Employer of Record in Malaysia

An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of another company. This allows businesses to hire employees in a foreign country without needing to establish a local legal entity. The EOR takes on the responsibility for all formal employment tasks, including running payroll, calculating and remitting taxes, administering employee benefits, and ensuring full compliance with local labor laws and regulations. The client company retains control over the employee's day-to-day work and responsibilities.

For companies looking to expand or hire talent in Malaysia, navigating the local employment landscape can present challenges, particularly regarding legal compliance and administrative burdens. Utilizing an EOR service provides a streamlined solution, enabling businesses to quickly and compliantly engage employees in Malaysia without the significant time and cost associated with setting up a local subsidiary or branch office.

How an EOR Works in Malaysia

When you partner with an EOR in Malaysia, the EOR becomes the legal employer of your chosen candidates. They handle all aspects of the employment relationship from a legal and administrative standpoint. This includes drafting compliant employment contracts in accordance with the Malaysian Employment Act 1955 and other relevant legislation, processing monthly payroll, calculating and paying mandatory contributions such as EPF (Employees Provident Fund), SOCSO (Social Security Organization), and EIS (Employment Insurance System), and managing statutory leave and benefits. The EOR ensures that all employment practices adhere strictly to Malaysian labor laws, protecting your business from potential compliance issues.

Benefits of Using an EOR in Malaysia

Engaging an EOR offers significant advantages for companies hiring in Malaysia without a local presence. Firstly, it provides rapid market entry, allowing you to hire employees and begin operations much faster than establishing an entity. Secondly, it eliminates the need for costly and time-consuming entity registration processes. Thirdly, an EOR ensures complete compliance with Malaysia's specific and evolving labor laws, tax regulations, and social security requirements, mitigating legal risks. Finally, it simplifies HR administration, as the EOR manages payroll, benefits administration, and other employment-related tasks, allowing your company to focus on its core business activities.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Malaysia includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Malaysia.

The Malaysian recruitment landscape in 2025 is characterized by growth in the digital economy, manufacturing (E&E, aerospace, medical devices), and services sectors. Employers should be aware of typical hiring timelines, which range from 4-8 weeks for entry to mid-level positions and 8-12 weeks (or longer) for senior or specialized roles. While Malaysia has a diverse talent pool, skill gaps exist in advanced digital skills, specialized manufacturing, and certain healthcare areas. Candidate preferences extend beyond salary to include job security, professional development, work-life balance, and company culture.

Effective recruitment involves a mix of online job portals (JobStreet, LinkedIn, Maukerja), networking events, and employee referrals. Key challenges include competition for skilled talent and navigating local labor laws. Solutions include building a strong employer brand and partnering with local recruitment agencies or an Employer of Record (EOR). The recruitment process typically involves defining the role, sourcing candidates, screening, interviews, background checks, and crafting a competitive offer.

Choosing the right recruitment partner (agency or EOR) is crucial, especially for companies lacking local expertise. Consider their experience, understanding of local laws, network, and track record.

Malaysia's tax system mandates employers to contribute to social security schemes such as EPF, SOCSO, EIS, and HRDF, with specific contribution rates based on employee salary levels. Employers are also responsible for deducting income tax (PCB) from employees' salaries monthly and remitting these to the Inland Revenue Board (LHDN) by the 15th of the following month. Additionally, employers must submit annual reports (Form E and Form CP8D) by March 31st, while employees file their individual tax returns (Form BE or B) by April 30th or June 30th, depending on income type.

Key data points include contribution rates and deadlines:

Foreign workers and companies face additional considerations, including residency-based taxation, withholding taxes on non-resident payments, and potential incentives for expatriates. Some regions like Labuan offer special tax regimes, and double taxation treaties may provide relief. Overall, compliance with these obligations is essential for legal operation and tax efficiency in Malaysia.

