Employer of Record in Malaysia

An Employer of Record (EOR) in Malaysia legally employs workers on your behalf. This means you can hire talent in Malaysia without setting up a local entity. An EOR handles all the legal and HR responsibilities that come with employment. This includes payroll, taxes, benefits, and compliance with Malaysian labor laws. Using an EOR like Rivermate simplifies your expansion into the Malaysian market. You get to focus on managing your team's day-to-day work, while the EOR takes care of the administrative burden.

How an Employer of Record (EOR) Works in Malaysia

An EOR simplifies hiring in Malaysia. Here is how the process typically works:

1. You Find the Talent. You recruit and select the candidate you want to hire in Malaysia.
2. The EOR Hires Your Candidate. The EOR's local Malaysian entity legally hires the employee. They handle the employment contract, ensuring it complies with local labor laws.
3. Onboarding Begins. The EOR manages the entire onboarding process. This includes collecting necessary documents and setting up payroll and benefits.
4. We Handle HR and Payroll. The EOR manages all administrative tasks. This includes calculating salaries, withholding taxes, and making mandatory contributions. In Malaysia, this means handling payments to the Employees Provident Fund (EPF), Social Security Organisation (SOCSO), and Employment Insurance System (EIS).
5. You Manage Your Team. You direct your employee's daily tasks and responsibilities. The employee works for your company, but they are legally employed by the EOR.

Why use an Employer of Record in Malaysia

Using an EOR in Malaysia offers a strategic advantage. It allows your business to access Malaysian talent quickly and efficiently. You avoid the time and expense of establishing a legal entity in the country. This lets you test the market or hire key roles without a major commitment.

• Enter the Market Faster. You can hire employees and start operations in days, not months. This gives you a significant head start over competitors.
• Ensure Full Compliance. Malaysian employment law is complex. An EOR understands the local regulations, like the Employment Act 1955, and ensures you comply. This minimizes your legal risks. You can find official information on employment regulations on the Ministry of Human Resources website (https://www.mohr.gov.my/index.php/en/).
• Reduce Costs. Setting up a legal entity involves significant investment. An EOR provides a cost-effective alternative. You avoid legal fees, registration costs, and the need for local administrative staff.
• Access Local Expertise. EORs provide expert support on local HR matters. They manage mandatory contributions like EPF and SOCSO. The official EPF website (https://www.kwsp.gov.my/en/employer) offers detailed information on employer obligations.
• Offer Competitive Benefits. An EOR can provide your employees with competitive local benefits packages. This helps you attract and retain top talent in the Malaysian market.

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.

Hiring in Malaysia is a great way to tap into a diverse and skilled talent pool. The country's economy is growing, making it an attractive place for businesses to expand. To hire successfully, you need to understand the local employment laws and cultural practices. The main law governing employment is the Employment Act 1955, which covers things like contracts, working hours, and wages. It's important to get these details right to ensure you are compliant and can attract the best people for your team.

Employment contracts & must-have clauses

If you plan to employ someone for more than a month in Malaysia, you must provide a written employment contract. This document sets clear expectations for both you and your employee, helping to prevent future misunderstandings. Think of it as the foundation of your working relationship.

Your employment contract should include several key clauses to be compliant and clear:

• Personal Details: Full names and addresses of both the employer and employee.
• Job Title and Description: A clear outline of the employee's role and responsibilities.
• Start Date: The official date the employment begins.
• Compensation: The employee's salary, any allowances, and payment frequency.
• Working Hours: Details on standard work hours and any overtime policies.
• Leave Entitlements: Information on annual leave, sick leave, and public holidays.
• Termination Clause: The conditions for ending the employment, including the required notice period.

Probation periods

In Malaysia, probation periods are not required by law, but they are a common practice. A probation period gives you and your new employee time to see if the fit is right. It's a trial phase to assess their skills and cultural fit within your company.

The length of a probation period is up to you, but it typically lasts between three to six months. For more senior or technical roles, it might extend up to 12 months. It's important to clearly state the terms of the probation, including its length and the process for confirmation, in the employment contract. Remember, employees on probation have the same rights as confirmed employees, and you cannot terminate them without a valid reason.

Working hours & overtime

Standard working hours in Malaysia are capped at 45 hours per week and 8 hours per day. Any work done beyond these hours is considered overtime. The law also states that an employee should not work more than five consecutive hours without at least a 30-minute break.

Overtime must be paid at a higher rate. Here’s a simple breakdown of the minimum overtime pay rates:

There is a limit on overtime, which is capped at 104 hours per month. This helps protect employee well-being.

Public & regional holidays

Your employees in Malaysia are entitled to paid public holidays. The country celebrates a mix of national and state-specific holidays. It's important to know which holidays apply to your employees based on their location.

