Employing in Malaysia
Employment regulations in Malaysia are governed by several key statutes, including the Employment (Amendment) Act 2022, the Industrial Relations Act 1967, the Trade Unions Act 1959, the Employees Provident Fund Act 1991, the Employees’ Social Security Act 1969, and the Occupational Safety and Health Act 1994. Together, these laws provide comprehensive protections for Malaysia’s workforce—ensuring fair treatment, workplace safety, and safeguards against discrimination based on age, religion, gender expression, race, and other factors. They help foster a more equitable and inclusive work environment.
Onboarding time
Minimum Wage
Employer costs
Employee costs
Onboarding time
Team APAC can onboard your talents within an average of 48-72 hours.
Minimum Wage
The Malaysian government has increased the minimum wage from RM 1,500 to RM 1,700 per month, effective February 1, 2025. This adjustment affects employers who pay workers on a monthly, daily, or hourly basis.
Employer costs
Employees Provident Fund (EPF):
- Salaries lower than MYR 5,000: 12%
- Salaries higher than MYR 5,000: 13%
Employee costs
- Employees’ Social Security (SOCSO) – Employees’ Social Secuity (SOCSO)- From MYR 23.65 to MYR 104.15
- Employment Insurance System (EIS): MYR 2.70 to MYR 11.90
- Human Resources Development Fund (HRDF) – 1.00%
Payroll
The payroll process in Malaysia involves calculating gross pay by adding allowances and benefits to the basic salary, including overtime and sick pay. Employers must issue detailed payslips to employees, either manually or electronically, which include information on wages, deductions, and allowances.
Payroll cycle
The payroll process is a monthly cycle, typically requiring payments to be made by the 7th of each month via cash, cheque, or bank credit.
Payroll calculations
The actual payroll processing stage involves calculating gross pay based on salary, overtime, and other earnings, followed by determining deductions for taxes and contributions.
Compliance requirements
Statutory deductions, such as income tax under the Monthly Tax Deduction (MTD) system, Employee Provident Fund (EPF), and Social Security (SOCSO), are also part of the payroll process. Both employers and employees contribute to these levies. Additionally, employers must remit payments to relevant authorities by specific deadlines to avoid penalties.
Additional payments
13th Salary
Employers are required to pay employees an annual bonus if provided for in the employment contract. Otherwise, there are no laws governing payment of bonuses and doing so is entirely at the discretion of the employer.
Bonuses
Employers are required to pay employees an annual bonus if provided for in the employment contract. Otherwise, there are no laws governing payment of bonuses and doing so is entirely at the discretion of the employer.
Commissions
While commissions are not mandatory, commissions are commonly provided to employees in Malaysia, particularly in industries where generating revenue is a key part of the job, such as sales, real estate, recruitment, insurance, and retail.
Other allowances
In Malaysia, employees often receive various types of allowances that serve as supplementary payments to cover specific work-related or personal expenses. Common allowances include meal allowances, transportation allowances, and special allowances like overtime or relocation allowances tailored to specific job needs.
Some employers offer phone and internet allowances and medical allowances.
Taxes
The individual income tax rate varies from 0% to 30%, with a progressive tax system in place. The overall tax rate can be influenced by several additional factors, including household status and the number of dependents.
Employee Income Tax
In Malaysia, the income tax system operates on a progressive scale, meaning different portions of income are taxed at different rates ranging from 0% to 30%. Individuals earning an annual salary of below MYR 5,000 are exempt, while those earning over MYR 2,000,000 are taxed at the highest rate of 30%.
Income Tax
- 0% 0 MYR – 5,000 MYR
- 1% 5,001 MYR – 20,000 MYR
- 3% 20,001 MYR – 35,000 MYR
- 8% 35,001 MYR – 50,000 MYR
- 13% 50,001 MYR – 70,000 MYR
- 21% 70,001 MYR – 100,000 MYR
- 24% 100,001 MYR – 250,000 MYR
- 24.5% 250,001 MYR – 400,000 MYR
- 25% 400,001 MYR – 600,000 MYR
- 26% 600,001 MYR – 1,000,000 MYR
- 28% 1,000,001 MYR – 2,000,000 MYR
- 30% 2,000,001 MYR and over
Employment eligibility
To be eligible to work in Malaysia, foreign workers must obtain a work visa or permit, such as an Employment Pass, Temporary Employment Pass, or Professional Visit Pass, depending on their skills and salary level. For an Employment Pass, applicants typically need a monthly salary of at least RM 3,000 and must meet specific educational and experience requirements.
