Employer of Record in Malaysia
Skuad’s Malaysia Employer of Record (EOR) solutions can give you a significant edge if you are planning to hire resources in Malaysia. Skuad’s considerable experience in handling employment contracts in Malaysia makes processes such as onboarding and payroll management a cakewalk for partner companies and helps them achieve their business goals as planned and without any delays.
Expanding your business into a new country can be daunting, but less so if you partner with an efficient, established EOR solutions company such as Skuad. Leverage the business opportunities in Malaysia with Skuad as your partner who can see through all your requirements to kickstart your journey as an employer in Malaysia. Whether you need full-time or part-time employees, Skuad’s high-tech platform provides easy solutions for the recruitment and payroll management of remote teams. Skuad has a presence in multiple countries and is adept at managing human resources (HR) across organizations.
With an international network of experienced professionals and a Global HR Platform, our experts support organizations in their global expansion processes.
Malaysia at a Glance
population: 34.7 million
Currency: Ringgit (RM) (MYR)
Capital city: Kuala Lumpur
GDP: USD 407.03 billion
Languages: English, Malay
Employment in Malaysia
Employment in Malaysia is governed by the Employment Act, of 1955. It lays down the minimum standards of terms and conditions of employment. The employment contract law in Malaysia has several provisions, including the Employees Provident Fund Act, of 1991, which makes it mandatory for both employers and employees to make contributions toward a government-owned fund. The Minimum Wages Order, 2018 has set the minimum limit of wages that must be paid to everyone who works in Malaysia. It also includes provisions on pensions, retirement, and leave policies.
A prospective employer must be thorough with the types of employment agreements in Malaysia. It is critical to know the intricacies of the letter of intent and the various benefits that must be offered to Malaysian employees. Most laws have a unified purpose of protecting the people from fraud or manipulation.
These laws are binding on even those employees who are not residents of Malaysia but are employed in the country. Details such as employee health benefits should be kept in mind while expanding your business in Malaysia. Undertaking the hiring process can be tedious. Skuad’s expertise in Malaysian labor laws can save you time and labor. Book a demo now to learn more about Skuad’s EOR solutions for Malaysia.
The following table contains some of the elements of a typical employment contract in Malaysia.
Employee Entitlement
| Entitlement |
Description |
| Leaves |
There are several policies related to the number of annual leaves Malaysian employees can typically take.
- Eight days of leave for serving 12 months continuously in an organization. This is applicable only if the employee has spent less than two years with the organization.
- Twelve days of leave for serving 12 months continuously in an organization only if the employee has been working with the organization for more than two years but less than five years.
- Sixteen days of leave for every 12 months served continuously in an organization where the employee has been working for five years or more.
|
| Maternity leave |
In Malaysia, the statutory minimum mandate is 98 days as per labor law.
- Must have worked for the employer during the four months before the due date.
- Must have worked at least 90 days or three months for the employer out of nine months before the due date.
- Should have four or less than four children.
While an employee is on maternity leave, termination of employment cannot be initiated. Also, if the employees do not return to work as soon as the maternity leave ends, they are given a buffer period of 90 days to return.
|
| Vacations |
Employees in Malaysia are entitled to a certain number of paid annual leaves based on their duration of employment.
- If the organization has employed the employee for less than two years, the employee can avail of leave of eight days for every 12 months of continuous service.
- If the employee has been associated with the organization for more than two years but less than five years, a leave of 12 days can be availed for every 12 months of continuous service.
- If the employee has been with the company for more than five years, they can avail of 16 days of paid leave for every year of continued service.
- Employees who have not completed a year with their employer get leaves that are pro-rated to them based on the number of days they have been employed with the company.
|
| Sick leaves |
All employees are given a fixed number of sick leaves based on their duration of employment.
- If the employee has worked for less than two years, 14 sick leaves can be taken in a year.
- If the employee has worked for between two and five years, they can take about 18 sick leaves
- If hired for five years or more, 22 days of sick leave can be availed.
|
| Health coverage |
Employers, the government, and the residents pay for the healthcare of their tax-paying employees in Malaysia. Although healthcare is easily accessible in Malaysia, some employees opt for personal health insurance. Employers must enroll foreign employees in the Foreign Worker Hospitalization Scheme. |
| Pension |
The retirement age in Malaysia is 60 years for both men and women. Malaysia has a social security program in place under which both the employer and the employee have to make monthly contributions throughout their employment. The contribution to be made depends on the age of the employee.
