Hire in Malaysia through our Employer of Record (EOR)

Malaysia's employment landscape is a vibrant tapestry of diversity, reflecting the country's multicultural society and rapidly developing economy. With a youthful workforce and a growing emphasis on skilled labor, Malaysia is positioning itself as a competitive player in the global market. The country's employment sector is characterized by a blend of traditional values and modern practices, creating a unique work environment that balances cultural sensitivities with economic ambitions.

Overview of Labor Laws

Malaysia's labor laws are designed to protect both employers and employees, ensuring fair treatment and promoting a harmonious work environment. The Employment Act of 1955 serves as the primary legislation governing labor relations in the country. It covers crucial aspects such as working hours, leave entitlements, and termination procedures. The Industrial Relations Act of 1967 further regulates the relationship between employers, employees, and trade unions.

Key features of Malaysian labor laws include:

• A standard workweek of 48 hours
• Mandatory rest days and public holidays
• Provisions for annual leave, sick leave, and maternity leave
• Regulations on overtime pay and minimum wage
• Guidelines for termination and severance pay

It's important to note that these laws are regularly updated to keep pace with changing economic conditions and international standards.

Cultural Considerations

Understanding and respecting Malaysian cultural norms is crucial for successful employment relationships. Some key cultural considerations include:

1. Respect for hierarchy: Malaysian society values seniority and authority. This translates into the workplace, where clear hierarchies are often observed.

2. Indirect communication: Malaysians often prefer indirect communication to maintain harmony and avoid confrontation. This can impact feedback processes and conflict resolution.

3. Religious sensitivity: With Islam being the predominant religion, accommodations for prayer times and religious holidays are common in many workplaces.

4. Multicultural awareness: Malaysia's diverse ethnic makeup requires sensitivity to different cultural practices and traditions.

5. Face-saving: The concept of 'saving face' is important in Malaysian culture. Avoiding public criticism and maintaining dignity are crucial in professional interactions.

Challenges of Direct Hiring

While Malaysia offers a rich talent pool, direct hiring can present several challenges for foreign companies:

1. Legal complexities: Navigating Malaysia's labor laws and regulations can be complex, especially for companies unfamiliar with the local legal landscape.

2. Cultural nuances: Understanding and adapting to local cultural norms and communication styles can be challenging for foreign employers.

3. Language barriers: While English is widely used in business, proficiency levels can vary, potentially leading to miscommunication.

4. Talent retention: With a competitive job market, retaining skilled employees can be challenging, especially for foreign companies without a strong local presence.

5. Administrative burden: Managing payroll, taxes, and benefits in compliance with local regulations can be time-consuming and complex.

6. Work permit issues: Hiring foreign talent involves navigating Malaysia's work permit system, which can be a lengthy and complex process.

These challenges underscore the importance of thorough preparation and local expertise when considering direct hiring in Malaysia. Many companies find that partnering with a local Employer of Record service can help mitigate these challenges and ensure compliance with local laws and customs.

Malaysia's payroll and tax system is designed to provide social security benefits and ensure fair contributions from both employers and employees. The system encompasses various schemes and contributions that support retirement savings, healthcare, and employment protection. Understanding these components is crucial for both employers operating in Malaysia and employees working in the country.

Employer Contributions

Employers in Malaysia are responsible for several mandatory contributions that support their employees' welfare and the country's social security system. These contributions play a vital role in ensuring financial stability and protection for the workforce.

Employees Provident Fund (EPF)

The EPF is a compulsory retirement savings scheme for Malaysian citizens and permanent residents. Employers are required to contribute:

• 12% of the employee's monthly wages for salaries above RM5,000
• 13% of the employee's monthly wages for salaries below RM5,000

This contribution helps employees build a substantial retirement fund over their working years.

Social Security Organization (SOCSO)

SOCSO provides coverage for work-related injuries and disabilities. Employers contribute to two main schemes:

1. Employment Injury Insurance Scheme (EIIS)
2. Invalidity Pension Scheme (IPS)

The employer's SOCSO contribution is capped at 1.25% of the employee's monthly salary.

Employment Insurance System (EIS)

The EIS offers financial assistance and re-employment support for employees who lose their jobs. Employers contribute 0.2% of an employee's monthly salary, subject to a maximum cap.

It's important to note that these contribution rates may be subject to change, and employers should stay informed about the latest updates. Additionally, employers must register with the relevant authorities to facilitate these contributions and typically make payments through the Inland Revenue Board of Malaysia's online tax portal.

Employee Contributions

Employees in Malaysia also have tax and contribution responsibilities, which are designed to support their long-term financial security and contribute to the country's social welfare system.

Income Tax

Malaysia employs a progressive income tax system, with rates ranging from 0% to 30% based on the individual's income bracket. The tax year follows the calendar year, from January 1 to December 31.

Monthly Tax Deduction (MTD)

Also known as Potongan Cukai Bulanan (PCB), this is an advance tax payment system where employers withhold a portion of an employee's monthly salary based on estimated annual income.

Employees Provident Fund (EPF)

Employees contribute either 9% or 11% of their monthly salary to the EPF, depending on their chosen rate. This complements the employer's contribution to build a substantial retirement fund.

Employment Insurance System (EIS)

Employees contribute 0.2% of their monthly salary to the EIS, subject to a maximum cap.

Tax Reliefs and Exemptions

Malaysian residents can benefit from various tax reliefs and exemptions, which can significantly reduce their taxable income. These include:

• Personal relief
• Dependent reliefs
• Lifestyle reliefs
• Insurance and medical reliefs
• EPF contribution relief

Understanding these contributions and potential tax benefits is crucial for employees to manage their finances effectively and maximize their take-home pay while ensuring they're adequately covered by Malaysia's social security system.

