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Discover everything you need to know about Malaysia

Hire in Malaysia at a glance

Here ares some key facts regarding hiring in Malaysia

Kuala Lumpur
Malaysian Ringgit
GDP growth
GDP world share
Payroll frequency
Working hours
48 hours/week

Overview in Malaysia

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Malaysia, a Southeast Asian country, is characterized by its diverse geography, rich history, and multi-ethnic society. It consists of two main regions: Peninsular Malaysia and East Malaysia on the island of Borneo. The country features rainforests, mountains like Mount Kinabalu, and strategic locations such as the Strait of Malacca.

Historically, Malaysia has been inhabited for over 40,000 years, with significant influences from various empires and colonial powers, achieving independence in 1957 and forming the current federation in 1963. Economically, Malaysia has transitioned from agriculture to a middle-income economy driven by manufacturing, services, and natural resource exports, despite ongoing challenges like income disparities.

The population is diverse, with a workforce that includes Malays, Chinese, Indians, and indigenous groups, and a significant youth demographic. The services sector, including finance and tourism, dominates the economy, followed by manufacturing sectors like electronics and chemicals. Agriculture remains vital for rural employment, focusing on palm oil and rubber.

Culturally, Malaysia values community, family, and respect for hierarchy, with a communication style that emphasizes subtlety and maintaining harmony. The workplace accommodates diverse religious practices and cultural norms. Emerging sectors with growth potential include the digital economy, renewable energy, and healthcare, driven by technological advancements and demographic shifts.

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Employer of Record in Malaysia

Rivermate is a global Employer of Record company that helps you hire employees in Malaysia without the need to set up a legal entity. We act as the Employer of Record for your employees in Malaysia, taking care of all the legal and compliance aspects of employment, so you can focus on growing your business.

How does it work?

When you hire employees in Malaysia through Rivermate, we become the legal employer of your staff. This means that we take on all the responsibilities of an employer, while you retain the day-to-day management of your employees.

You as the company maintain the direct relationshiop with the employee, you allocate them the work and manage their performance.
Rivermate takes care of the local payrolling of the employee, the contracts, HR, benefits and compliance.

Responsibilities of an Employer of Record

As an Employer of Record in Malaysia, Rivermate is responsible for:

  • Creating and managing the employment contracts
  • Running the monthly payroll
  • Providing local and global benefits
  • Ensuring 100% local compliance
  • Providing local HR support

Responsibilities of the company that hires the employee

As the company that hires the employee through the Employer of Record, you are responsible for:

  • Day-to-day management of the employee
  • Work assignments
  • Performance management
  • Training and development

Taxes in Malaysia

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In Malaysia, employers are responsible for contributing to several social security and employment benefit systems, including the Employees Provident Fund (EPF), Social Security Organization (SOCSO), and Employment Insurance System (EIS). The EPF requires employers to contribute 12% or 13% of monthly wages depending on the salary level, while SOCSO contributions are capped at 1.25% for employment injury and invalidity schemes. EIS contributions are set at 0.2% of an employee's monthly salary.

Employers must also handle Monthly Tax Deductions (MTD) from employee salaries, which are pre-payments towards their annual income tax. Employees themselves contribute to the EPF and EIS, but not to SOCSO.

Malaysian tax residents can benefit from various tax reliefs and exemptions, such as personal relief, dependents relief, and lifestyle reliefs, which can significantly reduce taxable income. The country operates under a progressive income tax system, with rates ranging from 0% to 30%.

Additionally, Malaysia offers various business incentives, including Pioneer Status, Investment Tax Allowance (ITA), and Reinvestment Allowance (RA), which provide significant tax reliefs for qualifying expenditures and activities in specific sectors and regions. Special incentives are also available for industries like ICT, Biotechnology, Green Technology, and the Halal Industry, as well as for businesses in Special Economic Zones (SEZs) and those engaged in Research and Development (R&D) or export-oriented activities.

Leave in Malaysia

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In Malaysia, the Employment Act of 1955 sets the guidelines for various types of employee leave. Here's a breakdown:

Annual Leave:

  • Employees with less than 2 years of service: 8 days per year.
  • Employees with 2 to 5 years of service: 12 days per year.
  • Employees with over 5 years of service: 16 days per year.
  • Pro-rated leave is available for those with less than 12 months of service.
  • Unused leave must be taken within 12 months to avoid forfeiture.

Sick Leave:

  • Less than 2 years of service: 14 days per year.
  • 2 to 5 years of service: 18 days per year.
  • More than 5 years of service: 22 days per year.
  • An additional 60 days of paid hospitalization leave is available annually.

Maternity Leave:

  • Female employees are entitled to 60 consecutive days of paid leave.

Paternity Leave:

  • As of the 2022 amendment, eligible male employees receive 7 consecutive days of paid leave per child, up to five children.

Public Holidays:

  • Federal Public Holidays are observed nationwide and include days like New Year's Day, Chinese New Year, and National Day.
  • State Public Holidays vary by local customs and celebrations.

Other Types of Leave:

  • Some employers may offer compassionate leave, marriage leave, and pilgrimage leave, though these are not mandated by law.

