Definitive Guide to Hiring in Malaysia

Hiring in Malaysia

Hiring employees compliantly in Malaysia means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Malaysia so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Malaysia; or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

Labor Laws in Malaysia

Employee Probation Period

• There is no legal requirement to put an employee on probation before they are hired, although this is recommended as a best practice.
• There is also no legal “minimum” or “maximum” probationary period that needs to be imposed although a probationary period in the range of 3 – 6 months is common.

Annual Leave in Malaysia

• According to Section 60E(1) of the Employment Act 1955, you are entitled to paid annual leave as stated below:
• Employed less than 2 years: Not less than 8 days per year.
• Employed between 2-5 years: Not less than 12 days per year.
• Employed for more than 5 years: Not less than 16 days per year.

Holidays in Malaysia

Workers are entitled to paid holidays during Festival (public and religious) holidays. These include memorial holidays and religious holidays (Christian origin).

Here is the full list of public holidays in Malaysia:

Maternity Leave Malaysia

• Every female employee is entitled to at least 60 consecutive days' maternity leave which shall be paid leave in respect of each confinement.
• Maternity leave may commence anytime within 30 days prior to the expected birth date, but cannot be later than the day immediately following the birth.
• Female employees qualify for maternity allowance if they have fewer than 5 surviving children and have been employed for at least 60 days in the 3 months immediately preceding the birth.
• Employees paid on a monthly pay rate will receive a monthly allowance based on their monthly wages.
• Otherwise, the maternity allowance is the ordinary rate of pay for one day or RM6 per day, whichever is higher, for 60 consecutive days.

Paternity Leave Malaysia

• While there is no statutory paternity leave, in practice most companies allow fathers to take between one and 3 days off.
• Malaysian civil servants are entitled to seven days of paternity leave while some state government employees can take up to 14 days of paternity leave.

Sick Leave in Malaysia

• Employees are entitled to paid sick leave in accordance to their length of service with the company
  • Less than 2 years of service: 14 days
  • More than 2 years, but less than 5 years of service: 18 days
  • More than 5 years of service: 22 days

Employees may also be eligible for 60 days of paid sick leave per calendar year if hospitalization is necessary, but they must provide a medical certificate.

Working Hours in Malaysia

• The Malaysia workweek is 48 hours, with a standard workday of 8 hours.

Overtime in Malaysia

• The Employment (Limitation of Overtime Work) Regulations 1980 provides that the limit of overtime work shall be a total of 104 hours in any 1 month.
• But, the employers must be mindful that they must not require any employee under any circumstances to work more than 12 hours in any one day.
• If employers request extra hours, they must pay 1.5 times the employee’s regular wages.

Termination of Employment in Malaysia

• According to Department of Labor of Peninsular Malaysia, termination of employment means “cessation of service due to company closure and workers redundancy”.
• From the definition, “redundancy situation” happens due to several reasons such as corporate restructuring, a decrease in production, mergers, changes in technology, acquisitions, and others.
• However, termination of service due to disciplinary action and dismissal of employees have yet to be included.
• An employer must be able to prove that the dismissal was substantively and procedurally fair.
• Substantive fairness means that there must be a just reason which gave rise to the decision to dismiss the employee.
• Procedural fairness means the practical implementation of the dismissal process, which is the domestic inquiry.

Notice Period in Malaysia

• If not stated differently in the contract, the periods according to which the notice of termination is related are:
  • employed for less than 2 years (4 weeks’ notice)
  • employed for 2 – 5 years (6 weeks’ notice)
  • employed for more than 5 years (8 weeks’ notice)

Severance in Malaysia

• There is no general right to severance pay upon termination of employment except when such termination is based on the following reasons:
  • cessation of activities for more than 6 months,
  • dissolution of the employer's business or downsizing,
  • criminal conviction which hinders the continuation of the work,
  • employee's refusal to be re-assigned to his/her previous position.

• The amounts to be paid vary according to the length of service, as follow:
  • 10 days of severance pay after 2 years of service
  • 15 days of severance pay for employees with 2 to 5 years of service
  • 20 days of severance pay after 5 years of service

Malaysia Salary and Wages

13th / 14th Month Salary in Malaysia

• Yes
• There is no statutory requirement to pay the 13th or the 14th month salary.
• It is however customary for employers to pay the 13th month salary.
• Some companies also might pay a contractual bonus which could be the equivalent of the 14th month salary.

