Employer of Record in Malasia

How an Employer of Record Works in Malaysia

Foreign companies can use an Employer of Record (EOR) in Malaysia to hire in the country without the need to establish a local entity. The EOR takes on the role of legal employer, hiring and onboarding employees, as well as dealing with compliance, while the foreign employer can focus on managing the day-to-day operations.

Rivermate provides EOR services in Malaysia, so you can leverage our HR experts and network partners to make hiring quick, easy, and compliant.

Malaysia labor market: At a glance

The hiring market
Greatest hiring activity:	Klang Valley (including Kuala Lumpur).
Hiring timelines:	1–2 weeks for local employees; 2–3 months for foreign nationals.
In-demand sectors:	Manufacturing, technology, the digital economy.
Sectors with skills shortages:	Advanced digital skills, including AI and cybersecurity.

The salary market
Employer tax contributions:	About 14–15% for local employees. Foreign employees: EPF 2% plus employer SOSCO, with rate depending on category.
Minimum wage:	RM1,700 per month.
Average gross annual salary:	About RM45,600.
Income tax brackets:	Up to RM5,000: 0% RM5,000–RM20,000: 1% RM20,000–RM30,000: 3% RM30,000–RM50,000 6% RM50,000–RM70,000: 11% RM70,000–RM100,000: 19% RM100,000–RM400,000: 25% RM400,000–RM600,000: 26% RM600,000–RM2 million: 28% Above RM2 million: 30% Non-residents: flat rate of 30%

What it costs to hire an employee in Malaysia

Malaysia is a popular hiring destination because it offers a good balance of cost and access to skilled talent. But base salary is just a part of the overall costs, and contributions, mandatory leave, and more affect what you’ll spend overall.

Salary

Salaries are gross and in Malaysian ringgit (RM). The current minimum wage in Malaysia is RM1,700 per month (RM8.72 per hour). Allowances don’t count toward this, and it only covers basic wages. The national average monthly salary for Malaysian employees in 2025 was RM3,803.

Employees typically receive higher wages in Kuala Lumpur. Mining and the oil and gas sectors tend to pay the highest wages.

Contributions

The total employer contributions are about 14–15% or more for local employees on wages up to RM6,000. Above that, the rate is lower because of the ceilings in place, and it is much lower for foreign nationals.

• Employees Provident Fund (EPF): 13% on wages up to RM5,000, 12% above this. The employee contributes 11% to the EPF.
• Social Security Organisation (SOCSO): 1.75% (a wage ceiling of RM6,000 per month applies).
• Employment Insurance System (EIS): 0.2%

There’s also a Human Resources Development Fund (HRDF), but it only applies to certain industries as well as employers with 10 or more Malaysian employees.

For foreign workers, contributions are much lower, and the employer only contributes 2% to the EPF while the employee contributes the same percentage (with domestic workers excluded). Foreign employees are also covered by SOCSO, but they’re on a separate schedule.

The Monthly Tax Deduction (PCB) for employees is withheld and remitted to the tax authority (LHDN) by the employer.

Bonuses

A common bonus is the end-of-year bonus. This is not mandatory, but it is widely expected. In addition, allowances like transport, meal, and phone allowances are quite common, and it’s also common to provide remote workers with a work-from-home allowance.

Leave

Employees receive a minimum of eight days per year of paid leave if they have under two years of service. This increases to 12 days for 2–5 years’ service and 16 days for over five years’ service.

They also receive paid sick leave of between 14 and 22 days, depending on the length of service. If an employee is hospitalized, they can get up to an additional 60 days’ paid hospitalization leave.

Public holidays are paid. Under the Employment Act (Peninsular Malaysia and Labuan), employees are entitled to at least 11 paid days a year, five of which are compulsory. However, Sabah and Sarawak have their own Labor Ordinances and different holiday entitlements, so it’s important to check the relevant ordinance for employees based there.

