Malaysia – Employer of Record / PEOReading Time: 7 minutes
Globalization Partners provides PEO and employer of record services in Malaysia for clients that want to hire employees and run payroll without first establishing a branch office or subsidiary. Your candidate is hired via Globalization Partners’ Malaysia PEO in accordance with local labor laws and can be onboarded in days instead of the months it typically takes. The individual is assigned to work on your team, working on your company’s behalf exactly as if he or she were your employee to fulfill your in-country requirements.
Table of Contents
- Hiring, Negotiating and Doing Business in Malaysia
- Employment Contracts in Malaysia
- Working Hours in Malaysia
- Vacation Leave in Malaysia
- Sick Leave in Malaysia
- Maternity and Paternity Leave in Malaysia
- Termination of Employment and Severance in Malaysia
- Employment Taxes in Malaysia
- Health Insurance Benefits in Malaysia
- Additional Benefits in Malaysia
- Public Holidays in Malaysia
- Why Globalization Partners
Our Global Employer of Record Platform™ and Global PEO service enables clients to run payroll in Malaysia while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a Global PEO expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Malaysia.
Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. Globalization Partners allows you to harness the talent of the brightest people in 170 countries around the world, quickly and painlessly.
Hiring, Negotiating and Doing Business in Malaysia
When negotiating terms of an employment contract and offer letter with an employee in Malaysia, it may be useful to keep the following standard benefits in Malaysia in mind:
Employment Contracts in Malaysia
It is best practice is to put a strong employment contract in place in Malaysia, in the local language, which spells out the terms of the employee’s compensation and benefits, in addition to the above-mentioned termination requirements. An offer letter and employment contract in Malaysia should always state the salary and any compensation amounts in Malaysian Ringgit rather than a foreign currency. The employment contract template is part of the service with Globalization Partners; no need to draft a separate template if you use our employer of record and PEO service in Malaysia.
Working Hours in Malaysia
The Malaysia workweek is 40 hours, with a standard workday of 8 hours. Normal business hours in Malaysia are from 9 am. to 5 pm., Monday through Friday. Workers are entitled to one rest day for every 6 days worked, and cannot be compelled to work on that rest day.
Work hours should not exceed more than 48 per week. If employers request extra hours, they must pay 1.5 times the employee’s regular wages.
Vacation Leave in Malaysia
Employees in Malaysia are entitled to paid annual leave, with the total amount dependent upon their tenure with the company. Annual leave entitlement is as follows:
- For less than 2 years of service: 8 days for each year of service.
- For more than 2 years but less than 5 years of service: 12 days for each year of service.
- For 5 years or more of service: 16 days for each year of service.
When an employee has not completed 12 months of continuous service with the same employer, the employee’s entitlement to paid annual leave is proportionate to the number of completed months of service.
Male employees who complete 3 years of service with a company can take paid religious leave not exceeding 30 days (including holidays). Such leave is permitted only one time per person. Upon returning from religious leave, the employee must submit a certificate issued by the sacred place to his supervisor within 7 days.
Sick Leave in Malaysia
Employment law in Malaysia falls under the Employment Act of 1955. Employees who have a contract and whose wages do not exceed RM 2,000.00 per month and those who are involved in specific work such as manual labor and vehicle operation are covered by this Act and are known as EA Employees. All other employees are not covered by the Act.
EA Employees are entitled to paid sick leave in accordance to their length of service with the company:
- Less than 2 years of service: 14 days
- More than 2 years, but less than 5 years of service: 18 days
- More than 5 years of service: 22 days
EA Employees may also be eligible for 60 days of paid sick leave per calendar year if hospitalization is necessary, but they must provide a medical certificate. Any employment agreement with an EA Employee which attempts to fix less favorable terms than what is provided in the EA will not be enforceable.
If no medical certificate is presented or the employer is not informed about the sick leave within 48 hours, the employee will be considered absent without permission, which is a possible justification for termination of employment.
Workers who are not covered by the Employment Act receive sick leave benefits as stated in their employment contracts or in the company’s policy.
Maternity and Paternity Leave in Malaysia
Female employees are entitled to maternity leave for a period of not less than 60 consecutive days, and they are entitled to a maternity allowance.
Maternity leave may commence anytime within 30 days prior to the expected birth date, but cannot be later than the day immediately following the birth.
Female employees qualify for maternity allowance if they have fewer than 5 surviving children and have been employed for at least 60 days in the 3 months immediately preceding the birth.
Employees paid on a monthly pay rate will receive a monthly allowance based on their monthly wages. Otherwise, the maternity allowance is the ordinary rate of pay for one day or RM6 per day, whichever is higher, for 60 consecutive days.
