Employer of Record (EOR) Malaysia - Hire & Pay Employees & Contractors with a Global PEO | Employer of Record (EOR)

An Employer of Record (EOR) in Malaysia acts as the legal employer for workers, handling payroll, benefits, and other employment tasks on behalf of the actual employer. Also known as a Global PEO, it simplifies hiring without the need for entity setup.

Discover the key considerations and essential details you should be aware of before you hire your remote team in Malaysia.

Employment Contracts

Employment contracts in Malaysia are governed by the Employment Act 1955 (EA), which outlines the essential terms and conditions of employment for all employees. While employment contracts are typically written, verbal agreements are also considered valid. According to the EA, written contracts are mandatory for fixed-term agreements exceeding one month or for projects with a duration longer than one month. These contracts must include provisions on contract termination by either party.

Although there are no mandatory policy requirements, it is recommended that employers implement policies based on their business needs. These policies may cover areas such as health and safety, whistleblowing, or detailed procedures for reporting grievances or harassment.

In Malaysia, there is no obligation to lodge employment contracts or policies with any third party or seek approval from external entities. The responsibility for managing employment contracts and policies lies solely with the employer.

Minimum Wages

As of February 4, 2024, the minimum wage in Malaysia stands at RM1,500 per month for employees across the private sector, irrespective of the company's size or location. This translates to RM7.21 per hour for a standard 40-hour work week. For different workweek structures, the daily rates are RM57.69 (6-day week), RM69.23 (5-day week), and RM86.54 (4-day week).

Here's a concise overview:

Amount: RM1,500 per month
Effective date: July 1, 2023 (for micro-enterprises) and May 1, 2022 (for all other businesses)
Applicability: All private sector employees, excluding domestic workers
Hourly rate: RM7.21
Daily rates:
- RM57.69 for a 6-day work week
- RM69.23 for a 5-day work week
- RM86.54 for a 4-day work week

It's crucial to stay informed that the Malaysian government reviews and adjusts the minimum wage every two years, with the next review anticipated in 2024.

Working Hours and Overtime Pay in Malaysia

The standard working hours in Malaysia, as of September 1, 2022, adhere to the Employment Act 1955:

Maximum Weekly Hours: 45 hours
Maximum Daily Hours: 8 hours
Spread-over Period: 10 hours (excluding breaks)
Lunch Break: 30 minutes or more (mandatory for work exceeding 5 consecutive hours)
Rest Days: At least one day per week

Flexibility and Industry Variances:

It's essential to understand that these limits are legally defined, and the actual working hours may differ based on industry, company policies, and individual employment contracts. Some companies provide flexibility, such as shorter or compressed workweeks.

Overtime Work:

Overtime work is permissible but within defined restrictions.
Employees earning up to RM4,000 monthly are entitled to overtime pay.
Overtime pay must be at least 1.5 times the regular hourly rate.
Maximum allowable overtime hours per month: 104.

Types of Overtime and Rates:

Normal Day Overtime: Paid at 1.5 times the hourly rate of pay (HRP).
Rest Day Overtime: Paid at 2 times the HRP.
Public Holiday Overtime: Paid at 3 times the HRP, plus one additional day's wages at the ordinary rate.

Calculating Overtime Pay:

Ordinary Rate of Pay (ORP): Monthly salary divided by 26 (assuming fixed 26 working days per month).
Hourly Rate of Pay (HRP): ORP divided by the number of normal working hours per day (usually 8 hours).
Overtime Pay: Rate for the specific overtime type (1.5x, 2x, or 3x) multiplied by the HRP, then multiplied by the number of overtime hours worked.

Additional Notes:

The maximum overtime allowed per month is 104 hours.
Employers must maintain records of overtime worked by employees.
Certain industries and situations might have exceptions and additional considerations.

Payroll Cycle in Malaysia:

The payroll cycle in Malaysia operates on a monthly basis, with payments due by the 7th of each month. Here's a breakdown of the key steps:

Pre-processing (Month-end):

Cut-off date: All relevant documentation for processing is gathered by a specific date (usually around month-end).
Timekeeping and attendance: Employee hours are recorded and verified.
Leave and benefits: Applications for leave and related benefits are processed.
Salary adjustments: Any changes in salary, allowances, or deductions are reflected.