The Malaysian Employment Act 1955 covers all employees, including gig workers, with certain exemptions for those earning above RM 4,000 per month. Employers must apply for an expatriate post and submit necessary documents to the Immigration Department to secure a work permit for foreign employees. Additionally, recent updates to the Employment Act include increased minimum wage and mandatory EPF contributions for foreign workers.
Visa
Malaysia offers several categories of work visas, commonly referred to as “work passes.” The Employment Pass is the most common, issued to international individuals working in specialized roles for Malaysian companies. Employers must obtain approval from the Expatriate Committee or a regulatory agency to secure this pass, which typically lasts 1 to 5 years and is renewable.
The Temporary Employment Pass has two subcategories: the Foreign Worker pass and the Foreign Domestic Helper pass, both valid for up to two years. The Professional Visit Pass is for individuals employed by international companies who temporarily work in Malaysia for up to 12 months. Additionally, there is the Social Visit Pass, also known as “PLS@XPATS,” which allows professionals to work in Malaysia for short periods of up to 30 days.
Visa types
Malaysia offers several types of work visas and permits for foreign nationals seeking employment in the country. Here are some of the main types:
Types of Work Visas
- Employment pass
- Temporary employment pass
- Professional visit pass
- Social visit pass
Types of Compliance Documents
- An updated resume
- Copy of the individual’s passport with a remaining validity of at least 18 months
- Recent passport photos
- Copy of employment contract (duly stamped by Inland Revenue Board and signed)
- Copy of highest educational certificates translated into English
- Job description
- A completed application form
Background check
In Malaysia, visa-related background checks for expatriates typically involve verifying the individual’s visa status as part of a broader employment background check. This process ensures that foreign workers have the necessary legal permissions to work in the country. While the primary focus is on verifying the authenticity and validity of the visa, employers may also conduct additional checks such as international criminal history to ensure compliance with local regulations and to assess the candidate’s overall suitability for the role.
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Benefits
In Malaysia, employee benefits are a combination of statutory requirements and additional perks offered by employers. Employees are also entitled to annual leave, with the number of days increasing based on years of service: 8 days for 1-2 years, 12 days for 2-5 years, and 16 days for 5+ years. Additional benefits often offered by employers include dental and medical insurance, life insurance, and transportation allowances.
Private health insurance
Private health insurance in Malaysia is designed to cover healthcare costs not fully covered by Social Security Organization (SOCSO), which is a compulsory program for work-related accidents and diseases. It provides additional benefits and flexibility in healthcare choices.
Team APAC providers
- SafetyWings
- Henner
- IMG/ ALC Global
Mandatory benefits
Statutory benefits include contributions to the Employees Provident Fund (EPF), where both employers and employees contribute a percentage of the employee’s salary, and registration with the Social Security Organization (SOCSO) for work-related injury and disability coverage.
Mandatory benefits in Malaysia
- Employees Provident Fund (EPF)
- Social Security Organization (SOCSO)
Working hours
The standard workweek is 40 hours, the standard workday is 8 hours. The standard workweek is from Monday to Friday.
Working hours per day
The standard workday is 8 hours.
Working hours per week
The standard workweek is 40 hours.
Overtime pay
Overtime payment is mandatory for employees earning less than MYR 4,000 per month and can be included in their salary. However, for those earning more than MYR 4,000, overtime is optional and must be agreed upon by both employer and employee. Employees can work up to 104 hours of overtime per month. For additional hours, they receive 150% of their hourly rate. On weekends, the rate increases to 200%, and on public holidays, it rises to 300% of their hourly rate.