Maternity leave is provided for up to 98 consecutive days, and all employees are entitled to it. They can receive full pay for the whole period, and the employer pays this, but only if they have worked for the employer for at least 90 days in the previous nine months and they were employed by the employer at some point in the previous four months. If the mother already has five or more surviving children, they can’t receive the allowance.

Paternity leave is seven consecutive days of paid leave. The father must be legally married, and it only applies to up to five births. They must also have worked for the employer for at least 12 months before taking leave, and they must inform the employer about the pregnancy at least 30 days before the due date.

Overtime

There is a premium of 50% for overtime pay on normal days for employees who earn RM4,000 per month or less, or manual workers. Above this, the amount depends on the contract.

Rest days are paid at double pay if the employee works beyond normal hours, and public holidays are paid at triple pay. The maximum overtime is 104 hours per month.

Employer cost calculator

Get an accurate idea of the total employment costs in Malaysia using our calculator.

What hiring in Malaysia really looks like

Market condition	What an employer needs to know
Talent availability	Excellent, and English-speaking talent is widely available.
Energy and offshore roles	Onshore roles are straightforward; offshore work needs careful consideration.
Remote work	Remote work is popular, and a work-from-home allowance is common.
Key employer challenge	Competition for skilled talent.

Malaysia has a large number of English speakers, and its English proficiency ranks 24th globally. Malay and Mandarin are also widely spoken by professionals, making it a good option for customer support roles.

In addition, a lot of skilled talent is available, which makes it a strong alternative to Singapore. There is a strong talent pool, especially in Penang, the Klang Valley, and Johor Bahru. However, it can sometimes be harder to hire for advanced digital skills, especially in cybersecurity and AI.

Competition for skilled talent is intense in high-demand sectors. Pay is only one factor; local talent also looks for job security, flexibility, and training opportunities.

Hiring local people is quick and straightforward. It typically takes about 1–2 weeks, and there are no special requirements.

Hiring expats takes longer and typically lasts 2–3 months due to the assessment process. The Employment Pass can be difficult to get due to strict education and experience requirements. Employers must also advertise the role on the MYFutureJobs portal, unless the pass holder earns RM15,000 per month or more, or if they hold a C-suite or key post. Authorities approve the role, and employers must justify every foreign hire.

The oil and gas industry is important in Malaysia, but hiring employees to work on oil rigs can bring complications. For offshore work, issues such as working hours and whether the work takes place in Malaysian waters matter. If they are working onshore, the process is straightforward.

Country-specific problem that employers must know about

Foreign hires can be complicated in Malaysia. To start, they must go through one of two main routes, depending on the employer’s business activity. For ICT businesses, this is the MDEC (Malaysia Digital Economy Corporation); for other businesses, it’s the ESD (Expatriate Services Division, Immigration Department). Both are government bodies with different application requirements, so make sure you know which one you need to go through.

Plan for a longer process, which is typically 2–3 months in Rivermate’s experience, due to the assessment process. The timeline can be difficult to predict for several reasons.

In Peninsular Malaysia and the Federal Territories, you must advertise lower-salary roles under RM15,000 per month on the MYFutureJobs portal for at least seven days. You must also carry out a local recruitment process, unless the role is a C-suite or key post. However, the advertising can run at the same time as the Employment Pass application via Xpats Gateway.

Employment Pass salary thresholds were updated in June 2026. The monthly basic salary now has to be:

• Category I: At least RM20,000
• Category II: RM10,000–19,999
• Category III: RM5,000–9,999 (or RM7,000–9,999 in manufacturing)

These bands are separate from the RM15,000 per month advertising exemption, and you will also need a local talent succession plan for Categories II and III.

Approval is at the authorities’ discretion, and even a strong application doesn’t mean it will be approved. There are also strict requirements for experience and education. The candidate will require either a degree and three years of relevant experience; a diploma plus five years; or a technical certificate plus seven years.

