One of the most challenging parts of expanding to a new country is figuring out the right compensation and benefits for all your employees. This process involves following Malaysia’s compensation laws and determining which benefits are the statutory minimum and which are additional. G-P can take the stress of Malaysia benefit management off your hands. When you outsource with us, we’ll make sure you offer competitive benefits packages and stay compliant with all of Malaysia’s compensation laws.
Malaysia Compensation Laws
The government of Malaysia increased the country’s minimum wage to RM 1,500 on 1 January 2023. According to the government announcement, employers in all sectors regardless of region, who employ five or more employees must adhere to the country’s minimum wage requirements. The government also stated that employers with less than five employees will be exempt from minimum wage requirements. This exemption will remain in place until 1 July 2023.
Guaranteed Benefits in Malaysia
If you decide to handle benefits yourself instead of Malaysia benefit outsourcing, you must make sure every employee gets the guaranteed benefits required by law. These benefits include paid annual leave based on how long the employee has worked for the company. For example, employees with fewer than two years of service get eight days of vacation for each year worked. Employees with five or more years of service get 16 days off for each year.
All employees are covered by Malaysia’s universal healthcare system, which is funded through both employee and employer taxes. Effective September 2022, Female workers also get no less than 98 consecutive days of maternity leave and are entitled to a maternity allowance. Their leave can start anytime within 30 days before their expected due date. A male employee who has been legally married and who has completed no less than 12 months of continuous service will be entitled to 7 consecutive days of paid paternity leave on the day of birth or immediately after the birth of his legal child.
Malaysia Benefits Management
Part of employee benefits management is identifying any common benefits not required but often expected by employees. For example, a 13th-month bonus is not legally required, but employers commonly give one. Performance-based bonuses are also not mandated by law, but employees often expect them.
The public health care system often has long waits, leaving employees in Malaysia to pay higher premiums for private health insurance. Some employers offer group private health insurance, group life insurance, and group accident insurance as a monthly allowance for employees.
Restrictions for Benefits and Compensation
Another crucial part of Malaysia compensation laws is learning the restrictions for benefits and pay. Malaysia’s employment law falls under the Employment Act of 1955, so it’s essential to understand this law before doling out compensation and benefits.
G-P’ Malaysia benefit outsourcing services can help. We’ll source the best benefits for your employees and make sure they get more than just the guaranteed minimums. Then, with our Malaysia compensation outsourcing help, we’ll make sure your employees are paid on time and that you meet all employment and compensation laws.
Malaysia Competitive Benefits Plan
Your benefits plan is one of many aspects you’ll need to consider as your company grows in a new country.
Malaysia employee benefits plans
Your success abroad will rely on many factors, and your benefits plan will play a significant role. While the provisions you offer your employees need to meet the country’s labor regulations, they’ll also show your workers you care about their well-being. This representation in the workplace can improve employee morale and increase retention.
The benefits you provide outside of the labor laws will also make your plan more competitive in the labor market. Possible supplemental benefits and perks include:
- Supplemental insurance
- Transportation allowance
- Telecommuting opportunities (remote working)
- Training and certification programs
- Holiday bonuses
As an employer, you are legally responsible for providing the benefits described in the country’s labor laws. In Malaysia, these requirements include:
- Paid annual leave
- Maternity leave
- Provident fund contributions
- Paid public holidays
- Sick leave and hospitalization leave
- Layoff and severance benefits
Paid annual leave
Annual leave provisions change depending on the amount of time an individual has worked for an employer. For example, employees who have served for less than two years receive eight days of paid leave each year, while employees who have worked more than two years earn 12 days in a year. Employees who have worked for more than five years earn 16 days each year.
Employees are entitled to maternity leave if they meet the following criteria:
- They have been employed for less than or amounting to 90 days during the nine months immediately before their confinement
- They have been employed at any time in the four months immediately before their confinement
They are also entitled to maternity allowance, which is the employee’s regular monthly salary.
In the Malaysian Budget 2020, the government proposed 90 days of maternity leave for private-sector employees. The new ruling is in effect as of January 2021.
Provident fund contributions
The Employment Provident Fund (EPF) covers pension funds and allows employees to withdraw their savings for specific purposes, such as buying a house or for medical reasons. It acts as a savings fund with contributions made by employees and their employers.
Employees contributed at a rate of 11 percent of gross worldwide income.