- If the employee is less than 60 years of age, the employer contributes 12% of the employee’s pay, and the employee contributes 13% of their income.
- If the employee is over 60 years of age, they will contribute 4% of their income, and the employer will pay an amount equivalent to 5.5% of the employee’s pay.
Further, employees can make voluntary contributions. Spouses and children can contribute to the fund too.
An employee must withdraw all this amount by the age of 75 because the amount gets transferred to the Register of Unclaimed Monies upon turning 80.
|
| Workers’ compensation
|
Work-related benefits such as accidental cover are given to all employees in case of an injury or disability that is not related to work. This fund is termed Workers’ Compensation Insurance. Both employers and employees contribute to the fund. Employers make a contribution of 1.25% of the worker’s salary to this fund. |
Public holidays
According to Malaysian laws, all employees are entitled to about 12 or 13 paid public holidays. The number slightly changes from state to state. Also, if a public holiday falls on a rest day, the next day is considered a paid holiday for the employees. If the employees work on a holiday, they are given the pay equivalent to their three-day monthly income.
Below is a list of public national holidays in Malaysia -
New Year's Day - National except Johor, Kedah, Kelantan, Perlis & Terengganu
Chinese New Year - National
Chinese New Year Holiday -National
Chinese New Year Holiday -National except for Johor & Kedah
Nuzul Al-Quran - National except Johor, Kedah, Melaka, Negeri Sembilan, Sabah & Sarawak
Hari Raya Aidilfitri - National
Hari Raya Aidilfitri Holiday - National
Labour Day - National
Wesak Day -National
Agong's Birthday - National
Hari Raya Haji - National
Awal Muharram - National
Awal Muharram Holiday -National except Johor, Kedah, Kelantan & Terengganu
Merdeka Day -National
Prophet Muhammad's Birthday - National
Malaysia Day - National
Malaysia Day Holiday -National
Deepavali - National except Sarawak
Christmas Day - National
Below is a list of public state holidays in Malaysia -
YDPB Negeri Sembilan's Birthday - Negeri Sembilan
YDPB Negeri Sembilan's Birthday Holiday -Negeri Sembilan
Thaipusam -Johor, Kuala Lumpur, Negeri Sembilan, Penang, Perak, Putrajaya & Selangor
Federal Territory Day -Kuala Lumpur, Labuan & Putrajaya
Israk and Mikraj - Kedah, Negeri Sembilan, Perlis & Terengganu
Independence Declaration Day - Melaka
Installation of Sultan Terengganu - Terengganu
Awal Ramadan - Johor, Kedah & Melaka
Sultan of Johor's Birthday - Johor
Good Friday - Sabah & Sarawak
Sultan of Terengganu's Birthday -Terengganu
Raja Perlis' Birthday - Perlis
Hari Hol Pahang - Pahang
Hari Hol Pahang Holiday -Pahang
Harvest Festival - Labuan & Sabah
Harvest Festival Holiday - Labuan & Sabah
Hari Gawai - Sarawak
Hari Gawai Holiday - Sarawak
Hari Gawai Holiday - Sarawak
Arafat Day -Kelantan & Terengganu
Hari Raya Haji Holiday - Kedah, Kelantan, Perlis & Terengganu
Sultan of Kedah's Birthday - Kedah
Georgetown World Heritage City Day - Penang
Georgetown World Heritage City Holiday - Penang
Penang Governor's Birthday - Penang
Sarawak Day - Sarawak
Sultan of Pahang's Birthday - Pahang
Melaka Governor's Birthday - Melaka
Merdeka Day Holiday -Kelantan & Terengganu
Sultan of Kelantan's Birthday -Kelantan
Sultan of Kelantan's Birthday Holiday - Kelantan
Sabah Governor's Birthday - Sabah
Sarawak Governor's Birthday - Sarawak
Sultan of Perak's Birthday - Perak
Sultan of Selangor's Birthday - Selangor
Christmas Eve - Sabah
Dates of these holidays and observances may change based on religious calendars.
Talk to Skuad experts today to know more about employment laws, Malaysia, and employment agreements, in Malaysia.
