Guide to Hiring in Malaysia

Labour Law – Basics

What are the basic requirements for employers in Malaysia?

The Employment Act of 1955 is Malaysia’s primary legislation for labour law matters. This Act underwent major changes that took effect from 1 January 2023, covering areas such as working arrangements, maternity leave and hiring foreign workers.

The Employment Act outlines obligations that are to be met by employers, such as statutory contributions.

Employers must make the following statutory contributions for their employees:

• Taxation – Employers must make monthly tax deduction payments known as Potongan Cukai Bulanan (PCB) to the Inland Revenue Board of Malaysia by the 15^th of the following month. They will have to submit the CP39 statement with these payments. Employers must also submit Form E by the 31^st of March of the following year to declare the annual returns of all employees. In terms of the annual income tax, the tax rate is as follows:
  • Malaysian/Resident Employees
    • Staying more than 182 days in a calendar year
    • Progressive tax rate (0 –30%)

For the 2023 tax year – YA2023 – the tax rates are as follows:

Source: Lembaga Hasil Dalam Negeri

• Non-resident employees
  • Staying less than 182 days in calendar year
  • Fixed Tax Rate (30%)
    • For new hires, employers must submit the Form CP22 within one month of the hire’s employment. Employers who fail to do this may be subject to a fine of RM200 – RM2,000, an imprisonment term of 6 months (maximum), or both, and pay any outstanding taxes.
    • When an employee resigns or is terminated, employers must then submit Form CP22A to the Inland Revenue Board together with the withholding tax. If the employee is leaving Malaysia permanently, or for an extended period of more than 3 months, the employer must also submit Form CP21.
    • The Inland Revenue Board must be notified of the employee leaving the company in writing at least 30 days in advance.

• Human Resources Development Fund (HRDF)
  • The HRDF is a mandatory contribution for employers with 10 or more Malaysian staff. However, companies with 5-9 local employees also have the option to register.

• • The fund is used for upskilling and training.
  • The contribution rate for each Malaysian employee is 1% of the employee’s monthly salary – including their fixed allowances.
  • Once a company has 10 employees, employers must continue contributing the 1% for the whole calendar year, even if somewhere in the year, the headcount falls below 10.

What to note for existing employees?

Bonuses or ‘13^th month salaries’ are not mandatory in Malaysia – however, they are customary, as most employers will make this payment towards the end of the year.

What to remember when hiring new employees?

Employers must submit Form CP22 to the Inland Revenue Board – notifying them that a new employee has been hired.

For other mandatory contributions such as the Employee Provident Fund, PERKESO and Employment Insurance Scheme, refer to the ‘What are the basic requirements for employers in Malaysia?’ section above.

What are the different discrimination laws in Malaysia?

Malaysia does not have specific laws on workplace discrimination, however, Article 8 of the Federal Constitution states:

“All persons are equal before the law and entitled to the equal protection of the law”, as well as “except as expressly authorized by this Constitution, there shall be no discrimination against citizens on the ground only of religion, race, descent, place of birth or gender in any law or in the appointment to any office or employment under a public authority or in the administration of any law relating to the acquisition, holding or disposition of property or the establishing or carrying on of any trade, business, profession, vocation or employment.”

What are the working hours in Malaysia?

Based on the amendments that were made to the Employment Act, with effect from 1^st January 2023, normal working hours have been reduced from 48 to 45 hours a week.

Employees are also entitled to 30 minutes of rest after 5 consecutive hours of work, and at least 1 day of rest per week.

What is the legal probation period in Malaysia?

There is no law on how long a probation period in Malaysia should be. However, most probation periods last between 3-6 months, depending on the agreement between the employer and employee.

What are the minimum wage requirements in Malaysia?

The national minimum wage has been increased to RM1,500 a month per the Minimum Wages Order 2022 (“Order”). Employers with 5 or less employees have been given a grace period until 1^st July 2023 to increase salaries.

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Termination of Employment – Tax, Severance Payment & Long Service Payment

• Terminations must be made with ‘just cause and excuse’. There is no fixed list of reasons an employee can be terminated, but some examples are misconduct, negligence, poor performance or redundancy/company restructuring.
• When terminating an employee, the employer must issue a termination notice which clearly states the reason for termination. Notices are, however, not required in cases of serious misconduct. Employees have a right to challenge the termination in the Industrial Court if they feel it was done without just cause and excuse.
• Severance payments are applicable for employees earning RM4,000 a month and below and the amounts are as follows:
  • 10 days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for a period of less than 2 years.
  • 15 days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for 2 years or more but less than 5 years.
  • 20 days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for 5 years or more.
  • For employees earning more than RM4,000, their entitlement to severance payments would depend on whether their employment contracts provide for it.

In the case of retrenchments, employers must notify the Department of Labour by submitting the PK Form at least 30 days before termination. When an employee leaves the company, employers must submit the form CP22A to the Inland Revenue Board for tax clearance purposes.

What is the retirement age in Malaysia?

Based on the Minimum Retirement Age Act 2012 that came into force on 1^st July 2013, the minimum retirement age of an employee is 60 years. Employers who retire an employee before they turn 60 would be committing an offence and can be liable to pay a fine of not more than RM10,000 upon conviction.

Employment dispute channels

All labour law disputes can be brought before the Industrial Court. There are 5 industrial courts in Malaysia, located in Kuala Lumpur, Johor, Perak, Pahang, Sabah, and Sarawak. Employees can either seek reinstatement of their employment, or monetary compensation.

Is employment insurance compulsory in Malaysia?

PERKESO and EIS are the two mandatory insurances for all private sector workers in Malaysia. As for medical insurance, employers are not obliged to provide employees with this. However, most private sector employers do provide employees with medical insurance.