- 12 percent of their employees’ gross monthly wages for employees earning above MYR 5,000 per month
- 13 percent for employees earning less than MYR 5,000 per month.
This contribution is optional for international employees and mandatory for all Malaysians and permanent residents.
Paid public holidays
In Malaysia, there are 18 gazetted public holidays. Notable holidays include:
- National Day
- The Birthday of the Yang di-Pertuan Agong
- The Birthday of the Ruler or the Yang di-Pertua Negeri (based on the state the employee works in)
- Malaysia Day
- Workers’ Day
Sick leave and hospitalization leave
An employee is entitled to sick leave days that are approved by a registered medical practitioner:
- 14 days every year if they have been employed for less than two years
- 18 days every year if they have been employed for two years or more but less than five years
- 22 days every year if they have been employed for five years or more
If the employee requires hospitalization, an additional 60 days will be provided. Employees are entitled to their regular pay rate for each day of their sick leave, including hospitalization.
Layoff and severance benefits
Layoff benefits are determined by the employee’s length of service:
- 10 days’ wages for each year of employment if the employee has been employed for less than two years
- 15 days’ wages for each year of employment if the employee has been employed for two years or more but less than five years
- 20 days’ wages for each year of employment if the employee has been employed for five years or more
Employers are required to pay the layoff benefits to their employees no later than seven days after the relevant date or payroll date.
Designing Malaysian Employee Benefit Plans
Designing your benefits plan can be challenging because you have to meet your employees’ needs without overextending your company’s resources. If you follow through with the proper steps, you can strike a balance between your company and your workers.
1. Determine company budget and goals
When you understand your income and expenses, you can determine how much to allocate to your benefits budget. Make sure to estimate payroll expenses, inventory requirements, and company taxes.
You should also consider your company goals and how your use of benefits can support them. For example, if you want to focus on retention, you might opt for more benefits and a smaller workforce.
2. Research employee needs and expectations
If you learn about which benefits are priorities for job seekers, you can make more intentional decisions about your company’s offerings. You can learn about these needs by conducting surveys or interviews of employees in your area.
It’s also helpful to research other companies in your industry to see what fringe benefits they offer. Providing similar perks can make your business more competitive.
3. Create a plan
With the information you’ve gathered, you can find a balance between your resources and what your employees need. Start by allocating funds to the required provisions, then spend your remaining budget on benefits as you see fit.
The average cost of benefits
The cost of benefits changes from company to company based on size and budget. Other factors can also affect benefits spending, such as location and industry. You will have to determine a budget based on your unique needs.
How to calculate benefits
Benefits calculations will vary depending on the benefits you offer. The required provisions described in the labor laws include some guidance on how to calculate the minimum benefits, including pension contributions.
Employees must contribute 11 percent of their monthly paychecks to the Employees’ Provident Find (EPF). Employers must contribute 12 to 13 percent depending on income, and the required employer contributions are subject to change.
How are employee benefits taxed in Malaysia?
The tax authority categorizes benefits as a type of employment income, so they are subject to taxation. The country uses a tax system called benefits-in-kind (BIK) to determine the value of noncash benefits.
The formula for BIK is the cost of the asset provided as a benefit divided by the number of years the asset is expected to last. This formula creates the annual value for a benefit, and this is the number employees must factor into their income for taxation.
All benefits in kind are taxable; however, the Inland Revenue Board of Malaysia provides for the following exemptions:
- Dental benefit
- Childcare benefit; Childcare centers provided by employers
- Food and drink provided free of charge
- Free transportation between pickup points or home and work
- Obligatory insurance premiums for international workers in replacement of SOCSO
- Group insurance premium covering workers in event of accidents
- Leave passage
- Benefits used by the employer to perform employment duties
- Discounted price for consumable business products or services of the employer
- Benefits and monthly bills for fixed line telephones, mobile phones, and broadband subscriptions
- Medicine and maternity
- Benefit on free petrol, such as petrol cards and bills, up to RM 6,000
Employee health benefits
Taxes fund health care in Malaysia, making most services free to citizens and permanent residents. Employers are not required to provide medical insurance for this reason; however, the free healthcare system does not extend to all types of services. Dental care is not covered, for example. Employers may provide a supplemental insurance scheme to fund this care as well as health visits to private facilities.
Work with G-P for employee benefits planning in Malaysia
At G-P, our legal and HR experts offer the guidance you need for benefits planning. Get in touch with us to learn more.