Contractors vs. Full-time Employees
Like any other country, Malaysia has contractual as well as full-time employees. Skuad can help with the hiring process for both types of employees. However, with the emergence of the gig economy and remote jobs, the distinction between full-time and contractual employees is blurring. Companies are also becoming more flexible with working hours and other benefits.
In Malaysia, if a full-time employee is terminated from the workplace of the current employer, they can claim unfair dismissal under the Industrial Relations Act of 1967. However, a contractual employee doesn’t have a similar right.
The country has seen a rise in the number of contractual employees due to widespread internet access. A lot of graduates lean toward opportunities that let them earn money from the convenience of their homes. People in the creative or information technology (IT) sectors tend to engage in contractual-based work commitments to increase their earnings.
Malaysia has experienced a multiple-fold increase in the number of remote workers in recent years. Also, the pandemic has given a significant push to remote working and remote jobs. With the rise in the number of employees opting for remote and contractual employment, more clarity is needed in terms of the clauses stated in the contractual work agreement. The primary purpose of this is to safeguard the interests of all kinds of employees, whether contractual or full-time. Click here to know how Skuad can help you with hiring the best talent, whether full-time or contractually.
Hiring in Malaysia
The hiring process in Malaysia is quite straightforward. Companies look for resources mostly via online channels to find a perfect fit for their roles. Several hiring companies in Malaysia help employers find the best talent for the job.
Some companies look for potential employees on professional networking sites such as LinkedIn, while others hunt for these employees using job portals such as Jobstreet, Mystarjobs, and Monster. Recruiters reach out to job seekers from these portals and conduct several rounds of interviews to verify if they are the right fit for the job. After multiple rounds of evaluation, the most suitable candidates are selected.
Hiring employees via these employment sites gives companies access to a pool of candidates. However, the process can become tedious and time-consuming, and it requires thorough knowledge of the local laws. As a company that wants to expand its global reach and hire capable employees from Malaysia, partnering with Skuad can help you save time and effort in the hiring process. Skuad eases the recruitment process and handles various responsibilities such as onboarding, e-signing of documents, compliance, and tax filing, which leaves you to focus on the growth and expansion of your business. Book a demo with Skuad to get the best-in-class EOR services for your company.
Probation & Termination
Probation Period
Probation and termination are two fundamental phases of any employment cycle. According to the probationary policies in Malaysia, three to six months is considered to be the standard probation period. Some companies also have only a month-long probation period. However, Malaysian laws do not distinguish between full-time employees and employees currently in their probation period.
After one month of probation, the employee is treated as a regular employee and enjoys all the benefits of the same in Malaysia. An employee who is still in their probation period is entitled to the minimum services provided in the employment agreement. However, there are no provisions that exclude probationers from the regular perks that a full-time employee receives. Skuad can help you frame policies for employees in their probation period in line with the Malaysian stipulations.
Termination of Services
Termination of employment in Malaysia comes under the purview of several employment laws and policies. The employer must establish the grounds on which the employee can be terminated from the organization as early as possible while drafting the employment letter. The employees who are willing to leave the organization will have to inform the employer within the stipulated notice period and work for the minimum specified duration before leaving the organization.
The employer must notify their employee of their decision to let go of them. The purpose of notifying in advance is that there is ample time for the employee to look for other work opportunities. The notice period is calculated based on the number of years for which the employee has served the company.
- If the employee has worked for less than two years, the notice period is four weeks.
- If the employee has worked for between two and five years, the notice will be issued six weeks before the date of leaving.
- If the employee has worked with the company for more than five years, the notice period increases to eight weeks.
During the notice period, the employees are entitled to full pay as they are still working with the organization. However, in case of misconduct on the part of the employees, they can be terminated immediately or be demoted at the company's discretion. Skuad can help you plan for such unforeseen events where a valuable employee quits the organization or has to be terminated on any grounds. Click here to learn more about Skuad’s EOR solutions for Malaysia.
EOR Solution
EOR solutions in Malaysia facilitate end-to-end human resources management. Your EOR partner will act as the legal employer of your remote team in Malaysia and take complete charge of hiring, contracts, payroll management, employee benefits, etc. Skuad provides cost-effective and custom-made EOR solutions that suit your business expansion goals.
Contact Skuad if you cannot settle for anything but the best.
