Hire in Malaysia
Get your human resources journey underway with best practices and recruitment strategies in Malaysia.
Malaysian Currency
Malaysian Ringgit (MYR)
The Capital of Malaysia
Kuala Lumpur
Time Zone in Malaysia
GMT+8
Important Facts About the Country of Malaysia
Climate in Malaysia
Situated in close proximity to the equator, Malaysia boasts an equatorial climate characterized by persistent heat and humidity year-round. With an annual average rainfall of 250 centimeters (98 inches) and temperatures hovering around 27 °C (80.6 °F), the climate varies between the Peninsula and East Malaysia. The peninsula experiences the direct influence of mainland winds, while the East encounters more maritime conditions. Malaysia is subject to the El Niño phenomenon, resulting in reduced rainfall during the dry season.
The nation faces potential impacts from climate change, including rising sea levels and increased rainfall, leading to heightened flood risks and potential extended droughts. Malaysia witnesses two distinct monsoon seasons: the Southwest Monsoon from late May to September and the Northeast Monsoon from October to March. Originating from China and the north Pacific, the Northeast Monsoon brings heavier rainfall compared to the Australian-desert-originated Southwest Monsoon. Transition periods between the two monsoons occur in March and October.
The Culture of Malaysia
Malaysia’s rich culture is a mosaic shaped by diverse influences from its inhabitants. The indigenous tribes, the original settlers of the region, persist to this day. Subsequently, Malays migrated from mainland Asia, blending their heritage with the indigenous culture. The advent of trade brought substantial cultural exchanges with China and India, influencing Malaysia. Over time, immigration further diversified the cultural landscape, incorporating Persian, Arabic, and British influences. Malaysia’s multitude of ethnicities preserves distinct cultural identities, each with unique features, yet often showcasing elements of cross-cultural fusion.
Languages Spoken in Malaysia
The primary language in Malaysia is Bahasa Malaysia/Malay, spoken by the majority and extensively taught in the public education system. Additionally, English, Mandarin, and Tamil are widely spoken languages in Malaysia.
Malaysian Human Resources at a Glance
Employment Law Protections in Malaysia
Employment regulations in Malaysia are primarily outlined in the Employment Act (EA) 1955, which specifies minimum benefits for eligible employees. The EA predominantly applies to manual laborers or those with monthly wages below MYR 2,000. Individuals earning between MYR 2,001 and 5,000 are still generally covered, while those surpassing MYR 5,000 rely more on contract terms. Additional laws pertain to statutory contributions such as EPF, SOSCO, IRB, and EIS. As of May 1, 2022, the minimum wage is set at RM1,500.
Employment Contract in Malaysia
Written contracts, inclusive of termination clauses, are obligatory.
Employees outside the scope of the Employment Act (EA) will adhere to contractual terms and relevant statutory obligations (e.g., minimum retirement age, SOCSO, EPF). Employers possess flexibility in determining benefits for non-EA employees, provided these are mutually agreed upon through acceptance and signature of the employment agreement. Many employers, even for non-EA employees, reference EA benefits as a baseline.
Contracts, commonly in English, can be in any preferred language by the employer. In case of disputes, the English version can be employed by the courts.
Standards align with international practices, adjusted for local nuances. Malaysia sets the minimum retirement age at 60, as mandated by the Retirement Act 2012.
Work Rules
While registering work rules is not mandatory, it is advisable to create and enforce work rules, company policies, procedures, and employee handbooks. Employees should formally acknowledge these documents upon accepting an employment offer.
Malaysia's Guidelines Regarding Probation Period/Trial Period
While there is no legal requirement in Malaysia to implement a probationary period, it is highly recommended as a standard hiring practice. The duration of the probationary period is flexible, typically ranging from three to six months, with three months for non-executive roles and six months for executive and management positions.
The primary purpose of introducing a probationary period is to safeguard employers in case an employee, covered by the Employment Act (EA), files a complaint of unjustified or unexcused dismissal. The prevalence of such complaints has led to a considerable body of case law addressing the legality of employment termination. If the EA specifies a probationary clause for an employee, it is crucial to issue a confirmation or extension letter accordingly.
