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Hiring Employees in Malaysia

Key Takeaways

  • Understand employment laws: Be aware of the employment laws in Malaysia.
  • Advertise the job: Advertise on popular job sites, newspapers, or recruitment agencies in Malaysia.
  • Interview and select: Conduct interviews and select the suitable candidate.
  • Prepare an employment contract: Prepare a contract in accordance with the Employment Act, detailing terms of employment, and conduct an onboarding process.

Malaysia is a leading international location for business expansion —  ranked 12th in the world for Ease of Business. Additionally, as an innovation capital, Malaysia possesses a highly-skilled and educated workforce.  

In this guide, we set out the key things an international business needs to know when hiring employees in Malaysia.

What Are the Key Things to Know Before Hiring Employees in Malaysia?

Hiring employees in any country requires understanding of the local laws and practices. Here are some important things to know when hiring employees in Malaysia:

  1. Employment Act 1955: This act is the primary legislation that governs the employment of employees in Malaysia. It outlines the rights and obligations of both the employer and the employee, such as working hours, leave, termination, and protection against sexual harassment and discrimination.
  2. Work Permits: Foreigners need a valid work permit or visa to work in Malaysia. There are several types of work permits depending on the nature of the job and the qualifications of the applicant.
  3. Employment Contracts: Employment contracts are mandatory and should be in writing. They should clearly specify the terms and conditions of employment, such as job description, salary, benefits, working hours, leave entitlements, and termination procedures.
  4. Minimum Wage: As of 2023, Malaysia has a minimum wage of RM1,500 per month for private sector companies employing at least five workers. However, the actual minimum wage may vary depending on the region and the industry. 
  5. Working Hours: The typical working week in Malaysia is 48 hours, spread over 6 days.
  6. Social Security: Employers are required to make mandatory contributions to the Employees Provident Fund (EPF) and Social Security Organization (SOCSO) for each employee.
  7. Leave Entitlements: Employees are entitled to annual leave, sick leave, and maternity leave. The exact entitlements depend on the length of service and other factors.
  8. Termination and Retrenchment: The Employment Act specifies the notice period and compensation for termination or retrenchment.
  9. Non-Discrimination: Malaysia does not have specific anti-discrimination legislation, but the Employment Act prohibits sexual harassment in the workplace.
  10. Cultural Differences: Understanding the local culture is key to managing employees effectively. Malaysia is a multicultural and multi-religious country, and these cultural and religious differences should be respected in the workplace.

How Much Does It Cost to Hire Employees in Malaysia?

The cost of hiring employees in Malaysia can vary widely depending on the industry, the level of the position, the employee’s experience and skills, and other factors. Here are some components of hiring costs you should consider:

  1. Salary: The salary will depend on the position, the employee’s qualifications, and the industry average. 
  2. Employee Benefits: Beyond salary, you should consider the cost of benefits such as health insurance, bonuses, or any other perks you plan to offer.
  3. Social Security Contributions: As an employer, you are required to make contributions to the Employees Provident Fund (EPF) and Social Security Organization (SOCSO). The EPF rate is currently set at 13% for employees and 13% for employers for employees earning RM5,000 or less per month. The employer’s contribution to SOCSO depends on the employee’s wage, but it’s generally a small percentage.
  4. Recruitment Costs: This could include the cost of advertising the position, recruitment agency fees, time spent interviewing candidates, background check fees, and any other costs associated with the recruitment process.
  5. Training Costs: If the employee requires training, you should also factor in these costs. This could include the cost of training materials, hiring a trainer, or the lost productivity while the employee is being trained.
  6. Work Permit Fees: If you’re hiring a foreign worker, there will be fees associated with obtaining a work permit.
  7. Office Space and Equipment: Depending on the job, you might need to provide the employee with office space, a computer, software, a mobile phone, a company car, or other equipment.

What Are the Legal Requirements for Hiring Employees in Malaysia?

