Hire Employees in Malaysia

Your own entity is a Sdn Bhd, which can be registered with SSM in days rather than months and carries no meaningful minimum capital. The requirement that catches foreign businesses is a resident director.

An Employer of Record inverts the sequence: the Malaysian entity signs the contract, registers the employee for EPF, SOCSO and EIS, withholds monthly tax deductions and manages the HRD Corp levy, while you direct the day-to-day work.

Because formation is easy here, the EOR case rests on avoiding permanent statutory obligations for a small team and on carrying the employment risk while a Malaysian presence is being tested.

Malaysia is one of the easier markets in the region to incorporate in, which changes the EOR calculus. A Sdn Bhd can be registered with SSM in days rather than months, and there is no minimum capital requirement of consequence. The friction is not formation, it is the ongoing obligations: EPF, SOCSO, EIS and the HRD Corp levy each have their own base, ceiling and filing rhythm, and a resident director is required.

So the EOR case here rests less on speed to market than on avoiding a permanent obligation for a small team. If you are hiring two engineers to see whether a Kuala Lumpur presence works, an EOR carries the statutory machinery and the employment risk. If you are building a shared-service centre, incorporate, the HRD Corp levy alone becomes worth managing directly, since up to the full amount can be reclaimed against approved training.

The specific trap is non-citizen staff. EPF is 13% for Malaysians on wages to RM 5,000 but only 2% for foreign employees, and that 2% became mandatory in 2025 after decades of being optional. Employers who set up payroll before that change and never revisited it are under-contributing on every foreign hire.

On contracting: Malaysian industrial courts take a protective view and dismissal requires due inquiry. A contractor who works fixed hours under supervision is an employee in substance, and reinstatement is a real remedy here rather than a theoretical one.

Break-even rule of thumb: EOR fees begin to exceed the running cost of a small Malaysian entity somewhere between 15 and 20 employees. Model both before committing, see EOR vs Entity for the full comparison, and plan any later migration so employees keep seniority.

EPF is the largest element and the rate depends on citizenship and salary. For Malaysian employees it is 13% employer on monthly wages up to RM 5,000 and 12% above that, against 11% from the employee. For non-citizens it is 2% employer, and that became mandatory in 2025 after decades of being optional.

SOCSO is 1.75% employer under the Employment Injury and Invalidity Schemes, capped at RM 6,000 of monthly wages. EIS adds 0.2% from each side on the same ceiling.

The HRD Corp levy is 1% of monthly wages for employers with ten or more employees, or 0.5% for those with five to nine. It is recoverable, approved training claims can reclaim the full amount, so it behaves as a restricted training budget rather than a tax for employers who use it.

EPF-free expatriate payroll ended on 1 October 2025. Under the EPF (Amendment of Third Schedule) Order 2025, contributions became mandatory for non-Malaysian employees under 75 at 2% from each side, replacing a flat RM5. Domestic servants are excluded. Any cost model or contract quoting a clean expatriate gross is now stale, and guidance still describing foreign workers as exempt predates the change. A second point catches providers out: for wages up to RM20,000, EPF is not a plain percentage, the Third Schedule rounds wages into bands and the table must be used for the exact figure. SOCSO works the same way. A provider calculating either as a flat percentage is producing approximations, not compliant figures.

Four representative profiles, costed with the 2026 contribution rates above. Salaries are illustrative market midpoints, not GX operating data, use them to see how the on-cost percentage behaves as pay rises, not as a salary benchmark for a specific role. For real market data on your roles, ask for a costing.

Because the main charges are capped, the on-cost percentage falls sharply above the ceiling. Model a senior hire explicitly rather than scaling the junior figure, the error runs in your favour but it distorts the comparison against uncapped markets.

Four representative profiles costed on 2026 statutory rates. Salaries are illustrative market midpoints, not GX operating data.

Payroll runs monthly in ringgit. Monthly Tax Deduction is remitted to LHDN by the fifteenth of the following month, and EPF, SOCSO and EIS are due by the same date.

Personal income tax is progressive from 0% to 30% for residents, with a tax-free threshold and reliefs for dependants, medical costs, education and approved retirement contributions. Non-residents are taxed at a flat 30% with no reliefs, and residence turns on 182 days rather than nationality, a distinction that matters for anyone arriving mid-year.

There is no statutory thirteenth month. A contractual bonus is common and, where paid consistently, may be argued to have become an implied term.

Thresholds and ceilings are uprated periodically, so a figure correct in January may not hold later in the year. Where a row below is flagged, published sources disagreed and the conflict is recorded rather than resolved.

Thresholds move on a local cycle that does not always fall in January, so a figure correct at the start of the year may not hold through it. Where a row below carries a flag, published sources disagreed and the conflict is recorded rather than resolved, there are 10 such rows on this page.