Here are the national public holidays for 2025:

• New Year's Day: 1 January
• Chinese New Year: 29 & 30 January
• Hari Raya Aidilfitri: 31 March & 1 April
• Labour Day: 1 May
• Wesak Day: 12 May
• Birthday of the Yang di-Pertuan Agong: 2 June
• Hari Raya Haji: 7 June
• Awal Muharram: 27 June
• Merdeka Day (Independence Day): 31 August
• Prophet Muhammad's Birthday (Maulidur Rasul): 5 September
• Malaysia Day: 16 September
• Deepavali: 20 October (except Sarawak)
• Christmas Day: 25 December

In addition to these, there are various state holidays, such as the birthdays of state rulers, that you need to account for.

Hiring contractors in Malaysia

You can also hire independent contractors in Malaysia for specific projects or services. This offers flexibility, as you can access specialized skills without the long-term commitment of hiring a full-time employee. Contractors are self-employed, meaning they manage their own taxes and are not entitled to the same benefits as employees.

When you hire a contractor, you need a clear contract that outlines the scope of work, deliverables, and payment terms. However, be careful with how you classify workers. Misclassifying an employee as a contractor can lead to serious legal and financial penalties. The law looks at the actual working relationship, not just the contract. Factors like employer control and the worker's financial dependence are considered.

An Employer of Record (EOR) can help you mitigate this risk. An EOR legally employs workers on your behalf, ensuring they are classified correctly and that you comply with all local labor laws. This allows you to focus on managing your team's day-to-day work without worrying about the legal complexities of employment.

In Malaysia, your employee's compensation is more than just their base salary. It includes a variety of components that you need to manage correctly to stay compliant. Think of it as a package that includes their regular pay, any extra allowances, and other benefits. You are responsible for accurately calculating pay, making the right deductions, and ensuring you pay your employees on time.

Payroll cycles & wage structure

The most common payroll cycle in Malaysia is monthly. You should pay your employees by the 7th day of the following month. While monthly pay is standard, some industries, especially those with hourly workers, might use weekly or bi-weekly cycles.

An employee's total pay is typically made up of a few key things:

• Basic Salary: This is the fixed amount you agree upon in the employment contract.
• Allowances: You might offer extra payments for things like transport, housing, or meals. Most of these are taxable.
• Bonuses: Performance and year-end bonuses are also common.

Overtime & minimums

The Employment Act of 1955 governs many aspects of employment in Malaysia. As of February 2025, the minimum wage is MYR 1,700 per month.

Normal work hours are typically 8 hours a day and 45 hours a week. If your employees work more than that, you need to pay them overtime. The overtime rate is usually 1.5 to 2 times their hourly rate.

Employer taxes and contributions

As an employer in Malaysia, you must make several contributions for your employees. You are required to register with the Employees Provident Fund (EPF), the Social Security Organization (SOCSO), and the Inland Revenue Board of Malaysia (LHDN).

Here’s a breakdown of your contributions:

Employee taxes and deductions

You are also responsible for deducting certain amounts from your employees' salaries. This includes their contributions to social security funds and their income tax.

Here's what you'll deduct from your employees' pay:

In Malaysia, benefits and leave are straightforward and centered on employee well-being. The law provides a solid foundation of mandatory leave and protections. Many companies then build on this with extra benefits to attract and keep great people. Think of it as a system with two layers: what's required by law, and what companies offer to stand out.

Statutory leave

The Employment Act of 1955 is the main legislation that sets the minimum standards for employee leave in Malaysia. These rules apply to all employees who have a contract with an employer.

Here’s a look at the leave you must provide:

• Annual Leave Your team members are entitled to paid annual leave based on how long they've worked for you. The amount of leave increases with their years of service.

  • Less than 2 years of service: 8 days
  • 2 to 5 years of service: 12 days
  • More than 5 years of service: 16 days

• Sick Leave Employees can take paid sick leave when they are unwell. The number of days depends on their length of service.

  • Less than 2 years of service: 14 days
  • 2 to 5 years of service: 18 days
  • Over 5 years of service: 22 days
  • If hospitalization is needed, employees get an additional 60 days of leave per year.

• Maternity Leave Female employees are entitled to 98 consecutive days of paid maternity leave.

• Paternity Leave Married male employees receive 7 consecutive days of paid paternity leave.

Public holidays & regional holidays

In Malaysia, employees are entitled to a minimum of 11 paid public holidays in a calendar year. Five of these are compulsory national holidays. The remaining six can be chosen by the employer from a list of gazetted public holidays. Some holidays are observed nationwide, while others are specific to certain states.