Instances of termination may include misconduct or redundancy. However, courts closely scrutinize the legitimacy of redundancy dismissals and the severity of misconduct, emphasizing the importance of thorough documentation. Although the EA does not differentiate between probationary and confirmed employees, case law emphasizes that the lack of a “automatic confirmation.” Even if the probationary period concludes, and the employer continues the engagement without issuing a confirmation letter, the employee remains a probationer. Consequently, a probationer enjoys the same rights as a confirmed employee in Malaysia, and termination should be justified or excused. The probationer status persists even after the probationary period ends, provided the services are neither terminated nor confirmed at the conclusion of the period.
Severance Pay in Malaysia
Severance benefits in Malaysia, commonly referred to as retrenchment benefits, are structured as follows:
- 10 days’ wages for employment less than two years
- 15 days’ wages for employment more than two years but less than five years
- 20 days’ wages for employment more than five years
Adhering to the Employment Act (EA) is considered best practice when determining severance pay.
Malaysian Laws Regarding Overtime
The stipulated working hours in Malaysia should not surpass eight hours in a single day or 45 hours in a week. For employees earning below MYR 4,000 per month, overtime follows the provisions of the Employment Act (EA), with a maximum of 104 hours. For those earning more than MYR 4,000 per month, overtime pay is contingent on company policy outlined in the contract. EA employees are entitled to overtime pay based on the timing of the overtime:
- Normal working days: Compensated at 1.5 times the hourly rate of pay.
- Rest days: If the duration is less than half the normal hours, half day’s wages at the ordinary rate are provided; if it exceeds half but not the normal hours, one day’s wages at the ordinary rate are given, increasing to 2 times the hourly rate if the time surpasses normal hours.
- Public holidays: Compensation for work on these days is set at 2 times the hourly rate for the first eight hours, escalating to 3 times the hourly rate after exceeding eight hours.
Malaysia's Requirements Regarding Notice Periods
As per the Employment Act (EA), the duration of notice periods in Malaysia is contingent on the employee’s length of service:
- Less than two years: Four weeks
- Two to five years: Six weeks
- Five years or more: Eight weeks
It is advisable to provide notice well in advance, exceeding the minimum requirement of two months whenever possible.
Termination
Ending employment in Malaysia is a challenging process. Dismissing employees without valid grounds may be considered unfair dismissal. Legitimate reasons for termination encompass factors like poor performance and misconduct.
Employers have the authority to determine the agreed-upon notice period, ideally outlined in the employment contract. In instances where the contract is silent on the notice duration, statutory minimums come into play based on the employee’s service length:
- Less than two years: Four weeks
- Two to five years: Six weeks
- Five years or more: Eight weeks
Legal proceedings due to unfair dismissal could result in a compulsory payment of 24 months’ salary.
Post-Termination Restraints/Restrictive Covenants
Employers have the option to incorporate non-compete clauses in employment contracts, subject to meeting exceptions specified in the Contracts Act 1950. The enforceability of these clauses hinges on the reasonableness of their terms, taking into account factors such as geographical limits, duration, and the nature of the business. It is advisable for employers to refrain from restricting general knowledge and skills, while they can legitimately prevent the use of confidential information and client lists. Striking a balance between protecting employer interests and respecting employee rights is pivotal when crafting non-compete clauses.
Rules Regarding Bonus and 13th Month Pay in Malaysia
- In Malaysia, companies generally provide discretionary performance bonuses,
- often amounting to at least one month’s salary.
- The payout of bonuses is contingent upon the company’s performance, typically occurring after the financial year-end or during festive seasons.
Directors or Officers (registered)
- There are no specific tax rules; however, distinct rates apply for residents and non-residents. Non-residents are subject
- to a 30% tax on their taxable income. To determine tax status, individuals are considered residents if they stay in Malaysia for more than 182 days.
