Guide to Hiring in Malaysia

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Guide to Hiring in Malaysia

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Malaysia is one of the fastest-growing economies in Asia, with its Q4 2022 GDP growth surpassing projected figures. According to the World Bank, Malaysia ranks #12 out of 190 countries when it comes to ease of doing business. This, coupled with its abundance of natural resources and industrial facilities as well as comprehensive business laws, makes Malaysia a great place to start or grow a business.

Considering expanding into Malaysia? Check out Links International’s complete and in-depth guide that covers labour laws and company laws which will help ensure you run a compliant business in Malaysia.

Please note that all the information listed below are to be used as a general guideline. For more detailed accounts of Malaysia’s employment laws and regulations, please visit the official governmental websites.

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:

  • Employees’ Provident Fund (EPF) – EPF, also known as Kumpulan Wang Simpanan Pekerja (KWSP) in Malaysia, is the retirement savings fund for private sector employees.
    • Both employers and employees must contribute an amount each month, depending on the employee’s salary, age, and residency status.
    • After starting a new company, employers are to register with the EPF within 7 days of becoming liable to contribute.
    • When an employer registers themself, they must complete the KWSP 1 Form and submit it with a copy of the Director or Head of Department’s identity card (MyKad or passport). Other forms may be required, depending on the type of company. Upon successful registration, employers will receive a notice with the employer’s reference number and an Employer’s Registration Certificate that must be displayed at the employers’ premises).
    • When registering a new employee with the EPF, employers will have to submit copies for the employee’s identification cards and Form KWSP3 (for Malaysians) and Form KWSP 16B + Form KWSP 3 (for non-Malaysians). New employees must be registered within 7 days from the date of employment. Registrations can be made online via the i-Akaun portal. Employers who fail to register employees on time/provide false documentation may be liable for imprisonment for a term up to 3 years or a fine up to RM 10,000 or both.
    • Monthly contributions by both employees and employers must be paid by the 15th of the month for the salary issued in the previous month – failing with, a large payment charge will be imposed.
    • EPF payments can be made through online banking, the e-Caruman website or app, bank agents of Bank Simpanan Nasional, Maybank, Public Bank and RHB Bank, as well as EPF counters nationwide.
      • Employees are allowed to voluntarily contribute to the EPF even if they do not fall into the above categories.

 

  • PERKESO/SOCSO – Employers and employees must also contribute to the Pertubuhan Keselamatan Sosial (PERKESO), also known as Social Security Organisation (SOCSO), every month. PERKESO is Malaysia’s social security scheme for private sector employees and it has two categories, the Employment Injury Scheme and the Invalidity Scheme. The Employment Injury Scheme protects employees against occupational accidents and illnesses, while the Invalidity Scheme acts an insurance for employees who will no longer be able to work due to having a permanent disability/incurable condition, or death.
    • Similar to the EPF, both employers and employees must contribute an amount each month based on the employee’s salary.
    • Apart from salaries, overtime payments, commissions, wages given during leave and any other contractual payments are also included when calculating deductions.
    • After starting a company, employers must register with PERKESO within 30 days of hiring the first employee of that company.
    • As with the EPF, employers are to make PERKESO payments by the 15th of the month for the salary issued in the previous month. A late payment interest rate of 6% per year will be charged for each day of contribution not paid.
    • PERKESO payments can be made through the PERKESO ASSIST portal, PERKESO counters nationwide, online banking, cheque, money order or postal order, bank counters, as well as bank agents of Maybank, RHB Bank and Public Bank.

 

  • Employment Insurance System (EIS) – The EIS is handled by PERKESO and it covers employees aged 18 to 60 who have lost their employment except in the following situations:
    • voluntary resignation
    • expiry of the contract
    • unconditional termination of contract
    • completion of a project specified in a contract
    • retirement
    • dismissal due to misconduct
      • Employees are automatically entitled to the EIS once the employer registers them with PERKESO.
      • EIS contributions are made together with PERKESO contributions, and payments can be made through the same channel as PERKESO contributions. Employers are to submit Form SIP 2A each month together with their contributions.