Employers may provide more generous leave benefits than those mandated by law in their employment contracts or company policies.

Benefits in Malaysia

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Mandatory Employee Benefits in Malaysia

In Malaysia, employers must provide three mandatory benefits to their employees, which are crucial for social security, retirement planning, and protection against employment-related risks.

  1. Employees Provident Fund (EPF): A compulsory savings scheme where both employers and employees contribute (13% and 11% of the monthly salary, respectively) to help employees save for retirement.

  2. Social Security Organization (SOCSO): Also known as PERKESO, this provides protection against work-related injuries, disabilities, or death, with employers contributing 1.25% of the monthly salary.

  3. Employment Insurance System (EIS): Offers financial support and training allowances to retrenched workers, with both employers and employees contributing 0.2% of the monthly salary.

Optional Employee Benefits

Beyond mandatory benefits, Malaysian employers often offer additional perks to attract and retain talent:

  • Health and Insurance Benefits: Including health insurance covering medical, hospitalization, dental, and vision expenses, and life insurance for financial security of the employee's family.

  • Work-Life Balance and Well-being: Flexible work arrangements, additional leave days, Employee Assistance Programs (EAPs), and subsidized gym memberships.

  • Learning and Development: Professional development opportunities, conferences, and tuition reimbursement for further education.

  • Other Perks: Discounts on company products, childcare support, and transportation allowances.

These optional benefits vary by company but contribute to a comprehensive benefits package aimed at creating a supportive and attractive work environment.

Workers Rights in Malaysia

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Summary of Employment Regulations in Malaysia

  • Employment Act 1955: This is the primary law governing employment in Malaysia, requiring a "just cause or excuse" for employee dismissal. Lawful dismissal reasons include misconduct, poor performance, redundancy, expiration of a fixed-term contract, or retirement.

  • Lawful Grounds for Dismissal:

    • Misconduct: Includes dishonesty, insubordination, and serious breaches of work rules.
    • Poor Performance: Persistent substandard work despite warnings.
    • Redundancy: Role is no longer necessary due to restructuring or economic downturn.
  • Notice Requirements:

    • Less than 2 years of service: 4 weeks' notice.
    • 2 to 5 years: 6 weeks' notice.
    • Over 5 years: 8 weeks' notice.
  • Severance Pay: Mandatory under conditions like redundancy if the employee has worked for over a year.

  • Anti-Discrimination Laws:

    • Protects against discrimination based on race, religion, sex, gender, pregnancy, marital status, disability, and trade union membership.
    • Redress can be sought through internal grievance procedures, the Department of Labour, Industrial Court, SUHAKAM, or civil courts.
  • Employer Responsibilities:

    • Develop non-discrimination policies.
    • Ensure fair hiring and promotion.
    • Prevent and address harassment.
    • Provide training on anti-discrimination laws and policies.
  • Working Hours and Rest:

    • Maximum of 45 hours per week, 8 hours per day.
    • Overtime compensated at least 1.5 times the hourly wage.
    • Minimum one full rest day per week.
  • Ergonomic and Safety Requirements:

    • Employers must provide a safe and healthy work environment, identify ergonomic risks, and educate employees on safe practices under the Occupational Safety and Health Act 1994 (OSHA 1994).
  • OSHA 1994:

    • Employers must conduct risk assessments, provide safe equipment, and ensure proper training.
    • Employees have the right to a safe workplace, access to safety information, and can refuse unsafe work.
  • Enforcement:

    • The Department of Occupational Safety and Health (DOSH) enforces safety regulations, conducts inspections, and can issue notices or take legal action against non-compliant employers.

Agreements in Malaysia

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In Malaysia, employment agreements are tailored to suit various work types and needs, with common types including permanent, fixed-term, part-time, and internship agreements. Each type has specific characteristics:

  • Permanent Employment Contract: Offers indefinite employment duration, ensuring job security, with termination procedures governed by the Employment Act 1955.
  • Fixed-Term Employment Contract: Used for temporary needs with a clear end date. Repeated renewals might lead to permanent status if the employee is dismissed.
  • Part-Time Employment Contract: Provides flexible working hours with pro-rated benefits and salary.
  • Internship Agreement: Aimed at students for practical experience, often without formal compensation or benefits.

Employment agreements must comply with the Employment Act 1955, detailing clauses on job description, compensation, working conditions, termination, and confidentiality. Probationary periods, while common, are not legally required and typically last 3 to 6 months, allowing assessment of employee suitability.

Confidentiality clauses are enforceable, protecting employer's sensitive information, whereas non-compete clauses are generally void under the Contracts Act 1950, except in specific circumstances like the sale of goodwill. This legal framework ensures that employment agreements are fair and compliant with Malaysian labor laws.

Remote Work in Malaysia

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Remote work has gained popularity in Malaysia, prompting changes in legal, technological, and employer responsibilities. Key legal updates include amendments to the Employment Act 1955 allowing for written remote work applications, extended SOCSO coverage for work-from-home scenarios, and employer obligations under the Occupational Safety and Health Act 1994 to ensure safe remote work environments.