Other Standard Items
Typical job perks, like parking or petrol allowances and phone allowances, are commonly offered in Malaysia. It’s essential to be aware that these allowances are typically subject to income tax, similar to basic salary and fixed allowances.
Typical Non-statutory Benefits for MNC
Employers are advised to include coverage for general practitioner consultation fees in the company’s medical benefits. Depending on the sector, accident or life insurance may be extended to employees.
Expatriates may be offered additional benefits such as housing allowances, transport allowances, coverage for children’s school fees, and return flight tickets.
Tax and Social Security Information for Employers in Malaysia
Income Tax in Malaysia (National tax)
Monthly Tax Deduction (MTD) is a compulsory tax collection scheme where employers deduct a specified amount from each employee’s salary based on the Income Tax authorities’ schedule. This deduction covers the income earned in the current year.
For resident individuals, income tax rates range from 0% to 30%, with personal reliefs applicable for those present in the country for more than 182 days. Non-resident individuals are subject to a flat 30% tax rate (for those with less than 182 days in Malaysia within a year).
In the MTD calculation, the estimated monthly tax payable is subtracted from the salary, and employers are required to remit this amount to the Inland Revenue Board (IRB or ‘Lembaga Hasil Dalam Negeri’ LHDN) by the 15th day of the subsequent month.
Income brackets and tax rates for the assessment year 2023:
| Taxable Income (MYR) | Tax Rate (%) |
|---|---|
| 0-5,000 | 0.0 |
| 5,001-20,000 | 1.0 |
| 20,001-35,000 | 3.0 |
| 35,001-50,000 | 6.0 |
| 50,001-70,000 | 11.0 |
| 70,001-100,000 | 19.0 |
| 100,001-400,000 | 25.0 |
| 400,001-600,000 | 26.0 |
| 600,001-2,000,000 | 28.0 |
| >2,000,000 | 30.0 |
Local (or Resident tax)
Tax payments are deducted through the Monthly Tax Deduction (MTD) system.
The annual tax calculations and filings are contingent on individual earnings and the number of dependents.
Social Security
The following mandatory benefit schemes are applicable in Malaysia for both employers and employees, regardless of whether they are governed by the Employment Act (EA) or not:
Employees Provident Fund (EPF)
EPF serves as a social security institution designed to offer retirement benefits to Malaysian workers. While it still encompasses pension funds, employees can now withdraw their savings for specific purposes such as house ownership and medical needs. All employers and employees, except foreign workers, are required to contribute to EPF at minimum rates of 12% to 13% (with a threshold of MYR 5,000 per month) by employers and 11% by employees, based on monthly wages (including basic pay, fixed allowances, and annual bonuses).
Foreigners holding an Employment or Visit Pass and earning a monthly salary exceeding MYR 2,500 are exempt from compulsory contributions. Others contribute 11% of their monthly wage, while the employer pays MYR 5 per person per month.
The Social Security Organization (SOCSO) functions as a social insurance scheme providing protection to Malaysian citizen and permanent resident employees. It covers a range of contingencies such as industrial accidents, occupational diseases, and instances of invalidity or death. The contributions, applicable to employees below 60 years of age (Category I), are directed towards the Employment Injury Scheme and Invalidity Scheme. Employers contribute 1.75%, while employees contribute 0.50% of the employee’s monthly wage, with a cap at MYR 5,000.
Employees who are below 60 years of age fall under the First Category, except those who reach 55 years and lack prior contributions before turning 55 due to non-eligibility under the Employees’ Social Security Act, 1969.
For newly employed individuals aged 55 or above, or those who are 60 years old and beyond, they must be covered under the second category (Employment Injury Scheme only). As of January 1st, 2019, employers hiring foreign workers with valid documents must register these employees under SOCSO and contribute to the Employment Injury Scheme (Second Category). In this category, the employer’s contribution is 1.25%, while the employee’s contribution is 0%. The specific deduction amounts follow the contribution table outlined by SOCSO.
