Employer of Record in Malaysia

Malaysia offers global businesses a major entry point into the Southeast Asian market. Not only does it have highly skilled professionals in technology, customer support, and business processes, but it also has a stable, growing economy. With its increased focus on skills development, it has become a major trade hub in the region.

Klang Valley, with Kuala Lumpur as its capital, is Malaysia’s busiest economic hub and home to major infrastructure, including Kuala Lumpur International Airport. Johor, in the south, is the second-largest business hub in the country and is linked to the region’s global financial city (Singapore) via road and rail links.

Malaysian employees in these business and trade hubs often speak several languages, including English, Malay, and Mandarin. This places Malaysia in the unique position of providing customer support and shared services to the US, Europe, and the rest of Asia.

For foreign companies, the potential exists to build remote teams at a much lower cost than in Singapore or Australia. There are also attractive tax incentives for companies, and many sectors grant 100% foreign ownership rights, giving global companies full control over their operations.

While Malaysia’s employment framework is well-structured, it is not as restrictive as some European countries. Malaysia encourages international investment and job creation for its citizens by foreign companies. Entering the market will require companies to set up their own legal entity or use an Employer of Record (EOR) in Malaysia.

An EOR is a global hiring company that already acts as a legal entity in Malaysia. For this reason, it is able to hire employees on behalf of international companies more easily than if a foreign entity were setting it up themselves. With the help of a hiring partner in Malaysia, like Rivermate, your expansion into the Malaysian market is faster, more efficient, and you will be compliant with local labor laws and regulations.

How an Employer of Record (EOR) Works in Malaysia

The responsibility of an EOR in Malaysia is to act as the legal employer in the country, taking care of the compliance and HR administration, while your company is responsible for the day-to-day working relationship.

1. You Find the Talent. You recruit and select the candidate you want to hire in Malaysia.
2. The EOR Hires Your Candidate. Rivermate’s local Malaysian entity legally hires the employee. They handle the employment contract, employee benefits, and compliance with the Malaysian Employment Act.
3. Onboarding Begins. The EOR manages the entire onboarding process. This includes collecting necessary documents and setting up payroll and benefits. This process takes 1-2 weeks, but if immigration is involved, it can extend onboarding to 8 weeks.
4. We Handle HR and Payroll. In Malaysia, this means handling payments to the Employees Provident Fund (EPF), Social Security Organisation (SOCSO), and Employment Insurance System (EIS). We also calculate salaries and withhold taxes.
5. You Manage Your Team. You are fully in control of your employee’s work responsibilities and the assignment of tasks. The employee adheres to your company’s internal processes and policies.

Why use an Employer of Record in Malaysia

Partnering with an EOR in Malaysia has a number of strategic advantages that appeal to foreign businesses. It eases entry into the market, giving you access to infrastructure, talent, and investment opportunities.

• Enter the Market Faster. You can hire employees and start operations in days, not months. This gives you a significant head start over competitors.
• Ensure Full Compliance. An EOR understands the local regulations, like the Employment Act 1955, and ensures you are fully compliant with the Act. You can find official information on employment regulations on the Ministry of Human Resources website (https://www.mohr.gov.my/index.php/en/).
• Reduce Costs. Setting up a company takes months and a significant financial investment. An EOR provides a cost-effective alternative. You avoid legal fees, registration costs, and the need for local administrative staff.
• Access Local Expertise. An EOR has the local HR expertise and is intimately connected to the nuances of the labor market. They manage mandatory contributions like EPF and SOCSO. The official EPF website (https://www.kwsp.gov.my/en/employer) offers detailed information on employer obligations.
• Offer Competitive Benefits. Global expansion requires knowledge of local hiring practices, employee benefits, and how competitive salary packages are structured in Malaysia. An EOR understands what it takes to secure the top talent in the country.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Malaysia includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Malaysia.

With Malaysia’s competitive talent market growing yearly, the country has great potential for entering the Southeast Asia market. Skilled professionals in software development, customer support, finance, and digital marketing are readily found in the major business hubs such as Kuala Lumpur, Penang, and Johor.

