Employ
RecruitEmployer of Record in Malaysia
Malaysia’s updated Employment Act includes EPF, SOCSO, and expanded worker protections, and a Malaysian EOR ensures full compliance from day one with no local entity needed.
Malaysia
Hiring in Malaysia at a glance
Currency
Malaysian Ringgit (MYR)
Language
Malay / English
Average Salary
~$1,200/mo
Payroll Cycle
Monthly
Employer Cost
~13%
Paid Leave
8-16 days
Probation
3-6 months
Notice Period
1-3 months
13th Month
Not mandatory
Work Hours
48 hrs/wk
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.
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.
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.
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 Type | Overtime Rate |
|---|---|
| Normal workday | 1.5x hourly rate |
| Rest day | 2x hourly rate |
| Public holiday | 3x 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.
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 is regulated and enforced by the Ministry of Human Resources Malaysia through the Labour Department.
As of January 2026, Malaysia’s national minimum wage is RM1,700 per month for full-time employees across most sectors and locations. This increase was implemented under the Minimum Wages Order 2024, effective February 1, 2025.
This snowballs into a daily wage of RM57.69 at 26 working days a month, and an hourly wage of RM7.2. Up until July 2023, small enterprises with fewer than 5 employees were exempted from the new minimum wage, but have since been included.
The recent amendment applies to all individuals with an employment contract. However, the applicability to apprentices, freelancers, and domestic workers is less straightforward and is largely determined by their specific terms of engagement.
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.
| Tax Type | Employer Rate | Special Notes |
|---|---|---|
| Employees Provident Fund (EPF) | 12–13% of monthly salary | 13% for salaries ≤ RM5,000, 12% for > RM5,000 |
| Social Security (SOCSO) | 1.75% | Covers workplace injury and disability benefits |
| Employment Insurance System | 0.2% | Supports unemployment benefits |
| Human Resource Development Fund (HRDF) | 1% | Applies only to employers with ≥10 employees in training-relevant sectors |
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 Type | Employee Rate | Notes |
|---|---|---|
| EPF | 11% of the monthly salary | Mandatory for only Malaysian citizens and permanent residents. |
| SOCSO | 0.5–1% | Based on wage classification and shared with the employer |
| EIS | 0.2% | 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.
| Category | Chargeable Income (RM) | Tax Rate | Tax on This Bracket (RM) | Cumulative Tax (RM) |
|---|---|---|---|---|
| A | 0 – 5,000 | 0% | 0.00 | 0.00 |
| B | 5,001 – 20,000 | 1% | 150.00 | 150.00 |
| C | 20,001 – 35,000 | 3% | 450.00 | 600.00 |
| D | 35,001 – 50,000 | 6% | 900.00 | 1,500.00 |
| E | 50,001 – 70,000 | 11% | 2,200.00 | 3,700.00 |
| F | 70,001 – 100,000 | 19% | 5,700.00 | 9,400.00 |
| G | 100,001 – 400,000 | 25% | 75,000.00 | 84,400.00 |
| H | 400,001 – 600,000 | 26% | 52,000.00 | 136,400.00 |
| I | 600,001 – 2,000,000 | 28% | 392,000.00 | 528,400.00 |
| J | > 2,000,001 | 30% | Varies | Varies |
Like we said, complex.
And we most definitely won’t bore you with all the jargon because, quite frankly, you don’t need it. Simply punch in the values in our payroll calculator.
It’s important to note that these intricacies apply only to Malaysian nationals. While foreigners also pay personal income tax, it is at a flat rate of 30%.
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 could be quite herculean, but that’s why we’re here. Employers must first secure the relevant work authorization—typically an Employment Pass (EP), Professional Visit Pass (PVP), or Temporary Employment Pass (TEP).
Employment Pass (EP)
For skilled professionals earning RM3,000+/month, valid up to 5 years.
PVP
For short-term work assignments (max 12 months).
TEP
For semi-skilled workers in approved sectors (e.g., manufacturing, agriculture).
Depending on the pass, processing times range from 2 to 8 weeks.
Time Off and Leave in Malaysia
Mandatory Leave Entitlement
Under the Employment Act 1955, annual leave is statutory for all employees earning RM2,000/month or less, or engaged in manual labor (regardless of salary).
| Years of Continuous Service | Minimum Annual Leave |
|---|---|
| Less than 2 years | 8 days |
| 2 to 5 years | 12 days |
| More than 5 years | 16 days |
An employee must have been employed for at least 12 months to qualify for a full annual leave.
Public Holidays
Malaysia observes 11 announced national holidays, with additional state holidays varying by location.
- New Year’s Day (1 January)
- Chinese New Year (10–11 February)
- Hari Raya Aidilfitri (Eid) (10–11 April*)
- Labour Day (1 May)
- Wesak Day (22 May)
- Agong’s Birthday (3 June)
- Hari Raya Haji (Eid al-Adha) (17 June*)
- Awal Muharram (Islamic New Year) (7 July*)
- National Day (Merdeka) (31 August)
- Malaysia Day (16 September)
- Prophet Muhammad’s Birthday (15 September*)
- Deepavali (31 October)
- Christmas Day (25 December)
*Subject to change based on moon sightings (Islamic calendar).
You can find the full holiday calendar here.
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 Service | Sick Leave Without Hospitalization | With Hospitalization |
|---|---|---|
| < 2 years | 14 days | Up to 60 days total |
| 2–5 years | 18 days | — |
| > 5 years | 22 days | — |
Other leaves, e.g., study, marriage, bereavement, etc., are given at the discretion of employers.
Maternity Leave
All female employees -regardless of their salary – are entitled to a 98-day fully paid maternity leave, compulsory as of January 2023 in the amended act.
Paternity Leave
All married male employees with at least 12 months of service, regardless of their salary, are entitled to a 7-day paid paternity leave. The leave is applicable for up to 5 births per employer.
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 Service | Notice Period |
|---|---|
| Less than 2 years | 4 weeks |
| 2 to 5 years | 6 weeks |
| More than 5 years | 8 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 Service | Statutory Severance Pay |
|---|---|
| Less than 2 years | 10 days’ wages per year of service |
| 2–5 years | 15 days’ wages per year of service |
| More than 5 years | 20 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.
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