Employer of Record in Malaysia

Businesses can only operate smoothly in Malaysia if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Malaysia below, to avoid any compliance issues.

Employment Contract Requirements

The regulation of employment in Malaysia falls under the 1955 Employment Act, applicable to both fixed-term and permanent employment. According to this law, any arrangement exceeding one month requires a written employment contract. Such contracts are mandated to incorporate specific terms of employment, which include:

• Identification of both parties
• Starting date (and duration for temporary contracts)
• Workplace and working hours
• Job description, duties, and responsibilities
• Basic salary (including compensation and benefits)
• Payment conditions
• Probation period
• Total number of holidays
• Notice periods and guidelines for termination
• Clauses concerning workplace health and safety

Onboarding Process

We can help you get a new employee started in Malaysia quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

Working Hours in Malaysia

The usual working hours in Malaysia consist of 8 hours per day, not exceeding 45 hours per week. However, it is common for employees to work 40 hours per week.

Overtime in Malaysia

Overtime in Malaysia refers to work performed beyond the regular business hours. The maximum monthly limit for overtime hours is 104. Employees are restricted from working more than 12 hours in a day, inclusive of overtime, and must receive compensation at a rate not less than 150% of their standard hourly wage. Employers should pay overtime at 200% of standard hourly wage rate when working on a public holiday (less than 8 hours) or 300% (more than 8 hours).

Probation Period in Malaysia

In Malaysia, probationary periods generally span from 3 to 6 months, however there is no legal requirement to put an employee on probation before they are hired. According to the Employment Act, there is no distinction in entitlements whether an employee is within or outside the probationary period.

Fiscal Year in Malaysia

1 January - 31 December is the 12-month accounting period that businesses in Malaysia use for financial and tax reporting purposes.

Payroll Cycle in Malaysia

The payroll cycle in Malaysia is usually monthly, with employees being paid on the last working day (no later than 7th day of the following month).

Minimum Wage in Malaysia

The minimum wage for employees in Malaysia is typically 9.375 MYR per hour, amounting to ~1,500 MYR per month for a typical 40 hour work week.

Bonus Payments in Malaysia

Although not mandatory, it is common practice in Malaysia to provide a 13-month payment at the end of the year, as specified in the employment agreement.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 18.95% - 22.45% on top of the employee salary in Malaysia.

Employee Payroll Tax Contributions

In Malaysia , the typical estimation for employee payroll contributions cost is around 11.70% - 17.20%%.

Individual Income Tax Contributions

The computation of individual income tax in Malaysia follows a progressive rate structure. Other variables, such as household status and the number of dependents, can influence the overall tax rates.

Pension in Malaysia

Employees in Malaysia are eligible for the state's old-age retirement pension, provided they meet criteria such as being at least 60 years old (flexible withdrawls allowed after age 55). The pension amount is determined by considering both the employee's and employer's contributions. Payment options include lump-sum payments, monthly payments, or a combination of both.

Mandatory Leave Entitlement in Malaysia

The annual leave entitlement in Malaysia is 8 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.

Public Holidays In Malaysia

In Malaysia, there are 11 recognised public holidays in a calendar year, which are separate from annual leave. The initial five holidays are national holidays observed throughout Malaysia, and employers have the flexibility to select 6 out of the following 8 holidays to complete the total of 11 public holidays per year (many of these public holidays vary by state):

Paid Time Off in Malaysia

Paid leave is specified in the employment contract, typically starting at 12-15 days per year and expanding with increased seniority. Accrual occurs from January to December and is contingent on the employee's length of service:

• First 2 years of service: 8 days paid leave per year
• 2-5 years of service: 12 days paid leave per year
• More than 5 years of service: 16 days paid leave per year

Maternity Leave In Malaysia

In the private sector in Malaysia, pregnant employees are entitled to 98 days of fully paid maternity leave, commencing no earlier than 30 days before the due date. They can resume work at any point during this period with the employer's and a medical practitioner's consent. This benefit is applicable for the employee's first five surviving children and if the employee has worked for the employer for at least 90 days continuously in the four months before they give birth.

Paternity Leave In Malaysia

Married fathers with at least a year of service in Malaysia are eligible for 7 consecutive days of fully paid paternity leave per birth if the same employer has employed them for at least 12 months before the commencement of the paternity leave. To avail this leave, employees need to notify their employers 30 days before the expected due date.

Sick Leave In Malaysia

The employment contract outlines paid sick leave requirements and the necessity of a valid medical certificate. The compensation during this leave is determined by the employee's length of service:

• Less than 2 years of service: 14 days sick leave per year
• 2-5 years of service: 18 days sick leave per year
• More than 5 years of service: 22 days sick leave per year
• Employees admitted to the hospital: 60 days hospitalisation leave per year (in addition to regular sick leave)

Parental Leave In Malaysia

There is no provision for shared parental leave that allows parents to divide a set amount of leave between them.

Termination Process in Malaysia

In Malaysia, terminations must be justified, and at-will termination does not apply. Acceptable reasons for termination include:

• Voluntary employee resignation
• Mutual agreement
• Contract expiration
• Unilateral decision by the employer (based on probation period, objective reasons, disciplinary dismissal, inadequate job unsuitability)

Notice Period in Malaysia

Workers in Malaysia have the right to minimum notice periods, and either party can offer payment in lieu as an alternative to giving notice. The duration of the notice periods depends on the length of their employment:

• Less than 2 years of service: 4 weeks notice
• 2-5 years of service: 6 weeks notice
• More than 5 years of service: 8 weeks notice

Severance in Malaysia

Severance pay is compulsory in Malaysia when applicable. The amount of payment varies based on the duration of service:

• First 2 years of service: 10 days severance pay at regular salary pay rate
• 2-5 years of service: 15 days per year of service
• More than 5 years of service: 20 days per year of service