The competition to secure top jobs in Malaysia is fierce, with highly skilled professionals often competing directly to attract high salary packages with lucrative benefits. In Malaysia’s tech industry, this has led to rising employment costs. With automation threatening up to 600,000 finance, customer service, and IT jobs in Malaysia, the government has begun redirecting resources to re-skill employees. This means the potential exists for foreign companies to benefit from Malaysia’s skills development initiatives.

In Malaysia, local employment regulations provide workers with statutory rights, including a minimum wage, maximum working hours, and paid annual leave. Furthermore, employers must contribute to the employment insurance system and the employee provident fund.

First-time employers in Malaysia are often surprised by the tiered application of employment regulations. Protections are heavily applied to low-income groups and to high-income workers. This regulates overtime for certain roles, minimum benefits for scarce skills, and strict minimum leave requirements.

The employment agreement must meet the standards of both the labor regulations and the Malaysian business culture, meaning it has to be written according to Malaysian business practices. It is not mandatory, but is considered a best practice to draft the employment contract in English and the preferred local language when hiring a Malaysian citizen.

Employment contracts & must-have clauses

If you plan to employ someone for more than a month in Malaysia, you must provide a written employment contract. This document sets clear expectations for both you and your employee, helping to prevent future misunderstandings. Think of it as the foundation of your working relationship.

Your employment contract should include several key clauses to be compliant and clear:

• Personal Details: Full names and addresses of both the employer and employee.
• Job Title and Description: A clear outline of the employee's role and responsibilities.
• Start Date: The official date the employment begins.
• Compensation: The employee's salary, any allowances, and payment frequency.
• Working Hours: Details on standard work hours and any overtime policies.
• Leave Entitlements: Information on annual leave, sick leave, and public holidays.
• Termination Clause: The conditions for ending the employment, including the required notice period.

Probation periods

In Malaysia, probation periods are not required by law, but they are a common practice. A probation period gives you and your new employee time to see if the fit is right. It's a trial phase to assess their skills and cultural fit within your company.

The length of a probation period is up to you, but it typically lasts between three to six months. For more senior or technical roles, it might extend up to 12 months. It's important to clearly state the terms of the probation, including its length and the process for confirmation, in the employment contract. Remember, employees on probation have the same rights as confirmed employees, and you cannot terminate them without a valid reason.

Working hours & overtime

Standard working hours in Malaysia are capped at 45 hours per week and 8 hours per day. Any work done beyond these hours is considered overtime. The law also states that an employee should not work more than five consecutive hours without at least a 30-minute break.

Overtime must be paid at a higher rate. Here’s a simple breakdown of the minimum overtime pay rates:

There is a limit on overtime, which is capped at 104 hours per month. This helps protect employee well-being.

Public & regional holidays

Your employees in Malaysia are entitled to paid public holidays. The country celebrates a mix of national and state-specific holidays. It's important to know which holidays apply to your employees based on their location.

Here are the national public holidays for 2025:

• New Year's Day: 1 January
• Chinese New Year: 29 & 30 January
• Hari Raya Aidilfitri: 31 March & 1 April
• Labour Day: 1 May
• Wesak Day: 12 May
• Birthday of the Yang di-Pertuan Agong: 2 June
• Hari Raya Haji: 7 June
• Awal Muharram: 27 June
• Merdeka Day (Independence Day): 31 August
• Prophet Muhammad's Birthday (Maulidur Rasul): 5 September
• Malaysia Day: 16 September
• Deepavali: 20 October (except Sarawak)
• Christmas Day: 25 December

In addition to these, there are various state holidays, such as the birthdays of state rulers, that you need to account for.

Hiring contractors in Malaysia

It is possible to hire independent contractors in Malaysia, but there are associated risks that foreign companies should be aware of. These risks are worker misclassification, tax obligations, immigration restrictions (foreign contractors), and operational control restrictions.

Under the Employment Act of 1955, a contractor is a self-employed person who does not have long-term commitments to one employer. They work independently, manage their own work, pay their own taxes, and provide their own benefits. They must also manage their own working hours, provide their own equipment and invoice your company for their services.