While there is no statutory paternity leave, in practice most companies allow fathers to take between one and 14 days off.
Termination of Employment and Severance in Malaysia
Probationary periods are typically between 1 and 3 months in Malaysia. The initial probationary period may be extended for a further 1-3 months. The employee must be informed of the extension in writing before the end of the initial period.
An employee may resign by giving notice of resignation or termination to the employer.
An employer may also dismiss an employee by giving notice of termination. In both situations, the length of notice is the same, pursuant to the employment contract. Where the period of notice of termination is not specified in the employment contract, the notice period shall be:
- Less than 2 years of service: minimum 4 weeks
- 2 years or more but less than 5 years of service: minimum 6 weeks
- 5 years of service or more: minimum 8 weeks
It is possible for either the employer or employee to terminate the employment contract without giving notice by paying the other party an indemnity in lieu of notice.
An employee is not entitled to termination or lay-off benefits under the following circumstances:
- Employed for less than 12 months on date of termination.
- The contract of service is renewed or the employee re-engaged on terms and conditions not less favorable than his previous contract.
- The employer offered to renew the contract on no less favorable terms 7 days before the date of termination.
- After receiving due notice of termination of contract, the employee leaves service without employer’s prior consent or without paying the employer the indemnity due in the contract of service.
Employment Taxes in Malaysia
Residents of Malaysia must pay income tax on gross worldwide income (after deduction of tax reliefs) at rates between 0% and 28%. As of 2016, the top rate of personal income tax in Malaysia is 28 percent and applies to income greater than MYR 1,000,000.
The Malaysian Social Security system is called SOCSO and provides financial assistance to employees and their families in the event of an accident resulting in death, disability, or illness. SOCSO provides two types of insurance: Employment injury and Invalidity pension scheme.
SOCSO is funded by contributions from both employers and employees. The amount paid into the scheme depends on an employee’s monthly earnings. The contributions are calculated at 0.5% of the employee’s monthly wages for the employee, and the employer contributes 1.75% of the monthly payroll.
The Employment Provident Fund covers pension funds but also allows employees to withdraw their savings for specific purposes like buying a house or for medical reasons. The EPF essentially acts as a savings fund with contributions made by employees and their employers. Employees must contribute to the EPF at a rate of 11% on gross worldwide income. Employers contribute 12% of their employees’ gross monthly wages to the EPF for employees earning above MYR 5,000 per month, and 13% for employees earning less than MYR 5,000 per month. This is optional for foreign employees and is mandatory for all Malaysians and Permanent residents.
Health Insurance Benefits in Malaysia
Malaysia has compulsory universal healthcare which is funded through payroll taxes and the general budget. Private health care is also available. The public healthcare system in Malaysia is quite good, but often has long lines, which is why some prefer to pay a premium for private healthcare.
Additional Benefits in Malaysia
The 13th-month bonus is not legally required but is common. Performance-based bonuses are also common in Malaysia. Some companies also offer Group Private Health Insurance, Group Life Insurance and Group Accident Insurance. Globalization Partners does not have a Group Private Health Insurance, Group Life Insurance, or Group Accident Insurance. If you would like to offer these benefits, we recommend negotiating a monthly allowance with the employee.
Public Holidays in Malaysia
Every employee in Malaysia is entitled to no less than 13 traditional holidays per year, as follows:
- Awal Muharram
- Chinese New Year (2 days)
- Prophet Muhammad’s Birthday
- Labour Day
- Vesak Day
- Birthday of Seri Paduka Baginda Yang di-Pertuan Agong
- Independence Day (Hari Merdeka)
- Hari Raya Puasa (Eid al Fitr)
- Malaysia Day (Hari Malaysia)
- Christmas Day
- Hari Raya Haji (Eid al Adha)
If a public holiday falls on a rest day, the working day immediately following the rest day shall be a paid holiday in substitution.
Why Globalization Partners
It can be challenging to figure out how to set up a subsidiary or branch office in Malaysia, which historically was the first and most complex part of hiring an employee in Malaysia. Globalization Partners’ Global Employer of Record Platform makes it easy to hire employees in Malaysia with minimal time and expense. We put your employee on our locally compliant payroll and you get a simple monthly invoice. We can also process expense reports, take care of personal income tax issues, and set up the employee’s statutory local benefits in Malaysia with the streamlined ease of a company that has done it hundreds of times before, enabling you to skip the difficulty of creating a subsidiary and instead focus on your business.
If you would like to discuss how Globalization Partners can provide a seamless employee leasing or PEO solution for hiring an employee in Malaysia, please contact us at sales@globalization‐partners.com.