By Globalization Partners
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Malaysia is a Southeast Asian country divided into two geographical areas — East and West Malaysia — that are separated by 640 kilometers of the South China Sea. Malaysia has made a name for itself as one of the strongest, fastest-growing economies in Southeast Asia. With an average annual GDP growth rate that has remained at 4.404 percent over the last decade, Malaysia should continue to attract companies from all over the world.
If you want to hire employees in Malaysia, these tips for hiring in Malaysia will help you navigate the process.
What to know before hiring in Malaysia
Before you begin hiring someone in Malaysia, you need to understand the basics of the Malaysian labor force and the country’s employment laws. International hiring is not an enterprise where learning as you go is a smart strategy. Failing to comply with aspects of employment law could result in fines and legal ramifications. Let’s look at some key points of information you should understand when it comes to hiring new employees in Malaysia.
1. Languages in Malaysia
Malaysia is a multicultural country and home to various ethnic groups — some of the most prominent are Malay, Indian, and Chinese. It’s no wonder, then, that Malaysia is a melting pot of languages. Malaysian Malay, often just called Malay, is the official language in the country. You’ll also find well over 100 indigenous languages in Malaysia. Depending on what part of the country you’re in, you may encounter people who primarily speak Chinese, Tamil, or other languages.
English is a popular second language and is primarily used in education settings. However, the English you hear in Malaysia is likely to be Malaysian Standard English (MySE) — a pidgin language that draws on Malay, Tamil, and Chinese influences. Locals may refer to it as “Manglish” or “Bahasa Rojak,” meaning mixed language.
MySE is considerably different from the English used in countries like the U.S., UK, Canada, or Australia, so if you’re looking for job applicants that speak English, you’ll want to be specific about the variety of English and level of proficiency necessary for the job. Fortunately for international companies, many people who speak Manglish can also speak more standard varieties of English when needed. If you’re willing to hire employees who do not speak your native language, be prepared to have a translator present for interviews and other communications.
2. The Malaysian labor market
Malaysia is home to a diverse population, and Malaysians are exceptionally well educated compared to other Southeast Asian countries. The literacy rate in Malaysia is 95 percent, and in 2017, 538,555 students were enrolled in Malaysia’s public universities. The most popular field of study for these students is social sciences, business, and law.
The country’s manufacturing sector — especially the electrical and electronics (E&E) industry— is a significant contributor to Malaysia’s economy and is one reason some international companies choose to establish operations in Malaysia. The manufacturing sector attracts more foreign investment than the primary or service sectors. In 2018, the sales value of the E&E industry had risen to 290 billion Malaysian Ringgit (RM). Some global tech firms, including Intel and Texas Instruments,have established branches in Malaysia.
Malaysia has other thriving industries across the service and manufacturing sectors, and its working population offers a diverse set of skills. Some other notable industries in the country include automotive manufacturing, construction, defense, communications technology, information technology, and fintech.
3. Working hours and statutory leave
The standard workweek in Malaysia consists of five eight-hour days, typically from 9 a.m. to 5 p.m., Monday to Friday. Work hours can go up to a maximum of 48 hours per week, but extra hours are subject to overtime pay, which is 1.5 times an employee’s normal rate of pay. Employees are also entitled to a rest day after six days of work.
Employees in Malaysia are entitled to paid vacation time each year. Before hitting their two-year anniversary with a company, employees should receive at least eight days of annual leave. After two years, that minimum goes up to 12 days, and after five years, it increases to 16 days. All Malaysian employees are entitled to public holidays as paid days off, as well. Employees may also receive paid sick leave in some circumstances.
Malaysia has the highest minimum wage in Southeast Asia, but it’s still relatively low compared to many other countries. As of February 2020, the Ministry of Human Resources released a gazette requiring employers to pay their workers at least RM1,200 per month, or RM5.77 per hour. International companies should also research typical Malaysian wage rates for positions in their industry and consider the cost of living in a particular area where they’re hiring.
Many Malaysian employees are accustomed to receiving performance-based bonuses. You should include information about these bonuses, if you plan to offer them, in employment contracts. A 13th-month bonus, which is the equivalent of one month’s wages paid at the end of the year, is not a legal requirement in Malaysia as it is in some countries, but it is common. For this reason, you should make it clear in offer letters and contracts whether the stated salary includes the 13-month bonus or not.
5. Taxes and social security
Most Malaysian employees pay income tax, the rates of which vary up to 30 percent. Employers are responsible for withholding employees’ income tax from their paychecks under the monthly tax deduction (MTD) scheme. Employees also contribute 11 percent of their gross worldwide income to the Employment Provident Fund (EPF). This is a type of savings account they can have for retirement or access on occasion for purposes like buying a house or paying medical expenses. Employees also contribute to social security.
Employers contribute to the EPF and to social security, as well. Depending on how much an employee earns, an employer will contribute an amount equal to either 12 or 13 percent of the employee’s gross monthly wages to their EPF. An employer’s social security contributions also depend on employees’ salaries. The maximum amount is RM69.05 per month. For employees who don’t qualify for the invalidity Pension Scheme, employers must contribute to the Employment Insurance System.
The cost of hiring an employee in Malaysia
Hiring new employees entails some unavoidable costs. When you’re hiring in a new country, you need to factor in additional expenses involved in expanding to the country. Some of the costs to budget for include:
- Company registration:As an employer from a country outside of Malaysia, you first need an entity in Malaysia before you can start hiring there. Registering your company in the country involves some fees.