The sections that follow set out contracts and probation, working time, leave, termination and immigration in that order. Where an entitlement comes from a collective agreement rather than statute it is marked as such, because that distinction determines whether it is negotiable.

A written contract is required for employment exceeding one month. English is standard and enforceable.

The Employment Act threshold determines which statutory protections apply. Following the 2022 amendments the Act extends to all employees regardless of wage for most provisions, but termination benefits and certain entitlements remain tied to a wage ceiling. Establishing which side of that line a role sits on changes the statutory exit cost.

Probation is contractual, commonly three to six months, and may be extended if the contract permits. It does not remove the requirement for just cause, a probationer dismissed without due inquiry can still bring a claim, though the standard applied is lower.

The statutory maximum is 45 hours a week following the 2022 amendment, down from 48. Overtime is capped at 104 hours a month and paid at 1.5 times the hourly rate on a normal day, 2 times on a rest day and 3 times on a public holiday.

Overtime is where payroll disputes usually start. Record hours from day one even where the role is salaried and the expectation is that overtime will not arise, reconstructing records after a complaint is far harder than keeping them.

Overtime is where payroll disputes usually begin, and the burden of proving hours worked generally sits with the employer. Record hours from the first day even for salaried roles where overtime is not expected, reconstructing a record after a complaint is considerably harder than keeping one.

Public holidays sit on top of the annual leave entitlement. Where a holiday falls at a weekend, practice varies, some markets move it, some grant a substitute day and some do neither, so check the position before assuming a day in lieu.

The 17 dates below are the statutory position. Employers in many markets grant more by policy or collective agreement, and sector agreements sometimes add local or patronal days that do not appear in a national list.

Malaysia observes 17 paid public holidays in 2026. Dates that fall at a weekend and any substitution rules are set out below; entitlement is separate from annual leave.

Maternity: 98 consecutive days. Employer-paid, for employees with the qualifying service; extended from 60 days by the 2022 amendment. Paternity: 7 consecutive days. Employer-paid, for married employees with 12 months service; introduced by the 2022 amendment. Sick leave (no hospitalisation): 14 to 22 days a year by length of service. Employer-paid. Sick leave (hospitalisation): Up to 60 days a year in aggregate. Employer-paid.

The question that matters for budgeting is who funds each entitlement. Where the state or a social insurance fund pays, the employer carries administration but not cost; where the employer pays, it is a direct charge that headcount models routinely omit. Both patterns appear above.

Malaysia has no statutory severance formula for employees earning above the Employment Act threshold, but it does have something more consequential: dismissal must be for just cause or excuse, and the burden sits with the employer. An employee dismissed without it may claim reinstatement through the Industrial Court, and reinstatement with back pay is a live remedy rather than a theoretical one.

Before dismissing for misconduct, a domestic inquiry is expected, written charges, a hearing, an opportunity to respond, and a documented decision. Skipping the inquiry is itself often fatal to the employer's case, even where the underlying misconduct is established.

For employees within the Employment Act, termination benefits run from 10 days' wages per year of service under two years to 20 days per year beyond five. Notice is four to eight weeks by length of service unless the contract provides more.

A foreign national needs an Employment Pass, tied to the employer and the role, with three categories set by salary. Category I requires RM 10,000 a month and permits a five-year pass; Category III has the shortest duration and the tightest renewal conditions.

Approval sits with the Expatriate Services Division and, for many sectors, a regulatory sponsor first. Manufacturing goes through MIDA, financial services through the relevant regulator. Identifying the sponsor is often the slowest part of the process.

Allow one to three months. The Professional Visit Pass covers short assignments where the employee remains on a foreign payroll, but it is narrow and frequently misapplied.

Dismissal without just cause or excuse is the most expensive error available in Malaysia. The Industrial Court can order reinstatement with back pay, and the burden of proving cause sits with the employer. A domestic inquiry, written charges, a hearing, an opportunity to respond, a documented decision, is expected before dismissing for misconduct, and its absence is frequently fatal on its own.

Two risks are recent rather than long-standing. EPF became mandatory for non-citizens at 2% in 2025, so payroll configured before that is under-contributing on every foreign hire. HRD Corp expanded its covered sectors, catching employers who previously sat outside it.

Practical controls: run a documented inquiry before any conduct dismissal, confirm the EPF rate by citizenship and wage band, and claim HRD Corp training refunds rather than treating the levy as sunk.

Work backwards from the start date. For a Malaysian national through an EOR, one to two weeks is realistic. An Employment Pass for a foreign national adds one to three months and is tied to both the employer and the role.

Confirm before making an offer: the candidate's citizenship, because it changes the EPF rate from 13% to 2%; whether the salary clears the Employment Pass category threshold; and whether the role falls inside the Employment Act, which determines the statutory termination benefit.

EPF, SOCSO and EIS registration must be effective from the first day of employment. All three are remitted by the 15th of the following month, and late payment attracts dividends and penalties rather than a flat fine.