceStatutory Severance Pay
Less than 2 years10 days’ wages per year of service
2–5 years15 days’ wages per year of service
More than 5 years20 days’ wages per year of service

Use our severance pay calculator here.

Expand into Malaysia Easily with Remote People’s Employer of Record (EOR) Solution

Malaysia offers global employers a strategic gateway into Southeast Asia, providing access to a highly skilled, multilingual workforce at competitive costs. Its strong digital infrastructure, business-friendly environment, and diverse talent pool make it an attractive destination for remote teams, customer support centers, engineering, and back-office operations.

However, hiring in Malaysia requires careful compliance with local labor laws, statutory benefits, EPF contributions, and tax obligations. An Employer of Record helps you navigate this landscape smoothly, ensuring full compliance from day one.

By partnering with a trusted EOR like Remote People, you can focus on growing your business while your local employment requirements are fully managed. If you are ready to hire in Malaysia, we can help you do it quickly, legally, and without the hassle — contact us today.