Technologically, successful remote work requires reliable internet, secure communication platforms, and cloud-based applications. Employers must develop clear remote work policies, provide necessary equipment, maintain communication, manage performance, and offer training to support remote employees effectively.

Flexible work arrangements like part-time work, flexitime, and job sharing are also becoming more common, as outlined in the Employment Act 1955. While employers are not legally required to reimburse for remote work expenses, they may choose to cover certain costs.

Data protection is crucial, with employer obligations under the Personal Data Protection Act 2010 to secure employee data, and best practices include using secure networks, implementing data access controls, encrypting data, training employees on data security, and having a robust incident response plan.

Working Hours in Malaysia

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  • Malaysia's Employment Act 1955 (Act 342) sets the standard working hours with a weekly limit of 45 hours and a daily limit of 8 hours, effective from September 1, 2023.
  • The spreadover period including breaks cannot exceed 10 hours per day.
  • Overtime is regulated, with a cap of 104 hours per month and a minimum pay rate of 1.5 times the hourly rate for weekdays. Rates increase to 2 times for rest days and 3 times for public holidays.
  • Employees are entitled to one full rest day per week, and those working more than 5 consecutive hours must receive a minimum 30-minute unpaid rest break.
  • Night shift and weekend work do not have specific definitions under the Act, but employers must ensure safe working conditions. Overtime pay applies to weekend work exceeding standard hours.
  • Exceptions for continuous operations can be made with approval from the Director General of Labour, allowing alternative rest day arrangements.

Salary in Malaysia

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Understanding market competitive salaries in Malaysia involves various factors including industry, experience, location, and company size. Salaries differ significantly across industries, with Telecommunication, Insurance, and Banking & Finance offering higher median salaries. Experience level affects salary increments, particularly noticeable in entry-level positions. Urban areas like Kuala Lumpur generally offer higher salaries compared to rural areas.

Company size also influences salary structures, with larger corporations often paying more than SMEs. Other factors impacting salaries include education, skills, cost of living, and specific regional economic conditions. Malaysia enforces a national minimum wage of RM1,500 per month for private sector employees in companies with five or more employees, with different rates for micro-enterprises.

Statutory benefits in Malaysia include annual leave, public holidays, maternity leave, and mandatory contributions to social security schemes like the EPF. Employers may also offer discretionary benefits such as bonuses and various allowances to enhance compensation packages.

Payroll practices in Malaysia require salaries to be paid monthly by the 7th of the following month, with flexibility in payment cycles depending on the industry or company policy. Salary computation involves adding allowances to the basic salary and deducting statutory contributions, with employers required to provide detailed payslips. Employers can manage payroll in-house or outsource to a licensed provider, and providing a 13th-month bonus, while customary, is not legally required.

Termination in Malaysia

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In Malaysia, the Employment Act (1955) mandates specific notice periods for employment termination based on the length of service, ranging from 4 to 8 weeks. Employment contracts may specify longer periods, but not shorter than the statutory minimums. Exceptions to these notice requirements include summary dismissal for misconduct, employee's death, and mutual agreement. Severance pay is due to employees terminated due to redundancy or similar reasons, provided they have served at least 12 months, with the amount based on service length and last salary. The termination process must be fair and include written notice, an opportunity for the employee to respond, and potentially a domestic inquiry, ensuring procedural fairness and adherence to legal standards.

Freelancing in Malaysia

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In Malaysia, correctly distinguishing between employees and independent contractors is essential due to the legal and financial implications of misclassification. Employees are under the direct control of the employer, who dictates their work methods, schedule, and provides necessary tools, while independent contractors operate with more autonomy, often using their own tools and setting their own schedules. Misclassification can lead to backdated payments and fines for businesses.

Independent contractors should have well-defined contracts that specify the scope of work, payment terms, and termination clauses. Negotiation practices are crucial, with emphasis on understanding market rates and maintaining professionalism. Key industries for independent contractors include IT, creative industries, professional services, and construction.

Protecting intellectual property (IP) is vital, with freelancers advised to draft clear agreements specifying IP ownership. Copyright registration, while not mandatory, offers additional protection. Freelancers should also understand their tax obligations and consider social security contributions and insurance options, such as health, accident, and professional liability insurance, to mitigate potential risks.

Health & Safety in Malaysia

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Malaysia's workplace health and safety regulations are governed by several key laws including the Occupational Safety and Health Act 1994, the Factories and Machinery Act 1967, and the Petroleum (Safety Measures) Act 1984. These laws outline the responsibilities of employers and employees to maintain a safe working environment, and establish specific guidelines for various industries and hazards.

Key Principles:

  • Employers' General Duties: Employers are responsible for ensuring a safe work environment, maintaining equipment, and providing necessary training and supervision.
  • Employees' Duties: Employees must take reasonable care for their own safety and cooperate with safety measures.
  • Safety and Health Committees: Required in workplaces with more than 40 employees to facilitate collaborative safety efforts.