The Employment Insurance System (EIS), implemented by SOCSO since January 2018, serves as a mandatory platform. It aims to furnish temporary financial aid and employment support to individuals who have experienced job loss.
** Requirements**
- Every employer must make contributions for each employee, with exceptions for the government sector, domestic helpers, and self-employed individuals.
- This applies to employees aged 18 to 60 years, excluding first-time contributors aged 57 and above. Additionally,
- it is only applicable to local employees.
Monthly Contribution
- Both employers and employees are required to contribute 0.2% of the monthly wages,
- with contributions capped at a salary level of MYR 5,000 per month. This implies that even if an individual earns above MYR 5,000 monthly,
- their contribution is fixed at 0.2% of MYR 5,000. Employers must ensure timely contributions, due on or before the 15th of the month following the wage month.
- Additionally, employers need to be registered with the relevant statutory offices.
The Human Resources Development Fund (HRDF) is a compulsory levy collected by HRDF from employers across various industries. Its purpose is to facilitate employee training and enhance the skills of the Malaysian workforce.
For companies employing 10 or more local workers, contributing to HRDF is mandatory. The contribution rate stands at 1% of the monthly wages for each Malaysian employee. Optional for companies with 5-9 local employees, the contribution rate in this case is set at 0.5%.
| Social Security System | Monthly Salary Cap (MYR) | Employer Contribution | Employee Contribution |
|---|---|---|---|
| Employment Provident Fund (EPF) – Local only | No Cap | For salary |
11.0% |
| Social Security Organization (SOSCO) | 5,000 | 1.75% | 0.50% |
| Employment Insurance System (EIS) | 5,000 | 0.20% | 0.20% |
Important Information for Malaysian Employees
Salary Payment
- In Malaysia, employee salaries are typically disbursed on a monthly basis, occurring anytime from the 25th day to the end of the month. It is imperative that payment is made no later than the commencement of the next pay cycle. The payment window for a worker extends to seven days post the conclusion of the wage period, typically a month.
- Payments are commonly facilitated through interbank Giro directly into employees’ bank accounts or via checks. Compensation pertains to the ongoing month, with provisions for arrears in exceptional circumstances (e.g., new hires missing the payroll cutoff). In cases of termination, wages must be settled by the close of the employee’s official last day.
Payslip
A payslip is commonly provided in an online format or as a PDF document, although certain companies may still distribute traditional carbon-sealed payslips.
Key information mandated for inclusion in the payslip encompasses, but is not confined to, the following details:
- Company name and address
- Month of the payslip
- Personal information of the staff (e.g., name, employment ID, position/designation, department, date of joining, statutory membership numbers)
- Breakdown of monthly earnings, allowances, and deductions
- Year-to-date (YTD) summaries of earnings, deductions, and net pay
- Monthly employer’s statutory contributions
- YTD employer’s statutory contributions
- Disbursement particulars (e.g., employee’s bank account information)
Timesheets
- The implementation of timesheets varies among companies.
- Scope: The elements of effort necessary for task completion are contingent on the staff member’s grade level.
Holiday Allowance
Overtime compensation is accessible to both EA employees and those with specified contractual arrangements. This may serve as a substitute for time off. The standard rate for overtime on public holidays is three times the regular rate.
Annual Leave
As per Section 60E of the Employment Act 1955, the entitlement to annual leave in Malaysia is determined by the length of service:
- Less than two years: Eight days per 12 calendar months
- More than two years but less than five years: 12 days per 12 calendar months
- More than five years: 16 days per 12 calendar months
Note: Employers have the flexibility to offer more than the minimum days mandated by law.
Annual leave may be prorated for employees who have not completed a full year in the calendar year. Some companies adopt a prorated or earned leave system on a quarterly basis.
Approval from immediate superiors may be necessary before utilizing annual leave.
The carry-over of unused leave is subject to company policy. While some employers do not permit the carry-over of unused leave, others may allow it within a specified period. Otherwise, the leave may be forfeited.
Employers are obligated to compensate employees for unused leave only in the case of termination or resignation.