 

Employee’s ageContribution rates for employer & employee
18 to 60 years of age0.2%

 

Note: The rate above does not apply to new employees who are 57 years old and above, and have no prior contributions.

Similar to PERKESO contributions, the rate above is capped for monthly salaries of RM5,000 and below. Those earning more than that will be subject to a flat rate of RM9.90 (both employer and employee).

  • Taxation – Employers must make monthly tax deduction payments known as Potongan Cukai Bulanan (PCB) to the Inland Revenue Board of Malaysia by the 15th of the following month. They will have to submit the CP39 statement with these payments. Employers must also submit Form E by the 31st 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:

Chargeable incomeCalculations (RM)Rate (%)Calculations (RM)
0 – 5,000On the First 5,00000
5,001 – 20,000
  • On the First 5,000
  • Next 15,000
1
  • 0
  • 150
20,001 – 35,000
  • On the First 20,000
  • Next 15,000
3
  • 150
  • 450
35,001 – 50,000
  • On the First 35,000
  • Next 15,000
6
  • 600
  • 900
50,001 – 70,000
  • On the First 50,000
  • Next 20,000
11
  • 1,500
  • 2,200
70,001 – 100,000
  • On the First 70,000
  • Next 30,000
19
  • 3,700
  • 5,700
100,001 – 400,000
  • On the First 100,000
    Next 300,000
25
  • 9,400
    75,500
400,001 – 600,000
  • On the First 400,000
    Next 200,000
26
  • 84,400
  • 52,000
600,001 – 2,000,000
  • On the First 600,000
  • Next 1,400,000
28
  • 136,400
  • 392,000
Exceeding 2,000,000
  • On the First 2,000,000
  • Next ringgit
30528,400

 

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.
No. of staffContribution rate
Employers with 10 or more Malaysian employees MUST register with HRDF1% of the monthly wages (Total wages or basic salaries + fixed allowances) of each of their Malaysian employees
Employers with less than 10 Malaysian employees are given the OPTION to register with HRDF0.5% of the monthly wages (Total wages or basic salaries + fixed allowances) of each of their Malaysian employees

 

    • 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 is the different work permits and visas in Malaysia?

  • Employment Pass (EP)
    • It comes in 3 categories – Employment Pass I, Employment Pass II and Employment Pass III. Employers who want to hire staff through this visa must seek approval from the Expatriate Committee.
    • Employment Passes can be valid for up to 5 years and they are renewable.

 

  • Visitor’s Pass (Temporary Employment)
    • Comes in two categories – The Foreign Worker Temporary Employment Pass (also known as Pas Lawatan Kerja Sementara or PLKS) and the Foreign Domestic Helper Temporary Employment Pass.
    • Both these passes are typically valid for up to 2 years, and holders of this work permit are not allowed to bring dependents to live to with in Malaysia.

 

  • Professional Visit Pass
    • Typically for foreign companies who want to hire foreign nationals to work in Malaysia for up to 12 months.
    • Holders of this work permit are not allowed to bring dependents to live with them in Malaysia.

 

  • PLS@XPATS
    • Launched in October 2022, this work pass allows foreigners to work in the country for up to 30 days.
    • Those who are granted this work permit are not allowed to bring dependents to live with them in Malaysia.

 

For more information on all of the work permits above, refer to the ‘Relevant Links’ section below.

What to note for existing employees?

Bonuses or ‘13th 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 1st 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 1st July 2023 to increase salaries.

READ NOW: Labour Law Insider- APAC 2023 Q2 Legislation Update

 

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 1st 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.

Labour Law - Leave

  • With regard to annual leave, the Employment Act provides:
    • 8 days for every year of service for employees who have worked 1-2 years
    • 12 days for every year of service for employees who have worked 2-5 years
    • 16 days for every year of service for employees who have worked more than 5 years.
  • Employees under the Employment Act are entitled to the following days of sick leave:
    • 14 days per year if the employee is in service for 1-2 years
    • 18 days per year if the employee is in service for 2-5 years
    • 22 days per year if the employee is in service for 5 years or more.