Specific Areas of Regulation:

  • Covers hazard identification, machinery use, chemical hazards, fire safety, first aid, and incident reporting among others.

Enforcement and Penalties:

  • The Department of Occupational Safety and Health (DOSH) enforces these regulations, with authority to inspect workplaces and impose penalties for non-compliance.

Evolving Landscape:

  • Malaysia is enhancing self-regulation and broadening the focus to include psychosocial well-being alongside traditional physical safety measures.

Occupational Health and Safety (OSH) Management:

  • Involves hazard identification, risk assessment, and implementing control measures according to a hierarchy of controls.
  • Addresses workplace safety, occupational health, workplace environment, ergonomics, emergency preparedness, and OSH training.
  • Encourages worker participation and continuous improvement in safety standards.

Inspection and Compliance:

  • DOSH conducts various types of inspections and has the authority to take follow-up actions including issuing notices and prosecuting offenders.
  • Employers are encouraged to conduct self-inspections to proactively manage and improve safety standards.

Accident Reporting and Compensation:

  • Employers must report accidents and investigate them to prevent recurrence.
  • Malaysia's social security scheme, managed by SOCSO, provides compensation for workplace injuries and diseases.

Overall, Malaysia's comprehensive OSH framework emphasizes both employer and employee responsibilities, continuous improvement, and strict enforcement to ensure workplace safety and health.

Dispute Resolution in Malaysia

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Malaysia's labor dispute resolution primarily involves the Industrial Court, established under the Industrial Relations Act 1967, which handles various labor disputes through conciliation and formal hearings. Arbitration is less common but used for collective disputes by agreement. Labor inspections, conducted by various departments, play a crucial role in ensuring compliance with labor laws like the Employment Act 1955 and the Industrial Relations Act 1967, focusing on scheduled, complaint-triggered, targeted, and follow-up inspections.

Non-compliance with labor laws can lead to warnings, fines, or prosecution, with several channels available for workers to report abuses, including through the Department of Labor or unions. Whistleblower protections exist but are limited, with the Whistleblower Protection Act 2010 offering broader protections against retaliation for reporting corruption or misconduct.

Malaysia has ratified several ILO conventions, influencing its domestic legislation to align with international labor standards, including prohibitions on forced labor, child labor regulations, and non-discrimination in employment. However, challenges remain, such as restrictions on freedom of association, insufficient protections for migrant workers, and gaps in enforcement.

Efforts to improve compliance include legal reforms, national action plans targeting child and forced labor, and capacity building for stakeholders to better uphold international labor standards.

Cultural Considerations in Malaysia

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In Malaysia, effective workplace communication and relationship-building are shaped by cultural nuances such as indirectness, formality, and non-verbal cues. The high-context culture emphasizes indirect communication to maintain politeness and avoid confrontation, with a strong focus on "saving face." Formal interactions are influenced by hierarchical structures, requiring respectful language and honorific titles, especially when dealing with superiors. Non-verbal cues like subtle gestures and facial expressions are crucial in conveying messages, and comfortable silences are often used for reflection.

Negotiation practices in Malaysia prioritize relationship-building, a win-win mentality, and respect for hierarchy, with indirect communication being a preferred method to avoid disrespect. Patience and persistence are essential, as negotiations can be slow-paced with a focus on consensus-building.

Understanding the hierarchical structure in Malaysian businesses is vital for effective management. This includes recognizing the high power distance and collectivism that influence decision-making and team dynamics. Modern trends show a shift towards empowering employees and adopting matrix structures to enhance efficiency while respecting traditional values.

Additionally, awareness of Malaysia's diverse holiday calendar, including statutory and regional observances, is crucial for businesses to plan work schedules and respect cultural practices, thereby fostering an inclusive workplace environment.

Frequently Asked Questions for Employer of Record services in Malaysia

Is it possible to hire independent contractors in Malaysia?

Yes, it is possible to hire independent contractors in Malaysia. However, there are several important considerations to keep in mind:

  1. Legal Classification: In Malaysia, the distinction between an employee and an independent contractor is crucial. Employees are entitled to various benefits and protections under Malaysian labor laws, such as the Employment Act 1955, while independent contractors are not. Misclassifying an employee as an independent contractor can lead to legal complications and penalties.

  2. Contractual Agreement: When hiring an independent contractor, it is essential to have a clear and comprehensive contract that outlines the scope of work, payment terms, duration, and other relevant conditions. This contract should explicitly state that the individual is an independent contractor and not an employee.

  3. Tax Implications: Independent contractors are responsible for their own tax filings and contributions to the Employees Provident Fund (EPF) and Social Security Organization (SOCSO) if applicable. Employers do not withhold taxes or make contributions on behalf of independent contractors. However, it is important to ensure that the contractor complies with local tax regulations to avoid any potential liabilities.

  4. Intellectual Property: The contract should address the ownership of any intellectual property created during the engagement. Typically, independent contractors retain ownership of their work unless otherwise specified in the contract.

  5. Termination and Dispute Resolution: The contract should include provisions for termination and dispute resolution to protect both parties in case of disagreements or the need to end the engagement prematurely.