Payroll calculation (Early month):

Gross pay: Basic salary, overtime, allowances, and commissions are added.
Deductions: Income tax, Social Security contributions (SOCSO), Employee Provident Fund (EPF), Employee Insurance Scheme (EIS), and other lawful deductions are calculated.
Net pay: Gross pay minus deductions equals the net pay received by the employee.

Payment and reporting (Mid-month):

Salary payment: Salaries are paid by the 7th of the month via bank transfer, cheque, or cash (rare).
Payslips: Each employee receives a payslip detailing their earnings, deductions, and net pay.
Statutory contributions: Employer contributions to SOCSO, EPF, and EIS are remitted by the prescribed deadlines.
Income tax remittance: If applicable, monthly tax deductions are remitted to the Inland Revenue Board (IRB).

Probation Period

In Malaysia, probation periods are a customary aspect of employment contracts, although they aren't mandated by law. Typically lasting 3-6 months, the primary purpose of these periods is to evaluate an employee's fit for the role and company culture.

Notably, employers reserve the right to terminate employment during probation without the need for just cause, adhering to the specified notice period. Despite being on probation, employees maintain fundamental rights such as entitlement to minimum wage and leave benefits.

Notice Period

In Malaysia, notice periods for termination depend on the duration of employment and the terms outlined in the employment contract. The statutory minimum notice periods are as follows: 4 weeks for 0-2 years of employment, 6 weeks for 2-5 years, and 8 weeks for 5 years or more.

Employment contracts may specify different notice periods, and if silent, the statutory minimum applies. Both employer and employee can agree to payment in lieu of notice. Resignation without notice is possible but may incur compensation. Termination without notice is justifiable under certain circumstances, typically involving gross misconduct, with legal advice recommended.

Severance Pay

In Malaysia, severance pay is applicable to employees covered by the Employment Act 1955, earning RM4,000 or less monthly. Eligible situations include retrenchment or business closure, while resignations, retirements, terminations due to misconduct, and probationary period terminations are ineligible.

The severance pay calculation depends on the length of service: 10 days' wages for each year under 2 years, 15 days for 2-5 years, and 20 days for 5 years and beyond. "Wages" refer to basic salary, excluding allowances and bonuses, and the payment is prorated for incomplete years with a maximum limit of 24 months' wages.

13th Month Salary

In Malaysia, the 13th month salary is not a legal requirement but is commonly provided by companies as a year-end bonus. It varies widely and is often calculated as a percentage of the employee's basic salary, typically ranging from one to two months' salary. While the first RM2,500 is tax-exempt, any amount beyond that is subject to income tax.

Payment details and schedules are usually outlined in the employment contract, and entitlement depends on individual employment terms. Some companies may offer it in installments or even provide a 14th month salary as an additional bonus, though this is less common.

Malaysia Statutory Regulations and Compliance

In Malaysia, employers need to adhere to several registration requirements with statutory bodies to ensure compliance with various regulations.

Employees Provident Fund (EPF): Employers must register an EPF account within seven days of employing an individual. This involves completing Form KWSP1 and submitting it with supporting documents to the EPF Board. Employees also need to register for EPF contributions.
Social Security Organisation (SOCSO): Registration with SOCSO, done via Form 1 for employers and Form 2 for employees, must be completed within 30 days of the Employee Social Security Act becoming applicable. It provides protection against contingencies like invalidity and employment injury.
Malaysian Inland Revenue Board (MIRB): Employers must register with MIRB and obtain an employer tax reference number by submitting Form 600E and supporting documents. They also need to notify MIRB of new employees within one month using Form CP22.
Employment Insurance System (EIS): EIS contributions, aimed at aiding employees who lose their jobs, are collected monthly. The contribution rate is 0.2% for both employers and employees, and payments are due by the 15th day of the following calendar month.
Human Resources Development Fund (HRDF): HRDF registration under the Pembangunan Sumber Manusia Berhad (PSMB) Act 2001 is mandatory for employers with 10 or more Malaysian employees, while those with five to nine employees have the option to register. The monthly levy is charged at either 0.5% or 1%, depending on the number of employees.