Employees must produce a medical certificate from a registered medical practitioner or officer. Employees are also granted hospitalisation leave, and the total amount of sick leave and hospitalization leave cannot exceed 60 days.

  • Through the amended Employment Act, the statutory maternity leave has been increased from 60 days to 98 days. To be eligible for maternity leave, expectant mothers must meet the following criteria:
    • The employee must have been employed within the 4 months leading up to confinement.
    • The employee must have been employed for a total of 90 days in the nine months prior to confinement.
    • Maternity leave only applies for the first five children.
    • Expectant mothers can take maternity leave at any time as long, as it is not earlier than 30 days before confinement or later than the day immediately following confinement.
    • The pregnant employee must notify their employer at least 60 days prior to their expected confinement period.
    • Employees can choose to work right up until the day they give birth, or commence maternity leave 30 days before their expected confinement (supported by a doctor’s letter confirming their due date).
  • As of January 1st 2023, male employees are now entitled to 7 days of the paternity leave, provided the following conditions are met:
    • The employee must be legally married to the mother of the child
    • The employee must have been employed for the last 12 months
    • Paternity leave only applies for the first five children.
    • The employee must notify the employer at least 30 days before the due date.

According to the Employment Act, employees are entitled to 11 gazetted holidays each year.

Employees are entitled to at least 1 rest day per week.

What are the public holidays in Malaysia?

Malaysia Public Holidays 2024

Below are the 2024 national public holidays – excluding state-level ones.

 

HolidayDate
New Year1 January
Thaipusam (for Kuala Lumpur, Negeri Sembilan, Johor Penang, Perak, Putrajaya & Selangor)25 January
Federal Territory Day (for Kuala Lumpur, Labuan & Putrajaya)1 February
Chinese New Year10 – 11 February
Chinese New Year Holiday (national except in Johor and Kedah)12 February
Nuzul Al-Quran (national except in Johor, Kedah, Melaka, Negeri Sembilan, Sabah & Sarawak)28 March
Hari Raya Aidilfitri10 – 11 April
Labour Day1 May
Wesak Day22 May
Agong’s Birthday3 June
Hari Raya Haji17 June
Awal Muharram7 July
Awal Muharram Holiday (national except in Johor, Kedah, Kelantan & Terengganu)8 July
Merdeka Day31 August
Prophet Muhammad’s Birthday16 September
Malaysia Day16 September
Malaysia Day Holiday17 September
Deepavali (national except Sarawak)31 October
Christmas25 December

 

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In the meantime, stay updated on Labour Law updates throughout the year through our Labour Law Insider. For more news and insights into the market, make sure to subscribe to our blog so you don’t miss out on the latest HR news, or contact our team to learn more about the latest changes!

*Please note that all the information listed above are to be used as a general guideline. For more detailed accounts of Malaysia’s employment laws and regulations, please visit the official governmental websites.

Interested to explore the idea of payroll outsourcing, EOR, or Visa application services?

Links International is a leading payroll outsourcing provider across Asia Pacific and supports payroll in over 17 countries. Please do not hesitate to contact us.

Relevant Links:

  • Basic Requirements for Employers in Malaysia:
    • Changes to Employment Act Starting 1 January 2023: https://linksinternational.com/blog/malaysian-government-urged-to-delay-implementing-changes-to-employment-act/
  • Work Permits and Visas in Malaysia:
    • Employment Pass (EP): https://esd.imi.gov.my/portal/expatriates/myxpats/key-services/employment-pass/
    • Visitor’s Pass (Temporary Employment): https://www.imi.gov.my/index.php/en/main-services/pass/visitor-pass/visitors-pass-temporary-employment/
    • Professional Visit Pass: https://esd.imi.gov.my/portal/expatriates/myxpats/key-services/professional-visit-pass/
    • PLS@XPATS: https://mtp.imi.gov.my/plsXpats/main?termConditionPLS
  • Public Holidays:
    • 2023 Public Holidays in Malaysia: https://publicholidays.com.my/2023-dates/