Failing to comply with any of these stipulations can lead to worker misclassification. If this happens, you could be liable for back pay, salary, statutory contributions, and benefits to the worker.

The implications go further for foreign companies and include unmanaged costs, intellectual property challenges, and reputational risk. With an EOR (Employer of Record), the chances of mitigating these risks are much better than if you go it alone. They can hire contractors and manage the administrative and compliance challenges, while you can set a fixed budget for the contractor’s work, and keep the lines between your company and their work very well defined.

In Malaysia, your employee's compensation is more than just their base salary. It includes a variety of components that you need to manage correctly to stay compliant. Think of it as a package that includes their regular pay, any extra allowances, and other benefits. You are responsible for accurately calculating pay, making the right deductions, and ensuring you pay your employees on time.

Payroll cycles & wage structure

The most common payroll cycle in Malaysia is monthly. You should pay your employees by the 7th day of the following month. While monthly pay is standard, some industries, especially those with hourly workers, might use weekly or bi-weekly cycles.

An employee's total pay is typically made up of a few key things:

• Basic Salary: This is the fixed amount you agree upon in the employment contract.
• Allowances: You might offer extra payments for things like transport, housing, or meals. Most of these are taxable.
• Bonuses: Performance and year-end bonuses are also common.

Overtime & minimums

The Employment Act of 1955 governs many aspects of employment in Malaysia. As of February 2025, the minimum wage is MYR 1,700 per month. This applies to all employers, including those with fewer than five employees.

Normal work hours are typically 8 hours a day and 45 hours a week. If your employees work more than that, you need to pay them overtime. The overtime rate is usually 1.5 to 2 times their hourly rate.

Employer taxes and contributions

As an employer in Malaysia, you must make several contributions for your employees. You are required to register with the Employees Provident Fund (EPF), the Social Security Organization (SOCSO), and the Inland Revenue Board of Malaysia (LHDN).

Here’s a breakdown of your contributions:

Employee taxes and deductions

You are also responsible for deducting certain amounts from your employees' salaries. This includes their contributions to social security funds and their income tax.

Here's what you'll deduct from your employees' pay:

In Malaysia, benefits and leave are straightforward and centered on employee well-being. The law provides a solid foundation of mandatory leave and protections. Many companies then build on this with extra benefits to attract and keep great people. Think of it as a system with two layers: what's required by law, and what companies offer to stand out.

Statutory leave

The Employment Act of 1955 is the main legislation that sets the minimum standards for employee leave in Malaysia. These rules apply to all employees who have a contract with an employer.

Here’s a look at the leave you must provide:

• Annual Leave Your team members are entitled to paid annual leave based on how long they've worked for you. The amount of leave increases with their years of service.

  • Less than 2 years of service: 8 days
  • 2 to 5 years of service: 12 days
  • More than 5 years of service: 16 days

• Sick Leave Employees can take paid sick leave when they are unwell. The number of days depends on their length of service.

  • Less than 2 years of service: 14 days
  • 2 to 5 years of service: 18 days
  • Over 5 years of service: 22 days
  • If hospitalization is needed, employees get an additional 60 days of leave per year.

• Maternity Leave Female employees are entitled to 98 consecutive days of paid maternity leave.

• Paternity Leave Married male employees receive 7 consecutive days of paid paternity leave.

Public holidays & regional holidays

In Malaysia, employees are entitled to a minimum of 11 paid public holidays in a calendar year. Five of these are compulsory national holidays. The remaining six can be chosen by the employer from a list of gazetted public holidays. Some holidays are observed nationwide, while others are specific to certain states.

Typical supplemental benefits

To attract and retain talent, many companies in Malaysia offer benefits that go beyond the legal requirements. Here’s a comparison of what is required by law (statutory) versus what companies often offer as additional perks (non-statutory).