Malaysia offers a comprehensive range of employee benefits, both mandatory and optional, designed to support workers' well-being and financial security. As an Employer of Record (EOR), Rivermate expertly manages these benefits, ensuring compliance with local regulations while helping companies attract and retain top talent. By partnering with an EOR, businesses can navigate the complexities of Malaysian employment laws and provide a competitive benefits package tailored to their workforce's needs.

Mandatory Benefits

Malaysian law requires employers to provide several essential benefits to their employees:

• Employees Provident Fund (EPF):

  • A compulsory retirement savings scheme
  • Employer contributes 13% of monthly salary
  • Employee contributes 11% of monthly salary

• Social Security Organization (SOCSO):

  • Provides protection for work-related injuries, disabilities, or death
  • Employer contributes 1.25% of employee's monthly salary
  • Offers medical benefits, disability benefits, and survivor's benefits

• Employment Insurance System (EIS):

  • Provides financial assistance to retrenched employees
  • Both employer and employee contribute 0.2% of monthly salary
  • Offers temporary income support and training allowances

Optional Benefits

To create a more attractive workplace and enhance employee satisfaction, many employers in Malaysia offer additional benefits:

• Health and Insurance:

  • Comprehensive health insurance coverage
  • Life insurance
  • Dental and vision care plans

• Financial Perks:

  • Transportation allowances
  • Performance bonuses
  • Stock options or profit-sharing plans

• Work-Life Balance:

  • Flexible work arrangements
  • Additional paid leave days
  • Parental leave beyond statutory requirements

• Wellness Programs:

  • Gym memberships or on-site fitness facilities
  • Employee Assistance Programs (EAPs)
  • Mental health support services

• Professional Development:

  • Training and development programs
  • Tuition reimbursement
  • Conference attendance support

• Lifestyle Benefits:

  • Childcare support or on-site facilities
  • Company discounts on products or services
  • Team-building activities and social events

By offering a mix of mandatory and optional benefits, employers in Malaysia can create a comprehensive package that supports their employees' overall well-being and career growth. As an EOR, Rivermate helps businesses navigate these benefits, ensuring compliance while tailoring offerings to meet the unique needs of each company and its workforce.

The process of termination and offboarding in Malaysia is governed by specific laws and regulations that protect both employers and employees. Understanding these procedures is crucial for companies operating in Malaysia to ensure compliance and maintain positive relationships with their workforce.

Termination Process

Grounds for Dismissal

In Malaysia, employers must have a "just cause or excuse" to terminate an employee. Valid reasons for dismissal include:

• Misconduct (e.g., dishonesty, insubordination, willful damage to company property)
• Poor performance (persistent substandard work despite warnings)
• Redundancy (role no longer necessary due to restructuring or economic factors)
• Expiration of a fixed-term contract
• Retirement

Notice Requirements

The Employment Act 1955 outlines minimum notice periods for termination based on the employee's length of service:

• Less than 2 years: 4 weeks' notice
• 2 to 5 years: 6 weeks' notice
• 5 years or more: 8 weeks' notice

Employers may provide longer notice periods or payment in lieu of notice if specified in the employment contract.

Severance Pay

Severance pay is mandatory in certain situations:

• For redundancy or company closure, employees who have worked for over a year are generally entitled to severance pay.
• The amount varies based on length of service.
• For dismissals due to other reasons, severance pay may be required depending on the circumstances and employment contract terms.

Offboarding Process

Conduct a Fair Domestic Inquiry

For terminations due to misconduct, it's best practice to conduct a fair domestic inquiry to establish the facts before dismissal.

Exit Interview

Conducting an exit interview can provide valuable insights and help improve company practices.

Return of Company Property

Ensure all company property, including equipment, access cards, and confidential information, is returned.

Final Pay and Benefits

Calculate and process the employee's final pay, including any outstanding salary, unused leave, and applicable severance pay.

Documentation

Prepare and provide necessary documentation, such as termination letters and certificates of service.

Update Records

Update internal records and inform relevant departments (HR, IT, Finance) about the employee's departure.

By following these guidelines, companies can navigate the termination and offboarding process in Malaysia while minimizing legal risks and maintaining professional standards.

Malaysia's diverse economy and growing job market attract many foreign workers seeking employment opportunities. Understanding the visa and work permit requirements is crucial for those planning to work in the country. Here's a concise overview of the process:

Types of Work Visas

Employment Pass (EP)

The most common work visa for skilled foreign professionals. It's typically valid for up to two years and can be renewed.

Professional Visit Pass (PVP)

For short-term assignments or specialized technical work, usually valid for up to 12 months.

Temporary Employment Pass (TEP)

For semi-skilled and unskilled workers in specific sectors like manufacturing and construction.

Work Permit Application Process

1. Employer Sponsorship: A Malaysian company must sponsor the foreign worker's application.

2. Approval from Relevant Agencies: Depending on the industry, approval may be required from agencies like the Malaysian Investment Development Authority (MIDA).

3. Visa Application: Once approved, the worker applies for the appropriate visa at a Malaysian embassy or consulate.

4. Entry and Work Permit: Upon arrival, the worker obtains a work permit from the Immigration Department.

Key Requirements

• Valid passport with at least 18 months validity
• Job offer letter from a Malaysian employer
• Educational qualifications and work experience documents
• Medical examination results
• Passport-sized photographs

Important Considerations

• Visa processing times can vary, so plan accordingly
• Some positions may have specific salary requirements
• Certain sectors have quotas for foreign workers
• Visa holders must comply with Malaysian laws and regulations

By understanding these requirements, foreign workers can navigate the process more smoothly and ensure compliance with Malaysian immigration laws.