Regarding ongoing compliance requirements:

Contributions to EPF: Employers and employees must make monthly contributions to the EPF, with rates varying based on the employee's monthly wages. The deadline for payment is the 15th day of the following calendar month.
Contributions to SOCSO: Contributions to SOCSO are compulsory for Malaysian citizens, with capped rates effective from September 1, 2022. Employers hiring foreign workers must also contribute. Payments are due by the 15th day of the following calendar month.
Employee’s monthly tax deductions to MIRB: Employers are responsible for deducting Monthly Tax Deductions (MTD) from employee remuneration each month. Deductions cover various forms of remuneration, and the deadline for payment is the 15th day of the following calendar month.
Contributions to EIS: EIS contributions, based on a 0.2% rate for both employers and employees, must be paid by the 15th day of the following calendar month.
Contributions to HRDF: Employers have the option or obligation to register with HRDF, with the monthly levy due by the 15th day of the following calendar month, depending on the number of Malaysian employees.

Personal Income Tax

Tax Residency:

In Malaysia, tax residency is categorized into resident and non-resident taxpayers. Individuals residing in the country for 182 days or more are considered residents and taxed on global income, while those residing for less than 182 days are non-residents, taxed solely on Malaysian income.

Tax Brackets and Rates:

The progressive tax structure in Malaysia is determined by chargeable income. Rates range from 0% for income up to RM5,000 to a tiered system for higher incomes, reaching 33% for amounts exceeding RM2,000,000.

Non-Resident Tax Rate:

Non-resident taxpayers typically face a flat rate of 30% on their Malaysian income.

Personal Reliefs and Deductions:

To alleviate the tax burden, various reliefs and deductions are available. These encompass factors like personal relief for self, spouse, children, parents, medical expenses, charitable donations, and housing loan interest.

Tax Filing and Payment:

Resident taxpayers must electronically file their income tax return by March 31 of the subsequent year. Payment is due by April 30 of the same year.

Understanding these aspects of Malaysia's personal income tax system is crucial for individuals to navigate their tax obligations effectively.

Chargeable Income (RM)	Tax Rate (%)
0 - 5,000	0
5,001 - 20,000	15
20,001 - 35,000	25
35,001 - 50,000	30
50,001 - 70,000	35
70,001 - 100,000	40
100,001 - 400,000	25 (on first RM100,000), then 26 (on next RM300,000)
400,001 - 600,000	25 (on first RM100,000), then 26 (on next RM300,000), then 28 (on next RM200,000)
600,001 - 2,000,000	25 (on first RM100,000), then 26 (on next RM300,000), then 28 (on next RM200,000), then 30 (on next RM1,400,000)
Over 2,000,000	25 (on first RM100,000), then 26 (on next RM300,000), then 28 (on next RM200,000), then 30 (on next RM1,400,000), then 33 (on remaining)

Leave Entitlements

As an employer in Malaysia, understanding the intricacies of statutory and non-statutory leaves is crucial. The Employment Act 1955 governs the minimum leave entitlements, while additional leave types vary based on industry practices and company policies.

Effective January 1, 2023, the Employment Act applies universally, encompassing all employees, with specific exceptions for those earning over RM4,000 monthly.

Sick Leave [Section 60F]

Sick leave varies based on service duration:

Employed for less than two years: 14 days
Employed for more than two years but less than five years: 18 days
Employed for more than five years: 18 days

Public Holidays [Section 60D]

Employees are entitled to eleven gazetted public holidays and six chosen public holidays in a calendar year.

Annual Leave [Section 60E]

Annual leave ranges from 8 to 16 days based on employment duration:

Employed for less than two years: 8 days
Employed for more than two years but less than five years: 12 days
Employed for more than five years: 16 days

For those working less than a year, leave is pro-rated.