Using an Employer of Record (EOR) service like Rivermate can simplify the process of hiring independent contractors in Malaysia. An EOR can help ensure compliance with local laws, manage payroll and tax obligations, and provide legal and administrative support. This allows businesses to focus on their core activities while mitigating the risks associated with hiring and managing independent contractors.

What options are available for hiring a worker in Malaysia?

In Malaysia, employers have several options for hiring workers, each with its own set of regulations and requirements. Here are the primary methods:

  1. Direct Hiring:

    • Local Employees: Employers can directly hire Malaysian citizens or permanent residents. This involves advertising the job, conducting interviews, and managing the entire recruitment process. Employers must comply with local labor laws, including minimum wage requirements, statutory benefits, and employment contracts.
    • Foreign Employees: Hiring foreign workers involves additional steps, such as obtaining work permits and visas. Employers must demonstrate that the position cannot be filled by a local worker and adhere to quotas and regulations set by the Malaysian government.
  2. Contracting through Recruitment Agencies:

    • Employers can engage recruitment agencies to find suitable candidates. These agencies handle the initial stages of recruitment, including screening and interviewing candidates. This can save time and resources for the employer.
  3. Freelancers and Independent Contractors:

    • For short-term or project-based work, employers can hire freelancers or independent contractors. This arrangement offers flexibility but requires clear contracts to define the scope of work, payment terms, and other conditions. Employers must ensure that these workers are genuinely independent to avoid misclassification issues.
  4. Temporary Staffing Agencies:

    • Temporary staffing agencies provide workers for short-term assignments. These agencies handle the employment relationship, including payroll and compliance with labor laws, while the workers perform their duties at the employer's premises.
  5. Employer of Record (EOR) Services:

    • An EOR, like Rivermate, can be an excellent option for companies looking to hire in Malaysia without establishing a legal entity in the country. The EOR becomes the legal employer of the workers, handling all employment-related responsibilities, including payroll, taxes, benefits, and compliance with local labor laws. This allows the client company to focus on managing the day-to-day activities of the workers without worrying about administrative and legal complexities.

Benefits of Using an Employer of Record in Malaysia:

  • Compliance: An EOR ensures that all employment practices comply with Malaysian labor laws, reducing the risk of legal issues and penalties.
  • Cost-Effective: Setting up a legal entity in Malaysia can be costly and time-consuming. An EOR allows companies to hire workers quickly and efficiently without the need for a local entity.
  • Administrative Relief: The EOR handles payroll, tax filings, benefits administration, and other HR tasks, freeing up the client company to focus on core business activities.
  • Flexibility: Companies can scale their workforce up or down based on business needs without the long-term commitment of establishing a local entity.
  • Local Expertise: EORs have in-depth knowledge of the local labor market and regulations, providing valuable insights and guidance to ensure smooth operations.

In summary, while there are multiple options for hiring workers in Malaysia, using an Employer of Record like Rivermate offers significant advantages in terms of compliance, cost savings, administrative efficiency, and flexibility.

What is the timeline for setting up a company in Malaysia?

Setting up a company in Malaysia involves several steps and can take anywhere from a few weeks to a few months, depending on the complexity of the business and the efficiency of the processes. Here is a detailed timeline for setting up a company in Malaysia:

  1. Name Search and Reservation (1-2 days):

    • Conduct a name search with the Companies Commission of Malaysia (SSM) to ensure the desired company name is available and not already in use.
    • Reserve the company name once it is approved.
  2. Preparation of Incorporation Documents (3-5 days):

    • Prepare the necessary incorporation documents, including the company’s constitution (formerly known as the Memorandum and Articles of Association), Form 48A (Statutory Declaration by a Director or Promoter before Appointment), and Form 49 (Return Giving Particulars in Register of Directors, Managers, and Secretaries).
  3. Submission of Incorporation Documents (1-2 days):

    • Submit the incorporation documents to the SSM. This can be done online through the MyCoID 2016 portal.
  4. Issuance of Certificate of Incorporation (1-3 days):

    • Once the documents are submitted and approved, the SSM will issue a Certificate of Incorporation, confirming that the company is legally registered.
  5. Opening a Corporate Bank Account (1-2 weeks):

    • Open a corporate bank account in Malaysia. This process can vary in duration depending on the bank’s requirements and procedures.
  6. Registration for Taxes (1-2 weeks):

    • Register for the necessary taxes with the Inland Revenue Board of Malaysia (LHDN), including corporate tax, Goods and Services Tax (GST), and other relevant taxes.
  7. Registration with the Employees Provident Fund (EPF) and Social Security Organization (SOCSO) (1-2 weeks):

    • Register the company with the EPF and SOCSO to comply with employee benefits and social security requirements.
  8. Obtaining Business Licenses and Permits (2-4 weeks):

    • Depending on the nature of the business, additional licenses and permits may be required from various government agencies. The time required to obtain these can vary significantly.
  9. Setting Up Office Space and Infrastructure (Variable):

    • Secure office space, set up necessary infrastructure, and hire staff. The timeline for this step can vary widely based on the specific needs of the business.

