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Hiring in Malaysia? Read on to find out the employment norms (like taxes, payroll and benefits) and EOR (Employer on Record) norms in Malaysia.
Employment norms in Malaysia
Malaysia is known for its diverse cultural influences, beaches, and rainforests, and its strategic location in Southeast Asia makes it an attractive option for business expansion. The country has employee-friendly regulations that can be complicated for new employers, but EOR services simplify employee management and ensure compliance with legal requirements.
General Information:
- The Malaysian currency is the Malaysian Ringgit (MYR)
- Kuala Lumpur is the capital of the country Malaysia
- Malay (or Bahasa Malaysia) is the official language of Malaysia
- As of 2021, the GDP of Malaysia was reported to be USD 372.98 billion.
The Ministry of Human Resources (KSM) is responsible for employment laws, social security, labor unions, etc.
Table of Contents
- Agreements
- Onboarding Process
- Visa
- Minimum Wage
- Payroll Cycle
- Annual Bonus
- Health Benefits
- Working Hours and Overtime
- Leaves
- Social Security
- Taxes for Employers
- Taxes for Employees
- Probation
- Termination
- Severance Pay
- Employees or Contractors
- Final Words
AgreementsOnboarding ProcessVisaMinimum WagePayroll CycleAnnual BonusHealth BenefitsWorking Hours and OvertimeLeavesSocial SecurityTaxes for EmployersTaxes for EmployeesProbationTerminationSeverance PayEmployees or ContractorsFinal Words
Agreements
- For employment exceeding one month, a written contract is mandatory in Malaysia.
- The contract can be either fixed-term or indefinite, and it must clearly outline all necessary employment terms, including work duration, salary, termination procedures, non-compete clauses, and retirement policies.
- Malay is the official language of the country, but English is accorded as an important international language.
- While there are no language requirements for the contract, legal English translations are necessary if the agreement is in a foreign language.
Onboarding Process
Although there is no stipulated onboarding process, the following are some common practices.
- The new employee must be given a copy of the agreement.
- The employer should enroll the employee in relevant social security organizations and for other tax purposes.
- The employee should be given an understanding of the basic policies of the company along with relevant training.
Visa
- Work visa - The work visa in Malaysia includes the Employment Pass (up to 5 years), Temporary Employment Pass (up to 12 months) for agricultural and service workers, and Professional Visit Pass (up to 12 months) for professional training or work with a Malaysian business.
- Business Visa - For the business or tourist visa, there are single-entry visas (up to 3 months) and multiple-entry visas (3 to 12 months, with each stay lasting up to 30 days). Applicants must provide proof of return, sufficient funds, and the intention to do business, not work as an employee.
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Minimum Wage
The minimum wage in Malaysia as of 2022 is MYR 1,500 per month.
Payroll Cycle
The payroll cycle in Malaysia is typically monthly. Employees receive their salaries by the 7th of every month.
Annual Bonus
An additional month's salary or the 13th month's salary is commonly given as an annual bonus in Malaysia.
Health Benefits
- Malaysia provides heavily subsidized healthcare in public facilities for all its citizens.
- Employers may choose to provide additional private insurance as well.
Working Hours and Overtime
- Work hours: Employees can work for a maximum of 45 hours per week in Malaysia. A typical workday is for 8 hours.
- Break: At least a 30-minute break should be provided for 5 consecutive hours of work.
- Overtime: Any work time exceeding the 8-hour workday or 45-hour per week mark is counted as overtime. Employees must receive at least 1.5 times their normal wage as overtime pay.
Leaves
Sick leaves
Employees are entitled to a sick leave of -
- 14 days every year (for an employment period of less than 2 years)
- 18 days every year (for an employment period of 2 to 5 years)
- 22 days every year (for an employment period of 5 years or more)
- Up to 60 days of sick leave is granted if hospitalization is required.
Parental leaves
- Maternity leave: Employees are entitled to 98 days of paid maternity leave for each child (up to 5 children). The employer is required to pay at least the minimum amount as per applicable laws. Any extra leave taken will not be paid leave.
- Paternity leave: Employees are entitled to 7 days of paid paternity leave for each child (up to 5 children).
Annual leaves
Employees receive a paid annual leave of -
- 8 days for every 12 months of work for an employment period of less than 2 years
- 12 days for every 12 months of work for an employment period of 2 to 5 years.
- 12 days for every 12 months of work for an employment period of 5 years or more.
Public Holidays (for the Calendar year 2023)
The following is a list of national public holidays for the calendar year 2023. Some additional holidays may be granted as per region as well. Employees receive around 11 days of paid public holidays
- New Year's Day (1 January) (in some states)
- New Year's Holiday (2 January) (in some states)
- Chinese New Year (22 January)
- Chinese New Year holiday (23 January)
- Nuzul Al-Quran (8 April)
- Hari Raya Aidilfitri (22 April)
- Hari Raya Aidilfitri holiday (23 April)
- Labor Day (1 May)
- Wesak Day (4 May)
- Agong's birthday (5 June)
- Hari Raya Haji (29 June)
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Taxes for Employers
The following are the payroll taxes for employers -
- Employee Provident Fund (EPF) - 12% to 13% (for employees below 60 years of age)
- Employee Provident Fund (EPF) - 4% to 6.5% (for employees above 60 years of age)
- Social Security (SOCSO) - 1.75%
- Human Resource Development Fund - 1% (for employers with more than 10 employees)
- Unemployment Insurance (EIS) - 0.2%
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Taxes for Employees
Income tax:
The following are the income tax brackets in Malaysia.
- Up to MYR 5,000 - 0%
- MYR 5,001 to MYR 20,000 - 1%
- MYR 20,001 to MYR 35,000 - 3%
- MYR 35,001 to MYR 50,000 - 8%
- MYR 50,001 to MYR 70,000 - 13%
- MYR 70,001 to MYR 100,000 - 21%
- MYR 100,001 to MYR 250,000 - 24%
- MYR 250,001 to MYR 400,000 - 24.5%
- MYR 400,001 to MYR 600,000 - 25%
- MYR 600,001 to MYR 1,000,000 - 26%
- MYR 1,000,001 to MYR 2,000,000 - 28%
- Above MYR 2,000,000 - 30%
Social Security tax:
The following are the payroll taxes for employees.
- Employee Provident Fund (EPF) - 11% (for employees below 60 years of age)
- Employee Provident Fund (EPF) - 5.5% (for permanent resident employees above 60 years of age); 0% (for Malaysian employees above 60 years of age)
- Social Security (SOCSO) - 0.5%
- Unemployment Insurance (EIS) - 0.2%
Probation
There is no stipulated probation period in Malaysia. However, a 1 to 6 months probation period is common.
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Termination
An employee can be terminated only on just cause such as -
- gross misconduct
- negligence
- redundancy
There is no legally stipulated notice period. Generally, 1 to 2 months of notice is to be given to either party for termination of the contract by the other depending on the length of the contract.
Severance Pay
The severance pay is mandatory if mentioned in the contract. It is usually -
- 10 days' pay for each year (for the first 2 years of employment)
- 15 days' pay for each year (for 2 to 5 years of employment)
- 20 days' pay for each year (for 5 or more years of employment)
Employees or Contractors
- Employees and contractors are treated as different entities in Malaysia. Employees have more benefits and rights compared to contractors.
- Misclassification of the two would lead to serious fines for the employer.
Final Words
Malaysia's strong laws protect employee rights which makes it an apt destination for skilled workers from nearby countries. The availability of skilled workers makes Malaysia a lucrative business destination. EOR services assist employers with payrolls, taxes, employee benefits and more allowing them more time to focus on their goals.
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