Sick Leave
In cases where hospitalization is not necessary, the duration of sick leave entitlement is contingent on the employee’s length of service:
- Less than two years: 14 days
- More than two years but less than five years: 18 days
- More than five years: 22 days
With the Amendment Act of 2022, employees are granted an additional 60 days of hospitalization leave within a calendar year, in addition to the standard sick leave entitlement. The standard sick leave provision remains unaffected.
For all instances of sick or medical leave, a medical certificate is a mandatory requirement.
Maternity & Child Care Leave
- All female employees, including those not covered by the Employment Act, are eligible for 98 consecutive days of paid maternity leave for the birth of up to five surviving children.
- Regarding paternity leave, a married male employee is entitled to seven days of paid leave for each birth, with the provision applicable for up to five births, irrespective of the number of spouses involved. The male employee must have a minimum of 12 months of continuous service with the same company before paternity leave can commence. Additionally, he is required to inform his employer about his wife’s pregnancy at least 30 days before the expected delivery date or as soon as possible after the baby is born.
- Maternity leave is granted either upon childbirth or during the 22nd week of pregnancy in the case of premature birth.
Other Statutory Leave
The employer may grant the following types of leave at their discretion:
- Marriage leave
- Compassionate leave
- Examination leave
Trade Unions
Trade unions are typically pertinent to manufacturing and banking sectors. No universal prerequisites exist.
Rules Regarding Visas and Foreign Workers in Malaysia
General Information
Work permits in Malaysia are granted for durations ranging from six months to five years, contingent upon the employment contract’s length and visa type. The application process for Malaysian work permits takes place within the country.
The Malaysian government issues three main types of work permits:
1. **Professional Visit Pass:**
- Issued to foreigners working with a Malaysian company while employed by an overseas company.
- Suited for technical experts, trainees, and volunteers.
- Valid for short periods, typically six months to a year.
2. **Temporary Employment Pass:**
- Designed for unskilled or semiskilled workers in manufacturing, agriculture, construction, and services sectors.
- Applicable to those earning a salary below MYR 5,000.
- Valid for two years, with yearly extensions possible. Quota approval from the Local Center of Approval is mandatory.
3. **Employment Pass:**
- Targeted at individuals with specific skills, often in technical or managerial roles.
- Typically issued for a minimum period of two years.
- Requires prior authorization by the Expatriate Committee or relevant regulatory agency.
Current regulations impose restrictions on the number of foreign workers a Malaysian company can hire. Employers need to demonstrate to the government that the positions and potential employees are of crucial importance and cannot be filled locally. Approval for employment is granted by regulatory agencies in collaboration with the Immigration Department, varying based on industry and job nature. Once approval is secured, the company can initiate the expatriate’s application process.
Foreigners and expatriates seeking employment in Malaysia must obtain permit passes from the Immigration Department, meeting criteria such as a minimum salary of MYR 5,000 and a two-year employment contract. Entry into Malaysia is governed by the Immigration Act 1959/63, Passport Act 1966, and Immigration Regulations 1963.
The application timeline typically ranges from two to three months, influenced by the completeness of the submitted documents.
Public Holidays Recognized by Malaysia in 2024
| Occasion | Date | |
|---|---|---|
| 1 | New Year’s Day | January 1 |
| 2 | Thaipusam | January 25 |
| 3 | Federal Territory Day | February 1 |
| 4 | Chinese New Year | February 10 – 11 |
| 5 | Hari Raya Puasa | April 10 – 11 |
| 6 | Labor Day | May 1 |
| 7 | Vesak Day | May 22 |
| 8 | Agong’s Birthday | June 3 |
| 9 | Hari Raya Haji | June 17 |
| 10 | Awal Muharram | July 7 |
| 11 | Merdeka Day | August 31 |
| 12 | Malaysia Day | September 16 |
| 13 | Prophet Muhammad’s Birth | September 16 |
| 14 | Deepavali | October 31 |
| 15 | Christmas Day | December 25 |
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