Outsourcing Employment
Many companies outsource human resources based on the work requirements as it saves them valuable time spent in long-drawn processes such as hiring, payroll management, and tax management. Visas and work permits come into the picture when a company decides to outsource employees. Skuad can help you with all the formalities involved in hiring an employee from other countries.
Types of Visas in Malaysia
There are several types of visas in Malaysia. Some important types are listed below.
| Types of Visa |
Description |
| Single-entry visas |
Single-entry visas are given to people who want to visit Malaysia only once, for travel and tourism purposes. This visa is valid for three months. |
| Multiple-entry visa |
Multiple-entry visas are given to people who need to travel to Malaysia on various occasions such as government matters or business expansion. These visas allow you to stay for up to 30 days once you enter the country. |
| Transit visa |
A transit visa is granted to those who need to enter Malaysia to get to their destination country. In this instance, Malaysia is considered to be a layover country. |
| Malaysia work visa |
A work visa is issued once the employer submits the Malaysian work permit for your employment in the country. Several Malaysian work visa requirements must be adhered to while applying for this visa. The four-step process involves,
- Applying for the expatriate post/quota approvals
- Getting the Malaysian work permit approved
- Applying for a Malaysian work visa
- Receiving the work permit
|
Work visas form a vital part of the EOR service. Skuad can help you with all the formalities that are needed to onboard a foreign employee. EOR companies will also help you understand which work visa is applicable for your employees.
Know more about the process of visas in Malaysia. Talk to Skuad experts today!
Work Permits
It is essential to understand the concept of work permits in Malaysia if you plan to hire from other countries. With Malaysia’s work permit for foreigners, an employee can enter the country and stay here for about three months. The duration is decided based on the nationality of the employee.
The processing time involved is usually two to six weeks after the submission of the application. The employee will have to submit the necessary documents. The DP 10 form is then submitted to the immigration department. The approval of DP 10 takes around 30 days. Getting Malaysia’s work permit without a job offer might not be possible. Therefore, ensure you have a job before applying for it. Also, you can always switch from a business visa to a work permit. Skuad has expertise in managing foreign national employees. All the work permit formalities for your company’s employees can be taken care of by Skuad. Skuad additionally sponsors work permits for foreign nations in Malaysia.
Payroll & Taxes in Malaysia
Payroll Setup in Malaysia
Several guidelines govern the payroll and taxes in Malaysia. Some companies process the payroll internally for all employees, while others opt for payroll outsourcing in Malaysia. For a foreign company that wishes to expand in Malaysia, several laws are in place, and it is important to be mindful of them.
- Remote Payroll: In this situation, the employee is on the payroll of a foreign company in Malaysia. Here, the company outsources the entire HR system.
- Local Payroll Administration: In this case, the company registers itself in Malaysia but assigns another company to handle payroll for all its employees. Here, the Malaysian employer payroll taxes are also managed by the local payroll administrator, in some cases.
- Internal Payroll: Some companies enter Malaysia with the vision of staying and expanding their business. These companies are large enough to hire a dedicated team and manage the payroll internally. Several HR professionals will have to be onboarded to run the payroll function in this case.
Skuad can help your company set up any of these payroll systems. Talk to us to learn more about our Malaysian EOR solutions.
Taxes in Malaysia
The standard corporate tax rate for Malaysian companies is 25%. However, the rate slightly changes based on factors such as incorporation and capitalized value. If the capitalized value of the company is less than MYR 2.5 million, the tax rate on the first MYR 500,000 is 20%. Different rates apply to businesses dealing with banking, insurance, oil, and petroleum.
The goods and service tax (GST) rate applicable is 6%. Further, no withholding taxes apply to dividends paid by the company to the non-residents of Malaysia. However, a 15% tax is applied to the interest paid to the non-residents of Malaysia. There are several other taxes such as capital tax and real estate tax that have to be borne by the non-residents of Malaysia. Skuad can file taxes on your company’s behalf.
Malaysia Payroll Tax Rates
The rate of tax changes with the level of income. The following table indicates the income slabs along with the tax rates applicable.