Overall, the entire process of setting up a company in Malaysia can take anywhere from 1 to 3 months, depending on the efficiency of each step and the specific requirements of the business. Using an Employer of Record (EOR) service like Rivermate can significantly streamline this process by handling many of the administrative and compliance-related tasks, allowing you to focus on your core business activities.

Who handles the filing and payment of employees' taxes and social insurance contributions when using an Employer of Record in Malaysia?

When using an Employer of Record (EOR) in Malaysia, the EOR handles the filing and payment of employees' taxes and social insurance contributions. This includes the following responsibilities:

  1. Income Tax: The EOR ensures that the appropriate amount of income tax is withheld from employees' salaries and remitted to the Inland Revenue Board of Malaysia (LHDN). They manage the monthly tax deductions (MTD) and ensure compliance with Malaysian tax laws.

  2. Employees Provident Fund (EPF): The EOR is responsible for both the employer's and the employee's contributions to the EPF, which is Malaysia's mandatory retirement savings scheme. They calculate the contributions based on the employee's salary and remit these amounts to the EPF on a monthly basis.

  3. Social Security Organization (SOCSO): The EOR manages contributions to SOCSO, which provides social insurance for employees in case of employment injuries or invalidity. This includes both the Employment Injury Scheme and the Invalidity Pension Scheme. The EOR calculates and remits these contributions accordingly.

  4. Employment Insurance System (EIS): The EOR also handles contributions to the EIS, which provides financial assistance to employees who lose their jobs. They ensure that both employer and employee contributions are accurately calculated and submitted to the Social Security Organization.

By managing these responsibilities, the EOR ensures compliance with Malaysian employment laws and regulations, reducing the administrative burden on the client company and mitigating the risk of legal issues related to payroll and tax compliance.

What are the costs associated with employing someone in Malaysia?

Employing someone in Malaysia involves several costs that employers need to consider. These costs can be broadly categorized into direct compensation, statutory contributions, and other employment-related expenses. Here’s a detailed breakdown:

  1. Direct Compensation:

    • Basic Salary: This is the primary component of an employee's compensation and varies based on the role, industry, and experience level.
    • Allowances: Employers may provide various allowances such as housing, transportation, and meal allowances, which are common in Malaysia.
  2. Statutory Contributions:

    • Employees Provident Fund (EPF): Employers are required to contribute to the EPF, which is Malaysia's mandatory retirement savings scheme. The employer's contribution rate is typically 12% to 13% of the employee's monthly salary, depending on the employee's age and salary level.
    • Social Security Organization (SOCSO): Employers must contribute to SOCSO, which provides social security protection to employees. The contribution rate varies but is generally around 1.75% of the employee's monthly salary.
    • Employment Insurance System (EIS): This is another mandatory contribution aimed at providing financial assistance to employees who lose their jobs. The employer's contribution rate is 0.2% of the employee's monthly salary.
  3. Other Employment-Related Expenses:

    • Health Insurance: While not mandatory, many employers provide private health insurance as part of their benefits package to attract and retain talent.
    • Training and Development: Employers may invest in training programs to enhance the skills and productivity of their employees.
    • Annual Leave and Public Holidays: Employers must provide a minimum number of paid annual leave days and observe public holidays, which can affect productivity and operational costs.
    • Overtime Pay: For non-exempt employees, employers must pay overtime for work beyond the standard working hours, as stipulated by Malaysian labor laws.
  4. Recruitment and Onboarding Costs:

    • Recruitment Fees: Costs associated with advertising job vacancies, recruitment agency fees, and other hiring-related expenses.
    • Onboarding: Expenses related to the onboarding process, including orientation programs, training, and administrative costs.
  5. Compliance and Administrative Costs:

    • Legal and Regulatory Compliance: Ensuring compliance with Malaysian labor laws and regulations may involve legal fees and administrative costs.
    • Payroll Processing: Costs associated with managing payroll, either through in-house resources or outsourced payroll services.

Using an Employer of Record (EOR) like Rivermate can help manage these costs effectively. An EOR handles all employment-related responsibilities, including payroll, statutory contributions, compliance, and benefits administration. This allows businesses to focus on their core operations while ensuring that all employment obligations are met in accordance with Malaysian laws.

What is HR compliance in Malaysia, and why is it important?

HR compliance in Malaysia refers to the adherence to the country's labor laws, regulations, and standards governing employment practices. This includes compliance with the Employment Act 1955, Industrial Relations Act 1967, and other relevant legislation that dictate terms of employment, employee rights, workplace safety, and dispute resolution mechanisms.

Key aspects of HR compliance in Malaysia include:

  1. Employment Contracts: Ensuring that all employees have written contracts that outline terms of employment, including job responsibilities, salary, benefits, working hours, and termination conditions.

  2. Wages and Benefits: Adhering to minimum wage laws, timely payment of salaries, and provision of statutory benefits such as the Employees Provident Fund (EPF), Social Security Organization (SOCSO) contributions, and Employment Insurance System (EIS).