In Malaysia, employment law mandates minimum leave entitlements based on service length, including annual leave, sick leave, and parental leave. Employees are entitled to a minimum of 8 days of annual leave if employed for less than 2 years, increasing to 12 days for 2-5 years, and 16 days for 5 years or more. Sick leave varies from 14 to 22 days depending on tenure, with additional hospitalisation leave up to 60 days annually. Maternity leave is set at 98 days for eligible female employees, while paternity leave provides 7 days paid leave for married male employees employed for at least 12 months.

Employers must observe gazetted public holidays, which include national and religious observances such as Chinese New Year, Hari Raya, Deepavali, and Christmas, with provisions for substitute days if holidays fall on Sundays. Paid leave must be granted on these days, and holidays can be substituted by agreement. Additional leave types like bereavement, study, or marriage leave are typically offered at employer discretion, enhancing employee benefits.

Malaysia's employee benefits include mandatory provisions such as statutory contributions to EPF, SOCSO, and EIS, along with minimum wage, paid leave, public holidays, maternity/paternity leave, overtime pay, and termination benefits. Employers must contribute to EPF at 11% (employee) and 13% (employer) for employees under 60, with variations for older employees, and to SOCSO and EIS as per regulations.

In addition to legal requirements, many employers offer optional benefits like comprehensive health insurance, life and accident insurance, performance bonuses, allowances, stock options, training, flexible work arrangements, childcare, and wellness programs. Health insurance coverage typically includes inpatient, outpatient, dental, optical, and maternity care, with costs varying based on scope and provider.

Retirement benefits primarily rely on EPF contributions, but some companies provide supplementary pension plans or investment options. Benefit packages differ by industry and company size, with large firms offering extensive perks and SMEs focusing on core mandatory benefits. Competitive industries like tech and finance tend to provide more comprehensive packages to attract skilled talent.

Malaysia's labor laws prioritize fair treatment, safe working conditions, and dispute resolution. The Employment Act 1955 governs employment rights, including termination procedures, anti-discrimination measures, and working conditions. Employers must follow specific notice periods based on tenure: 4 weeks for less than 2 years, 6 weeks for 2-5 years, and 8 weeks for 5 or more years, with options for payment in lieu of notice.

Anti-discrimination protections are based on constitutional guarantees and case law, covering race, religion, gender, and increasingly, disability. Employees can file complaints with the Industrial Court, which can order remedies like reinstatement or compensation. Working standards include a 48-hour workweek, at least one rest day weekly, paid public holidays, annual leave (8-16 days depending on service), and paid sick leave.

Workplace safety is regulated under OSHA 1994, requiring risk assessments, safety training, PPE, and safety committees for larger workplaces. Dispute resolution involves negotiation, mediation, and arbitration, with unresolved issues escalated to the Industrial Court, whose decisions are binding.

Employment agreements in Malaysia are vital for clarifying terms between employers and employees, providing legal protection and reducing disputes. They are primarily governed by the Employment Act 1955, which sets minimum rights, but agreements can offer additional benefits. There are two main types: fixed-term contracts, which specify a start and end date suitable for project-based or seasonal work, and indefinite-term contracts, intended for long-term employment with no fixed end date, requiring notice for termination.

Key clauses in employment contracts include rights and obligations, notice periods, and probation terms. Fixed-term contracts can be renewed but may be viewed as indefinite if renewed continuously. Termination before expiry may have legal consequences unless specified in the agreement. Indefinite contracts typically involve a probation period and require notice for termination.

Remote work in Malaysia has gained momentum post-COVID-19, with many companies adopting hybrid or remote models. While there is no specific remote work legislation, existing laws such as the Employment Act 1955 (amended in 2022) and the Occupational Safety and Health Act 1994 govern remote employment, emphasizing safe working environments, compliance, and data security. Employers are responsible for providing necessary equipment, establishing clear policies, and respecting employee privacy.

Flexible work arrangements (FWAs) like WFH, flextime, compressed workweeks, job sharing, and part-time work are increasingly common, with companies encouraged but not mandated to approve such requests. Effective implementation involves transparent request processes, managerial training, and regular policy reviews. Data protection is critical, governed by the Personal Data Protection Act 2010, requiring technical safeguards, employee training, and clear remote access policies.