Leave
In Malaysia, mandatory leave entitlements are governed by the Employment Act 1955, which stipulates that employees are entitled to a minimum of eight days of annual leave after one year of service, increasing to twelve days after two years and sixteen days after five years of employment. This leave is applicable to all employees, regardless of salary level, and must be taken within twelve months following the end of each twelve-month continuous service period; otherwise, it is forfeited. Employers are not obligated to compensate employees for any unused leave.
Annual leave
Annual leave provisions vary based on the length of service. Workers with less than two years of service receive 8 days of leave per year of service. Those with more than two but less than five years of service are entitled to 12 days per year of service. For employees with five or more years of service, the entitlement increases to 16 days per year of service.
Sick leave
Employees are entitled to sick leave days that must be approved by a registered medical practitioner. The number of sick leave days varies based on the length of service: those employed for less than two years receive 14 days annually, those employed between two and five years receive 18 days, and those employed for five years or more receive 22 days. If hospitalization is required, an additional 60 days of sick leave are provided. For each day of sick leave, employees receive their regular pay rate.
Parental leave
There is no parental leave currently required by law.
Paternity leave
Married male employees may avail of paternity leave of up to seven days (restricted to five confinements).
Maternity leave
Employees who are at least 90 calendar days into their employment in the last four months and are pregnant are eligible for 98 calendar days of fully paid leave, provided by the employer. This leave can begin 30 days before the expected delivery date, with the remaining days split into two periods following the birth. During this leave, employees will receive their full salary, which will be the responsibility of the employer to pay.
Termination
Terminations in Malaysia are complex and cannot be carried out at-will by employers. Instead, they must be based on just cause, meaning there must be a valid reason for the termination. Employers are required to follow a fair and transparent process to ensure compliance with Malaysian labor laws.
Termination process
The termination process involves several key steps. First, it is crucial to document the reason for termination and ensure that the justification is clear and well-founded. Next, formal notice must be provided, adhering to the required notice period or offering payment in lieu of notice if necessary. Following this, final compensation should be calculated, including any severance pay, accrued leave, and other applicable benefits.
Termination reasons
In Malaysia, the grounds for terminating an employee must be based on “just cause and excuse,” meaning there must be a valid reason for the termination. Common reasons include breach of contract, major misconduct (such as theft or sexual harassment), negligence, poor performance (provided the employee has been warned and given a chance to improve), retrenchment, expiration of a fixed-term contract, and closure of a business.
Employers must inform employees of the reason for termination in writing and follow a fair procedure, which includes providing notice and allowing the employee to respond. Additionally, Malaysian law prohibits terminating a local employee to hire a foreign worker, emphasizing the protection of local employment.
Notice period
Notification periods for termination of a contract are the same for employers and employees, whether those periods are specified in the employment contract or not. If there is no such specification in the contract, the required notification period is as follows:
- four weeks for employees with less than two years of service,
- six weeks for employees with two to five years of service, and
- eight weeks for employees with five or more years of service.
In lieu of providing the requisite notice, employers may make a payment equivalent to the amount of wages that would have been paid during the notice period.
In a case of misconduct, employers can dismiss the employee without notice, demote the employee, suspend the employee for up to two weeks without pay or impose a lesser punishment. The employer cannot take this action, however, without first engaging in “due inquiry.”
Severance Pay
In Malaysia, severance is generally not required, unless the employee earns less than 4,000 RM per month.
Also, in case of employees who are unfairly dismissed, meaning for reasons unrelated to their performance or conduct, are entitled to severance packages based on their length of service.
The compensation varies as follows: for up to two years of employment, employees receive 10 days of pay per year of service. For those employed between two and five years, the package increases to 15 days of pay per year. Employees with more than five years of service receive the highest rate, with 20 days of pay for each year worked.
Probation period
In Malaysia, a probationary period, typically between three to six months, is a common practice used by employers as a trial phase for new employees. It allows both parties to assess whether the employee is suitable for permanent employment and whether the company is the right fit for the employee.
Probation Period days
- 90 days Minimum probation period
- 180 days Maximum probation period
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