• Malaysia has a comprehensive social security system that incorporates the Employees’ Provident Fund (EPF), Social Security Organization (SOCSO) and the Employment Insurance System (EIS).
• The Malaysian EPF is a compulsory pension scheme for all Malaysians.
• It is not compulsory for non-Malaysian citizens and non-permanent residents to contribute to the EPF, but they may elect to do so.
• Malaysia also has a Social Security Organisation (SOCSO) who administers the Employment Injury Scheme (EIS) and the Invalidity Scheme (IS)
• The EIS provides certain benefits and a re-employment placement programme for insured persons in the event of loss of employment to promote active labour market policies.

Immigration Malaysia

• A Malaysian work permit is required for any person who wishes to enter Malaysia for work purposes, regardless of duration.
• The Employment Pass (EP) is the work permit required for any person who is taking up employment with a Malaysian company or firm.
• It is issued by the Malaysian Immigration Department.
• An EP is issued with the MEV for a duration of up to five years, subject to justification, and is renewable.
• An EP is granted on a case-by-case basis for positions that require special technical knowledge or experience not available locally or for positions that cannot be filled by Malaysian citizens.
• The Malaysian company applying for the EP must fulfill certain requirements including, but not limited to, the following:
  • Industry-specific requirements apply because different industries are governed by different ministries from which preapprovals may need to be obtained before the application can be submitted to the Malaysian Immigration Department. For certain industries, the approving authority for the initial stage of the EP application may also be a Malaysian ministry or appointed body with differing application processes and requirements.
  • Malaysian companies involved in selected industries are also required to provide necessary licenses in order to submit EP applications. These licenses include the Wholesale, Retail and Trade License or the Unregulated Services License from the Ministry of Domestic Trade and Consumer Affairs and the G7 Grade License issued by the Construction Industry Development Board.
  • Malaysian companies that wish to apply for an EP must meet the minimum paid-up share capital requirement, which is MYR500,000 for wholly foreign-owned companies, MYR350,000 for foreign companies in a joint venture with local companies and MYR250,000 for 100% Malaysian-owned companies. The authorities for the applicable license may increase the minimum paid-up share capital requirement as a condition for the license.
  • The Malaysian sponsoring company of an EP in West Malaysia must be registered with the Expatriate Services Division of the Malaysian Immigration Department to which applications are submitted electronically. The only exception is for companies whose approving authority is the Malaysian Investment Development Authority or the Malaysia Digital Economy Corporation.

Professional Visit Pass

• A person who intends to enter Malaysia for short-term assignments, such as to conduct training, attend training, or perform assembly, maintenance, repair or installation of machinery purchased from an overseas company, may apply for a Professional Visit Pass (PVP).
• A PVP is usually valid between 1 to 6 months and is renewable for a total maximum period of 12 months.
• No extensions are granted beyond the maximum duration allowed.
• The maximum duration allowed for a person who intends to do a student internship or serve as a trainee is six months and is non-renewable.
• To qualify for a PVP, the individual’s salary must be paid by an overseas company.

Value Added Tax (VAT) in Malaysia

• VAT in Malaysia, known as Sales and Service Tax (SST), was introduced on September 1, 2018 in order to replace GST (Goods and Services Tax).
• The standard sales tax rate is 10%; a 5% rate applies to prescribed taxable goods.
• The service tax rate is 6%.
• Goods that are exempt from sales tax generally include live animals, unprocessed food and vegetables, antibiotics, certain machinery, certain chemicals, and certain raw materials for the manufacture of goods.

Mandatory Benefits in Malaysia

• These are mandatory benefits as postulated by law
• These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, notice period, severance pay and 13th month pay
• Mandatory benefits also include social security benefits.

Payroll Accrual in Malaysia

Country Accruals Additional Information

Description

Payroll Accruals Additional Information

Accrued Benefits in Malaysia

Why use Global Expansion to hire in Malaysia

Establishing a branch office or subsidiary in Malaysia can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Malaysia labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Malaysia law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Malaysia. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Malaysia Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.