Employers should also define equipment and expense reimbursement policies, covering items like laptops, internet, home office setup, utilities, and other work-related costs. A reliable technology infrastructure—including collaboration tools, cloud services, VPNs, and technical support—is essential for productivity and security.

Employers should develop clear policies, provide necessary tools, and ensure compliance to effectively manage remote teams in Malaysia.

Malaysia's salary landscape in 2025 is shaped by industry, experience, and economic factors. Typical salary ranges vary widely; for example, IT roles like Software Engineers earn MYR 60,000–150,000 annually, while Medical Doctors can earn MYR 90,000–250,000. Other sectors such as finance, manufacturing, sales, and healthcare also have defined ranges, with salaries influenced by location and skills.

The legal minimum wage remains MYR 1,500 per month across Peninsular Malaysia, Sabah, and Sarawak. Employers must comply with this, with regular updates expected. Compensation packages often include bonuses (1–2 months' salary, performance-based) and allowances (transportation, housing, medical), which vary by company and industry.

Payroll is typically monthly via direct bank transfer, with mandatory deductions for EPF, SOCSO, income tax, and EIS. Trends indicate rising salaries driven by demand for tech talent, inflation, and government initiatives, emphasizing the importance for employers to offer competitive packages and focus on employee well-being.

In Malaysia, employee termination must comply with the Employment Act 1955, which specifies notice periods based on service length: 4 weeks for less than 2 years, 6 weeks for 2-5 years, and 8 weeks for over 5 years. Employers can opt to pay salary in lieu of notice. Severance pay is mandated for employees terminated without just cause or redundancy, calculated as 10-20 days' wages per year of service depending on tenure, with wages including fixed allowances but excluding variable payments like bonuses.

Terminations can be with or without just cause. Just cause includes misconduct or poor performance, requiring fair investigation and procedural fairness, such as issuing show cause letters and conducting domestic inquiries if necessary. Employers must provide written notice, settle all dues, and maintain proper documentation to ensure lawful termination. Employees are protected against wrongful dismissal; they can file complaints with the Industrial Court, which assesses procedural adherence and validity of reasons, potentially ordering reinstatement or compensation.

Malaysia is experiencing a notable increase in the use of independent contractors and freelancers, reflecting a global trend towards flexible work arrangements. Businesses benefit from the specialized skills and adaptability of freelancers, allowing them to manage project-specific needs and fluctuating workloads without long-term commitments. However, employers must understand the legal framework and compliance obligations, such as correctly classifying workers and structuring agreements to protect both parties. Misclassification can result in significant penalties, as employees are entitled to benefits under Malaysian labor laws, unlike independent contractors.

The distinction between employees and independent contractors is crucial, with factors like control, integration, economic reality, and mutuality of obligation playing a role. Contracts with freelancers should clearly define the scope of work, payment terms, intellectual property rights, and confidentiality to minimize disputes. Intellectual property rights are particularly important, as contractors typically own the copyright to their work unless otherwise agreed. Tax obligations for freelancers include managing their own income tax and potentially registering for Sales and Service Tax (SST) if operating as a business entity.

Independent contractors are prevalent in sectors like technology, creative industries, consulting, media, and education. They provide businesses with the flexibility to scale their workforce according to project demands. Contractors must handle their own insurance needs, such as professional indemnity and public liability insurance, as clients are not required to provide coverage. Understanding these dynamics is essential for employers to effectively engage and collaborate with independent professionals in Malaysia.

Malaysia provides various work permits for foreign nationals, primarily including the Employment Pass (Categories I, II, III), Professional Visit Pass, and Temporary Employment Pass (PLKS). These visas cater to different employment types, from top management and skilled professionals to semi-skilled workers in sectors like manufacturing and agriculture.

Employers must navigate application procedures and compliance obligations, with specific requirements depending on the visa type. The Employment Pass categories are distinguished by the level of managerial or skilled work, while the Professional Visit Pass is for short-term assignments, and the PLKS targets high-demand sectors.

Employers and foreign workers should stay updated on evolving regulations, compliance, and pathways to permanent residency, which are available for eligible foreign nationals.