How an EOR can help with setting up benefits

Without the understanding of Malaysia’s statutory benefits and employment regulations, it is difficult for foreign companies to structure a competitive salary package. Partnering with an EOR in Malaysia gives you access to a team of experts who understand what works in the Malaysian labor market. They can help as follows:

• Ensure Compliance We make sure your benefits package meets all the requirements of Malaysian labor laws. This includes everything from statutory leave to social security contributions.
• Offer Competitive Packages We provide insights into local market expectations. This helps you offer supplemental benefits (such as medical benefits and retirement benefits) that attract top talent in Malaysia.
• Manage Administration We handle the day-to-day tasks of benefits administration. This includes enrolling employees, managing leave requests, and processing claims.
• Simplify Payroll We manage payroll, ensuring that all contributions and deductions for benefits are calculated correctly and paid on time.

Using an EOR allows you to focus on your business goals. You can be confident that your team in Malaysia is well taken care of and that you are fully compliant with local laws.

When an employee leaves your company in Malaysia, you need to follow a structured process called termination and offboarding. This ensures you handle the exit professionally and legally. The process involves everything from giving the correct notice to handling the final payment. Malaysian law, mainly the Employment Act 1955, sets the rules to make sure the process is fair for everyone. A smooth offboarding helps you maintain a good relationship with the departing employee and protects your company.

Notice periods

You must give employees written notice before their employment ends. The length of the notice period usually depends on how long the employee has worked for you. If your employment contract specifies a notice period, you should follow that. If not, the Employment Act 1955 provides these minimums:

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

You can also choose to pay the employee in lieu of notice. This means you pay them their salary for the notice period, and they can leave immediately.

Severance pay

In Malaysia, employees may be entitled to severance pay, especially in cases of redundancy or business closure. The amount is based on their length of service:

• Less than 2 years of service: 10 days of wages for each year of service.
• 2 to 5 years of service: 15 days of wages for each year of service.
• 5 or more years of service: 20 days of wages for each year of service.

Employees who are dismissed for misconduct, resign voluntarily, or retire are not entitled to severance pay.

How Rivermate handles compliant exits

When you partner with us, you don't have to navigate the complexities of Malaysian employment law on your own. We manage the entire offboarding process to ensure everything is compliant and smooth.

Here’s how we help:

• Compliance check: We make sure every step of the termination process follows the latest Malaysian laws and regulations.
• Documentation: We handle all the necessary paperwork, from the termination notice to the final pay calculation.
• Clear communication: We help you communicate clearly with your departing employee to avoid misunderstandings.
• Final payroll: We ensure the employee's final salary, including any severance pay and unused leave, is calculated correctly and paid on time.

Navigating Malaysia's visa and work permit system is straightforward when you understand the requirements. For anyone looking to work in the country, securing the right pass is the first step. Your employer will typically handle the application process, as you need a job offer before you can apply for a work permit. The main work visa is the Employment Pass, but there are other permits for different types of work.

Employment visas & sponsorship realities

An Employer of Record (EOR) can be your legal employer in Malaysia and sponsor your work visa. This is a practical solution if your company doesn't have a legal entity in the country. An EOR handles the application for your work permit, along with payroll and other legal requirements.

However, there are some realities to keep in mind:

• EORs have limitations. Not all companies in Malaysia can hire foreign workers. The ability to sponsor a visa depends on factors like the company's financial standing and the industry. This means an EOR's ability to sponsor you is tied to their own business registration and any government quotas.
• The Employment Pass is the main route. For long-term, skilled work, the Employment Pass (EP) is the most common visa. It's divided into categories based on your monthly salary.
• You need the right qualifications. To be eligible for an EP, you'll generally need a university degree and relevant work experience.

Here's a simple breakdown of the common passes:

Business travel compliance

If you're visiting Malaysia for short-term business activities, you need to follow the rules to stay compliant. You can't work on a standard tourist visa.

For short-term professional assignments, the Professional Visit Pass (PVP) is the correct choice. Think of it as a pass for temporary expertise. You would need a PVP if you are:

• Providing specialized services.
• Conducting training for a local company.
• Attending business meetings.

The key thing to remember about the PVP is that you remain employed by your company outside of Malaysia. The Malaysian company acts as your sponsor for the pass. The PVP is typically valid for up to 12 months and is not intended for long-term employment.