Employer Taxation
| Taxes |
Rate |
| Corporate income tax |
Between 17% and 24%
*Special rules apply to income from petroleum operations.
|
| Contributions to the Social Security System |
4% to 13% to the EFP, depending on an employee’s age and income |
Employee Taxation
| Taxes |
Rate |
| Income tax |
| Gross Income |
Tax Rate (%) |
| MYR 0–5,000 |
0% |
| MYR 5,000-20,000 |
1% |
| MYR 20,000-35,000 |
3% |
| MYR 35,000-50,000 |
7% |
| MYR 50,000-70,000 |
12% |
| MYR 70,000-100,000 |
19% |
| MYR 100,000-250,000 |
24% |
| MYR 250,000-400,000 |
26% |
| MYR 400,000-600,000 |
28% |
| MYR exceeding 2,000,000 |
30% |
*Non-resident individuals are taxed at a flat rate of 30%.
|
| Contributions to Social Security system |
| Age < 60 years |
11% |
| Age > 60 years |
0% and 5.5% |
|
Get in touch with Skuad experts to know more
Incorporation
Four main kinds of factors require consideration before incorporating or setting up a company in Malaysia.
- Business Factors: The business factors include the industry and type of business you want to get into. Also, the elements of trade relationships and agreements become relevant if you are planning to set up a business in a foreign country.
- Cultural factors: EORs can help you to understand the local culture. Malaysia is known to be a multicultural society. You need to comprehend the regional and ethnic trends before setting up a business.
- Language: Language can become a barrier for your new business. Ensure that the region you select has people who can speak a globally recognized language.
- MyCoID: This government portal aids you in registering your business in the country. It is a one-stop application on which you can perform the necessary steps to get your company registered.
Skuad can also help you with incorporating a holding company in Malaysia. It has the expertise in handling the formalities that come with the job. Reach out to Skuad if you wish to incorporate subsidiaries in Malaysia and ease your business expansion process.
Professional Employer Organization (PEO)
A professional employer organization in Malaysia acts as your co-employer and manages the hiring, onboarding, contracts, etc. of your remote team. If you are looking to merely delegate human resources operations and wish to stay involved in the day-to-day decision-making process, PEO is your best option.
An EOR on the other hand acts as the legal employer of your remote team. It takes complete liability for your employees, makes all HR-related decisions, and handles all the paperwork.
Conclusion
The most important part of business expansion and setting up a remote team is being knowledgeable about the local laws and how they are going to shape the employment process. Several factors ranging from – different employment types, distinct state laws, setting up payrolls, and understanding the prevailing taxation laws to understanding the Malaysian negotiation process can hold back and prolong the business expansion process.
That being said, instead of setting up a new commercial entity and getting immersed in understanding the nuances of the prevailing laws. It is easier to partner with reputed EOR solutions companies in Malaysia to ensure the HR practices are in consonance with the local legal system and there is no room for lapses or deviations. Skuad’s globally distributed teams and experience give you a competitive edge.
Contact Skuad today and give your business the much-needed boost.
FAQs
1) What is an employer of record in Malaysia?
An Employer of Record (EOR) in Malaysia legally employs workers on behalf of a client company. An EOR, like Skuad, handles payroll processing, tax compliance, benefits administration, and ensuring adherence to local labor laws. This enables companies to hire and manage employees in Malaysia without setting up a local legal entity. Want to calculate the cost of employment in Malaysia? Click here.
2) Who is the EOR service provider in Malaysia?
Several EOR service providers are operating in Malaysia, like Skuad and others. Skuad offers comprehensive EOR services to help businesses hire and manage employees in Malaysia while ensuring compliance with local employment laws and regulations.
3) Is an employer of record the same as a PEO?
No. An Employer of Record (EOR) legally hires employees and manages employment administration on behalf of the client company. A PEO, on the other hand, enters into a co-employment arrangement with the client company. The PEO shares employer responsibilities with the client, typically managing HR functions, payroll, and benefits administration, while the client retains control over the day-to-day management of the employees.
4) What is the difference between EOR and staffing?
The primary difference between an Employer of Record (EOR) and staffing lies in the scope of their services and the nature of their relationship with the client company. An EOR serves as the legal employer for workers on behalf of a client company. Staffing agencies, on the other hand, focus on recruiting and placing temporary or permanent employees for their clients.
5) How long do employers keep employee records after termination in Malaysia?
In Malaysia, employers are required to retain employee records for a minimum of six years after the termination of employment. This requirement is stipulated by the Employment Act 1955, which mandates that employers maintain comprehensive records of their employees' details, including contracts, payroll information, and termination documentation.
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