Compliance risks employers need to know about

Terminations

The Malaysian labour law is very employee-friendly, and dismissal without cause can be difficult to defend. The burden of proof is on the employer. For misconduct, it’s important to follow a clear process. Before dismissal, you must conduct a proper investigation and give the employee a chance to respond. Our experts have handled cases where an employee took inappropriate photos and was offered the chance to resign, which he took, instead of going through a complex dismissal process. Situations like this require care, and the resignation must be genuinely voluntary.

Severance

Statutory termination and lay-off benefits apply to employees who earn RM4,000 a month or less, as well as to manual workers and other specified categories regardless of pay, under the Employment Act (Termination and Lay-Off Benefits Regulations 1980). They typically don’t apply to non-manual employees who earn over RM4,000. In this case, their entitlement will depend on the details of their contract.

For covered employees, benefits usually apply only after 12 months of service, and employees dismissed for misconduct or who resign generally do not receive pay.

For under two years’ service, the employee receives 10 days’ wages for every year of service. This increases to 15 days for two years but under five years’ service and 20 days for five years or more. If mutual termination is agreed, Rivermate typically provides a severance package. This is negotiated and there is no mandatory formula.

Misclassification

You can hire contractors, but if you call someone a contractor and they work like an employee, there’s a real risk they'll be misclassified. If they are reclassified as an employee, you could owe back pay and contributions and have to pay fines and penalties. The court looks at the substance of the relationship, including the level of control you have over them and how the work is carried out, to determine the classification.

Probation

Probation is not mandatory, and there is no statutory maximum length. The norm is three to six months, but longer periods can apply as well, with up to 12 months for more senior roles. However, a long probation period could be seen as unreasonable, especially if it appears to be used to make dismissal easier.

It’s not always easy to terminate during probation because there are no rules specific to probation. In this situation, the contractual notice period still applies. If nothing is in the contract, the statutory minimum is four weeks. Protections for unfair dismissal and just cause also apply to probationers.

How Rivermate can help you stay compliant when hiring in Malaysia

Our local experts will apply the local labor laws and handle all aspects of the employment relationship on your behalf, so you can focus on your business and finding talent while we take care of the rest.

Learn more about EOR services

Benefits of hiring employees through an EOR in Malaysia

Setting up a local legal entity and dealing with legal compliance can be difficult in Malaysia, and using an EOR makes it a lot easier. The EOR becomes the legal employer, while you focus on managing the day-to-day work.

One of the main benefits of using an EOR is that it is much faster to hire in the country. You can typically onboard a local employee within one or two weeks, depending on factors like the notice period in their previous role. Setting up your own company, however, can take up to three months before you can even start the hiring process.

Using an EOR means you can avoid legal fees, registration costs, and hiring local admin and HR staff. You can get started right away, making it a practical option to test the market. You will also know that the payroll is handled correctly, statutory contributions are paid, monthly tax deductions are processed, and everything else is taken care of. The EOR will also handle local details you might not be aware of, such as EPF being compulsory for foreign workers at a lower rate.

Ready to hire in Malaysia?

Make hiring in Malaysia easy by using Rivermate as your EOR. We make the process simple for foreign companies by managing payroll, sorting out taxes, and handling compliance, so you can hire with confidence.

Talk to a Malaysia Hiring Expert

Sources:

https://sea.peoplemattersglobal.com/news/economy-policy/malaysia-clarifies-employment-pass-salary-revisions-ahead-of-june-rollout-49996

https://mondaq.co.uk/government-measures/1030370/hiring-of-new-expatriates-government-issues-further-clarifications

https://resources.envoyglobal.com/global-news-alerts/malaysia-2024-quota-projections-process-for-employers/

https://www.bernama.com/en/general/news.php?id=2438262

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https://ccs-co.com/post/guides-to-managing-malaysian-employment-act/

https://www.malaysia.gov.my/en/topics/labour-law

https://www.bernama.com/en/region/news.php?id=2617410

https://hrdcorp.gov.my/faq

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