Typical supplemental benefits

To attract and retain talent, many companies in Malaysia offer benefits that go beyond the legal requirements. Here’s a comparison of what is required by law (statutory) versus what companies often offer as additional perks (non-statutory).

How an EOR can help with setting up benefits

Setting up a compliant and competitive benefits package in a new country can be complex. An Employer of Record (EOR) simplifies this process for you.

An EOR acts as the legal employer for your team in Malaysia. This means we handle all the administrative and legal requirements related to HR and benefits.

Here’s how we can help:

• Ensure Compliance We make sure your benefits package meets all the requirements of Malaysian labor laws. This includes everything from statutory leave to social security contributions.
• Offer Competitive Packages We provide insights into local market expectations. This helps you offer supplemental benefits that attract top talent in Malaysia.
• Manage Administration We handle the day-to-day tasks of benefits administration. This includes enrolling employees, managing leave requests, and processing claims.
• Simplify Payroll We manage payroll, ensuring that all contributions and deductions for benefits are calculated correctly and paid on time.

Using an EOR allows you to focus on your business goals. You can be confident that your team in Malaysia is well taken care of and that you are fully compliant with local laws.

When an employee leaves your company in Malaysia, you need to follow a structured process called termination and offboarding. This ensures you handle the exit professionally and legally. The process involves everything from giving the correct notice to handling the final payment. Malaysian law, mainly the Employment Act 1955, sets the rules to make sure the process is fair for everyone. A smooth offboarding helps you maintain a good relationship with the departing employee and protects your company.

Notice periods

You must give employees written notice before their employment ends. The length of the notice period usually depends on how long the employee has worked for you. If your employment contract specifies a notice period, you should follow that. If not, the Employment Act 1955 provides these minimums:

• Less than 2 years of service: 4 weeks' notice.
• 2 to 5 years of service: 6 weeks' notice.
• 5 or more years of service: 8 weeks' notice.

You can also choose to pay the employee in lieu of notice. This means you pay them their salary for the notice period, and they can leave immediately.

Severance pay

In Malaysia, employees may be entitled to severance pay, especially in cases of redundancy or business closure. The amount is based on their length of service:

• Less than 2 years of service: 10 days of wages for each year of service.
• 2 to 5 years of service: 15 days of wages for each year of service.
• 5 or more years of service: 20 days of wages for each year of service.

Employees who are dismissed for misconduct, resign voluntarily, or retire are not entitled to severance pay.

How Rivermate handles compliant exits

When you partner with us, you don't have to navigate the complexities of Malaysian employment law on your own. We manage the entire offboarding process to ensure everything is compliant and smooth.

Here’s how we help:

• Compliance check: We make sure every step of the termination process follows the latest Malaysian laws and regulations.
• Documentation: We handle all the necessary paperwork, from the termination notice to the final pay calculation.
• Clear communication: We help you communicate clearly with your departing employee to avoid misunderstandings.
• Final payroll: We ensure the employee's final salary, including any severance pay and unused leave, is calculated correctly and paid on time.

We take care of the details so you can focus on running your business.

Navigating Malaysia's visa and work permit system is straightforward when you understand the requirements. For anyone looking to work in the country, securing the right pass is the first step. Your employer will typically handle the application process, as you need a job offer before you can apply for a work permit. The main work visa is the Employment Pass, but there are other permits for different types of work.

Employment visas & sponsorship realities

An Employer of Record (EOR) can be your legal employer in Malaysia and sponsor your work visa. This is a practical solution if your company doesn't have a legal entity in the country. An EOR handles the application for your work permit, along with payroll and other legal requirements.

However, there are some realities to keep in mind:

• EORs have limitations. Not all companies in Malaysia can hire foreign workers. The ability to sponsor a visa depends on factors like the company's financial standing and the industry. This means an EOR's ability to sponsor you is tied to their own business registration and any government quotas.
• The Employment Pass is the main route. For long-term, skilled work, the Employment Pass (EP) is the most common visa. It's divided into categories based on your monthly salary.
• You need the right qualifications. To be eligible for an EP, you'll generally need a university degree and relevant work experience.

Here's a simple breakdown of the common passes:

Business travel compliance

If you're visiting Malaysia for short-term business activities, you need to follow the rules to stay compliant. You can't work on a standard tourist visa.

For short-term professional assignments, the Professional Visit Pass (PVP) is the correct choice. Think of it as a pass for temporary expertise. You would need a PVP if you are:

• Providing specialized services.
• Conducting training for a local company.
• Attending business meetings.

The key thing to remember about the PVP is that you remain employed by your company outside of Malaysia. The Malaysian company acts as your sponsor for the pass. The PVP is typically valid for up to 12 months and is not intended for long-term employment.