  3. Working Hours and Overtime: Complying with regulations on standard working hours, rest days, public holidays, and overtime pay. The Employment Act specifies that employees should not work more than 48 hours per week and are entitled to overtime pay for additional hours worked.

  4. Leave Entitlements: Providing statutory leave entitlements, including annual leave, sick leave, maternity leave, and public holidays. For example, female employees are entitled to at least 60 consecutive days of maternity leave.

  5. Health and Safety: Ensuring a safe working environment in compliance with the Occupational Safety and Health Act 1994. Employers must take necessary measures to prevent workplace accidents and occupational diseases.

  6. Termination and Retrenchment: Following proper procedures for employee termination, including notice periods, severance pay, and fair reasons for dismissal. Retrenchment exercises must be conducted in accordance with the Code of Conduct for Industrial Harmony.

  7. Dispute Resolution: Addressing employee grievances and disputes through established mechanisms, including internal grievance procedures and, if necessary, referring cases to the Industrial Court.

Importance of HR Compliance in Malaysia:

  1. Legal Protection: Compliance with labor laws protects the company from legal disputes, penalties, and sanctions. Non-compliance can result in fines, legal action, and damage to the company's reputation.

  2. Employee Satisfaction: Adhering to HR regulations ensures fair treatment of employees, which can lead to higher job satisfaction, morale, and retention rates. Satisfied employees are more productive and contribute positively to the company's success.

  3. Reputation Management: Companies that comply with HR laws are viewed as responsible and ethical employers. This enhances the company's reputation and attractiveness to potential employees, customers, and investors.

  4. Operational Efficiency: Clear and compliant HR policies streamline operations, reduce misunderstandings, and prevent conflicts. This leads to a more efficient and harmonious workplace.

  5. Risk Mitigation: Proactively managing HR compliance reduces the risk of costly legal disputes and disruptions to business operations. It ensures that the company is prepared to handle any regulatory changes or inspections.

Using an Employer of Record (EOR) like Rivermate can significantly simplify HR compliance in Malaysia. An EOR takes on the responsibility of ensuring that all employment practices adhere to local laws and regulations. This allows companies to focus on their core business activities while minimizing the risk of non-compliance and its associated consequences.

How does Rivermate, as an Employer of Record in Malaysia, ensure HR compliance?

Rivermate, as an Employer of Record (EOR) in Malaysia, ensures HR compliance through a comprehensive understanding and application of local labor laws and regulations. Here are several ways Rivermate achieves this:

  1. Local Expertise: Rivermate employs local HR professionals who are well-versed in Malaysian labor laws, including the Employment Act 1955, Industrial Relations Act 1967, and other relevant regulations. This local expertise ensures that all employment practices are compliant with national standards.

  2. Employment Contracts: Rivermate prepares and manages employment contracts that adhere to Malaysian legal requirements. This includes ensuring that contracts cover essential elements such as job descriptions, salary, benefits, working hours, and termination conditions, all in compliance with local laws.

  3. Payroll Management: Rivermate handles payroll processing in accordance with Malaysian regulations, including the accurate calculation of salaries, statutory deductions (such as Employees Provident Fund (EPF), Social Security Organization (SOCSO), and Employment Insurance System (EIS) contributions), and timely disbursement of wages.

  4. Tax Compliance: Rivermate ensures that all tax obligations are met, including the correct withholding and remittance of income tax to the Inland Revenue Board of Malaysia (LHDN). They also manage annual tax filings and provide necessary documentation to both employees and authorities.

  5. Employee Benefits: Rivermate administers statutory benefits such as EPF, SOCSO, and EIS, ensuring that contributions are made accurately and on time. They also manage other mandatory benefits like annual leave, sick leave, and maternity leave, in line with Malaysian labor laws.

  6. Regulatory Updates: Rivermate stays updated with any changes in Malaysian labor laws and regulations. This proactive approach ensures that their clients remain compliant with new legal requirements, avoiding potential legal issues and penalties.

  7. Work Permits and Visas: For foreign employees, Rivermate assists with obtaining the necessary work permits and visas, ensuring compliance with immigration laws and regulations. This includes managing the application process and ensuring that all documentation is in order.

  8. Employee Relations: Rivermate provides support in managing employee relations, including handling grievances, disciplinary actions, and terminations in accordance with Malaysian labor laws. This helps maintain a compliant and harmonious workplace.

  9. Health and Safety Compliance: Rivermate ensures that workplace health and safety standards are met, in line with the Occupational Safety and Health Act 1994. This includes implementing necessary policies and procedures to protect employees' well-being.

  10. Training and Development: Rivermate can also facilitate compliance with training and development requirements, ensuring that employees receive necessary training as mandated by Malaysian regulations.

By leveraging Rivermate's expertise as an Employer of Record in Malaysia, companies can focus on their core business activities while ensuring full compliance with local HR and employment laws. This minimizes legal risks and enhances operational efficiency.

Do employees receive all their rights and benefits when employed through an Employer of Record in Malaysia?