- Legal assistance: Since Malaysian law differs from the laws you’re used to complying with, it is advisable that you work with a Malaysian law firm that can help you create contracts and engage in business operations in a way that is fully compliant with the law.
- Recruitment fees:Hiring through a recruitment agency can be more convenient than handling the hiring process in-house, but you can expect to pay a significant premium for this service. Recruitment fees are typically determined by multiplying the annual salary you plan to pay an employee by an agency’s percentage rate. In Malaysia, this rate can vary from approximately 12 to 35 percent.
- HR employees: If you leave hiring up to your own human resources (HR) staff, you need to factor in the cost of the time they put into the recruitment process. You may even need to hire additional staff to assist with your international hiring efforts.
- Travel:If you’re setting up an office, retail store, or manufacturing facility in Malaysia, you should plan to conduct some extensive traveling back and forth during the setup process. Even if you’re just hiring remote employees in Malaysia, you may want to travel there to conduct interviews or attend other events.
- Translator:Depending on the language your job candidates speak, you may need to procure a translator to attend interviews or assist with other communications. You do not need a translator to draft business registration documents since these are allowed to be in English.
- Paid job ads: Posting job ads on online job portals or in industry publications can come at a cost.
- Background checks: Employers in Malaysia are free to order background checks on applicants as part of the pre-employment process. If you plan to pay a company to handle background checks, factor this into your hiring costs.
What does a company need to hire employees in Malaysia?
Reading a guide to hiring employees in Malaysia isn’t all you need to successfully begin the recruitment process. Before you can legally employ Malaysian workers, you first need to become a Malaysian employer. You can choose to establish a branch or subsidiary office. To set up a subsidiary, you need to:
- Draft and submit incorporation documents
- Register an office location
- Open a commercial bank account in Malaysia
- Register for payroll tax and for Goods and Service Tax (GST)
- Enroll with the Malaysian social security office (SOCSO)
A simpler alternative to establishing an entity is to partner with an Employer of Record (EOR), also known as a professional employment organization (PEO). An EOR is responsible for ensuring your company is compliant with all the relevant laws in Malaysia and takes care of HR tasks like payroll enrollment and benefits packages.
When you work with an EOR, you can still select your own employees, and these employees will carry out work for your company, but your EOR will technically be their employer. This means you can avoid establishing a Malaysian entity yourself, and you can pass off HR and legal compliance responsibilities to the EOR. This solution allows you to start hiring much faster. Even if you’re considering establishing a subsidiary in Malaysia, working with an EOR initially can be an excellent way to test the market before you commit more fully.
Steps to hiring in Malaysia
Your methods of hiring in your home country won’t translate perfectly to Malaysia. Hiring practices in Malaysia are shaped by local laws, resources, and customs. Let’s look at the basic steps for how to hire in Malaysia.
1. Advertise job positions
Start by writing job descriptions and required qualifications to advertise your job positions in Malaysia. You can write your ads in Malay or in English if you want to target job seekers who are proficient in English. Once you’ve completed your job ads, you should determine which platforms your target audience is most likely to see them on.
With an internet penetration rate of over 90 percent, Malaysians are used to looking for jobs online. Some job portals that are especially popular in the country include JobStreet, WOBB, Sling, adnexio, and LinkedIn. You can also look for industry-specific job boards or publications where you can advertise your job positions.
2. Review applications and narrow down the pool
Malaysians are used to submitting one- or two-page curricula vitae (CVs) and cover letters to apply for jobs. If you publish your job ad in both English and Malay, you may receive applications in both languages. Your recruiting agency or your internal hiring committee will filter through all incoming applications, likely with the help of software, to select the most qualified applicants.
3. Interview the most qualified applicants
In years past, interviewing internationally meant traveling to the country or interviewing through a phone call. If you’re hiring employees to work at a physical office, manufacturing facility, or another type of company location in Malaysia, then in-person interviews are still a good idea. For remote employees, video calls have also become a popular interview method. An internet video call allows you to replicate the visual feedback you get when you’re sitting across the table from someone face-to-face without having to travel to the country.
If you’re scheduling phone or video call interviews, make sure you factor in any possible time difference between your location and the interviewee’s. Malaysia’s time zone is Malaysia Time (MYT), which is eight hours ahead of Coordinated Universal Time (UTC).
4. Send offer letters and employment contracts
Once you’ve selected the most qualified applicants, you can send out offer letters. This is a good time to share a draft of each applicant’s employment contract, as well. If you plan to employ someone in Malaysia for more than a month, you are legally required to have a written employment contract in place.
According to the Employment Act, employment contracts must include a provision for termination. Other terms are up to the employer, but they must be consistent with or more favorable than the conditions employees are entitled to under the Employment Act. Make sure you state the salary in terms of Malaysian Ringgit.
There may be some negotiations with job candidates during this stage before you can finalize their contract and have them sign. If their hiring is subject to the results of a background check, make sure that is clear and have them sign only after you’ve received the results.
5. Onboard new employees
Onboarding procedures will look a bit different for every company, but onboarding is an important step in the hiring process for all companies. This is when employees will fill out paperwork to help you establish payroll and add them to your internal systems. Onboarding should also involve some training or general preparation to support employees as they begin their roles with your company.
Hire with ease with Globalization Partners as your EOR in Malaysia
If you want to hire Malaysian employees, eliminate the headaches of subsidiary establishment, international HR tasks, and legal compliance by partnering with Globalization Partners. As a global EOR solution with a presence in Malaysia and over 185 additional countries, we can serve as your employees’ legal employer. Learn more about our EOR solution in Malaysia to determine whether partnering with an EOR is the best option for your international hiring plans.