Maternity Leave [Section 37]

Female employees are entitled to 98 days of paid maternity leave if they've worked for the employer for at least 90 days continuously in the preceding four months.

Paternity Leave [Section 60FA]

Married male employees with at least 12 months of service are entitled to 7 days of paid paternity leave, subject to certain conditions.

Optional Leave

Apart from statutory leaves, employers may grant additional leaves like marriage leave, study leave, compassionate leave, or pilgrimage leave based on employment contracts and company policies.

Work Permits

Hiring from across the globe enhances organizational perspectives, and Malaysia extends diverse work permit options for foreign employers. This concise guide outlines key options:

In the realm of work permits, the Employment Pass (EP) is the go-to choice for managerial, professional, and technical positions. To qualify, individuals need a minimum monthly salary of RM5,000 (approximately USD $1,176) and approval from the Ministry of Human Resources through an "expatriate quota." EPs are typically valid for up to 60 months, with extensions possible.

For short-term projects or skills not locally available, the Temporary Employment Pass (TEP) is a fitting option. It lasts for up to 12 months, with the potential for two extensions. TEPs require sponsorship from a registered Malaysian company, and there are two categories based on the individual's location: TEP with Visa (for those entering Malaysia) and TEP without Visa (for individuals already in Malaysia).

The Professional Visit Pass (PVIP) caters to short-term business visits, conferences, or training activities, providing a stay of up to 90 days. However, it doesn't authorize actual employment.

For dependents of EP and TEP holders, the Dependent Pass (DP) allows residence in Malaysia but without work authorization.

Selecting the right permit involves considering factors such as the nature of work, duration of stay, the employee's qualifications, and whether the salary meets the minimum requirements for an EP.

Key considerations include the potential competitiveness and time consumption in obtaining an EP quota, the necessity of sponsorship for TEP from a Malaysian company, and careful preparation of documentation, including qualification certificates and employment contracts. Processing times vary based on the type and complexity of the permit.

Navigating Malaysia's work permits requires strategic decision-making tailored to unique hiring needs and the nature of the employee's role, ensuring a smoother global talent acquisition process.

Overview
Continent	Asia
Country	Malaysia
Capital	Kuala Lampur
Time zone	UTC+08:00 (Malaysian Standard Time)
Total Time zones	1
Working hours per week	44
Working week	Sunday–Thursday
Capital	Kuala Lumpur
Date format	dd/mm/yyyy
Currency	Malaysian Ringgit (MR)
VAT	the standard rate is 6%
Typical hours worked	8 [Saturday 4 (except Sarawak)]
Personal Tax filing deadline	30 April (without business income) and 30 June (with business income)
Financial Year	1st January to 31st December

Embarking on the employment journey in Malaysia requires a nuanced understanding of the country's labor landscape. Engaging an Employer of Record (EOR) becomes crucial in this context. Malaysia's employment laws come with intricacies, and an EOR takes charge, ensuring businesses adhere to these laws, managing intricate payroll procedures, and handling administrative intricacies. This collaboration allows companies to concentrate on their core objectives without getting bogged down in regulatory challenges. By ensuring that employee onboarding aligns seamlessly with Malaysia's employment laws and practices, the EOR facilitates a smooth integration into Malaysia's diverse business arena. In the ever-evolving Malaysian business landscape, the EOR plays a pivotal role, offering businesses a streamlined path to entry and growth while ensuring compliance and nurturing a conducive work environment.

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Scheme	Employee Contribution (%)	Employer Contribution (%)	Contribution Ceiling (RM)	Notes
Employees' Provident Fund (EPF)	11 (Mandatory for Malaysians & PR, Optional for Expats)	13 (12% if salary below RM5,000)	5,000	Retirement savings
Social Security Organisation (SOCSO) - First Category	0.5	1.25	5,000	Covers work injuries, invalidity, dependents' benefits (employees < 60 years old)
Employment Insurance System (EIS)	0.2	0.2	N/A (Employee) 9.90 (Employer)

Employer of Record (EOR) Malaysia - Hire & Pay Employees & Contractors with a Global PEO