Yes, employees in Malaysia do receive all their rights and benefits when employed through an Employer of Record (EOR) like Rivermate. An EOR ensures compliance with local labor laws and regulations, which is crucial in a country like Malaysia where employment laws are comprehensive and strictly enforced. Here are some key aspects of how an EOR ensures that employees receive their rights and benefits:

  1. Compliance with Employment Laws: Malaysia's Employment Act 1955 and other labor regulations mandate specific rights and benefits for employees. An EOR ensures that employment contracts, payroll, and HR practices comply with these laws, including minimum wage, working hours, overtime pay, and termination procedures.

  2. Statutory Benefits: Employees are entitled to statutory benefits such as the Employees Provident Fund (EPF), Social Security Organization (SOCSO) contributions, and Employment Insurance System (EIS). An EOR manages these contributions on behalf of the employer, ensuring timely and accurate payments.

  3. Leave Entitlements: Malaysian law provides for various types of leave, including annual leave, sick leave, maternity leave, and public holidays. An EOR ensures that employees receive their entitled leave and that it is properly documented and managed.

  4. Health and Safety: The Occupational Safety and Health Act 1994 requires employers to provide a safe working environment. An EOR helps implement and monitor health and safety policies to ensure compliance and protect employees.

  5. Dispute Resolution: In case of employment disputes, an EOR provides support in navigating the legal framework and ensures that employees' rights are protected throughout the resolution process.

  6. Local Expertise: An EOR like Rivermate has local HR experts who understand the nuances of Malaysian employment laws and cultural practices. This expertise ensures that employees are treated fairly and in accordance with local standards.

  7. Payroll Management: Accurate and timely payroll processing is critical. An EOR handles payroll, including tax deductions and statutory contributions, ensuring that employees are paid correctly and on time.

  8. Employee Support: An EOR provides ongoing HR support to employees, addressing any concerns or questions they may have about their employment, benefits, or rights.

By partnering with an EOR in Malaysia, companies can ensure that their employees receive all the rights and benefits they are entitled to under Malaysian law, while also mitigating the risk of non-compliance and administrative burdens.

What legal responsibilities does a company have when using an Employer of Record service like Rivermate in Malaysia?

When a company uses an Employer of Record (EOR) service like Rivermate in Malaysia, the EOR assumes many of the legal responsibilities associated with employment. However, the company still retains certain obligations and must ensure compliance with local laws. Here are the key legal responsibilities and considerations:

  1. Compliance with Malaysian Labor Laws: The EOR is responsible for ensuring that all employment practices comply with Malaysian labor laws, including the Employment Act 1955, Industrial Relations Act 1967, and other relevant legislation. This includes adherence to regulations on working hours, overtime, leave entitlements, and termination procedures.

  2. Employment Contracts: The EOR will draft and manage employment contracts in accordance with Malaysian law. These contracts must outline the terms of employment, including job responsibilities, salary, benefits, and termination conditions. The company must ensure that the job descriptions and expectations provided to the EOR are accurate and compliant with local standards.

  3. Payroll and Tax Compliance: The EOR handles payroll processing, ensuring that employees are paid accurately and on time. They also manage the calculation and remittance of statutory deductions such as the Employees Provident Fund (EPF), Social Security Organization (SOCSO) contributions, and income tax (PCB). The company must provide accurate information regarding employee compensation and any changes to it.

  4. Employee Benefits: The EOR is responsible for administering statutory benefits required by Malaysian law, such as EPF, SOCSO, and Employment Insurance System (EIS) contributions. They may also manage additional benefits like health insurance, annual leave, and sick leave. The company should communicate any specific benefit requirements or policies they wish to implement.

  5. Work Permits and Visas: If the company employs foreign nationals, the EOR will handle the application and renewal of work permits and visas. This includes ensuring that all necessary documentation is submitted and that the employment of foreign workers complies with Malaysian immigration laws.

  6. Health and Safety Compliance: The EOR must ensure that workplace health and safety standards are met in accordance with the Occupational Safety and Health Act 1994. This includes conducting risk assessments, providing necessary training, and implementing safety protocols. The company should collaborate with the EOR to ensure that the workplace environment meets these standards.

  7. Employee Relations and Dispute Resolution: The EOR manages employee relations, including handling grievances, disciplinary actions, and disputes. They must ensure that any actions taken are in compliance with Malaysian labor laws and that employees are treated fairly. The company should work with the EOR to address any employee issues that arise.

  8. Data Protection and Privacy: The EOR must comply with the Personal Data Protection Act 2010 (PDPA) when handling employee data. This includes ensuring that personal data is collected, used, and stored securely and that employees' privacy rights are respected. The company should ensure that any data shared with the EOR is handled in accordance with these regulations.

  9. Termination and Severance: The EOR is responsible for managing the termination process, including ensuring that any terminations are conducted legally and that severance pay is provided as required by Malaysian law. The company must provide clear instructions and justifications for any terminations to ensure compliance.

By using an EOR like Rivermate in Malaysia, companies can mitigate the complexities and risks associated with local employment laws. However, it is crucial for the company to maintain clear communication with the EOR and ensure that all provided information is accurate and up-to-date to ensure full compliance with Malaysian regulations.

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