Hiring employees in Malaysia requires adherence to several key legal requirements. These are primarily governed by the Employment Act of 1955 and other relevant laws. Here are some of the main legal requirements:

  1. Employment Contract: A written contract of service must be provided for every employee. This should include details such as job title, salary, working hours, and other terms and conditions of employment.
  2. Minimum Wage: As of my knowledge cutoff in September 2021, Malaysia has a minimum wage law. You’ll need to ensure that you’re paying at least the minimum wage, which may vary depending on the region and the industry.
  3. Working Hours: The maximum working hours are 8 hours per day and 48 hours per week. If an employee is required to work overtime, they must be compensated at a higher rate.
  4. Leave Entitlements: Employees are entitled to paid annual leave, sick leave, and public holidays. Female employees are also entitled to maternity leave.
  5. Social Security Contributions: Employers are required to make contributions to the Employees Provident Fund (EPF) and Social Security Organization (SOCSO) on behalf of their employees.
  6. Termination and Retrenchment: The Employment Act provides for notice periods and compensation in case of termination or retrenchment. It also specifies the conditions under which an employee can be dismissed for misconduct.
  7. Work Permits: If you’re hiring foreign workers, you’ll need to ensure that they have a valid work permit or visa. There are different types of work permits depending on the nature of the job and the qualifications of the worker.
  8. Non-Discrimination: While Malaysia does not have specific anti-discrimination legislation, the Employment Act prohibits sexual harassment in the workplace. It’s also good practice to have a policy against discrimination on the basis of race, religion, gender, age, or disability.
  9. Health and Safety: Employers have a duty to provide a safe and healthy working environment. This includes providing necessary safety equipment and training, and complying with regulations on hazardous substances, machinery safety, etc.

These are some of the main legal requirements for hiring employees in Malaysia. However, this is not an exhaustive list and the specifics can vary depending on the nature of the job and other factors. It’s also important to note that the laws and regulations can change, so it’s always a good idea to consult with a local expert or legal counsel. 

What Are the Key ways to Hire Employees in Malaysia?

There are several ways to hire employees in Malaysia, each with its own advantages and considerations. Here are some of the most common methods:

  1. Direct Hiring: This is the most traditional method where you recruit and hire employees directly. You’d be responsible for every aspect of the employment process, including recruitment, payroll, benefits administration, tax filings, and compliance with local labor laws. For international businesses, this can be achieved by registering a local branch of your international company in Malaysia. This can also be achieved by incorporating a subsidiary in Malaysia. 
  2. Recruitment Agencies: You can use a recruitment agency to find and screen potential candidates for you. The agency can handle most of the recruitment process, but once the candidate is hired, you’d be responsible for their employment just like in direct hiring.
  3. Professional Employer Organization (PEO): A PEO is a company that provides comprehensive HR solutions for small to mid-sized businesses. When you hire through a PEO, the PEO becomes the co-employer tax purposes and insurance purposes, while the employee continues to work directly for your company. A Malaysia PEO handles HR tasks like payroll, tax filings, benefits administration, and compliance with local labor laws.
  4. Employer of Record (EOR): An EOR is similar to a PEO, with the EOR becoming the legal employer of your Malaysia workforce and taking care of payroll, tax filings, benefits, and compliance with local laws. This can be a good option if you want to hire employees in Malaysia but don’t want to set up a legal entity there.
  5. Staffing Agencies or Temporary Employment Agencies: These agencies hire employees to work on temporary assignments. The agency is the employer of record, and you pay the agency for the services of the employee.
  6. Independent Contractors: Another option is to hire independent contractors instead of employees. However, you need to be careful with this as the laws can be complex and misclassification of employees as contractors can result in penalties.

Each of these methods has its own advantages and considerations, so the best choice depends on your specific needs and circumstances. It’s also important to consult with a local expert or legal counsel to ensure that you are compliant with all relevant laws and regulations. 

What Are the Steps Businesses Need to Take to Hire Employees in Malaysia?

Hiring employees in Malaysia involves several steps, similar to hiring procedures in other countries. Here are the general steps to take:

  1. Identify Your Needs: Clearly define the job role, responsibilities, qualifications, and experience level you’re seeking. This will guide your recruitment process and help potential candidates understand what you’re looking for.
  2. Advertise the Position: You can advertise the job opening through various channels such as online job portals, newspapers, recruitment agencies, or your company’s website.
  3. Screen and Interview Candidates: Review the applications, conduct interviews, and assess the skills and qualifications of the candidates. Depending on the role and your company’s policies, you might conduct several rounds of interviews, skills tests, or background checks.
  4. Make a Job Offer: Once you’ve selected the right candidate, make a job offer. This should include details of the job role, salary, benefits, and other terms and conditions of employment.
  5. Prepare the Employment Contract: If the candidate accepts your offer, prepare a written employment contract. The contract should be in compliance with the Employment Act 1955 and should clearly state the terms and conditions of employment.
  6. Register the Employee: Register the new employee with the relevant authorities. This includes making arrangements for contributions to the EPF and SOCSO.
  7. Onboard the Employee: Provide the new employee with an orientation or training to introduce them to their role, your company’s policies, and the workplace culture.

If you’re hiring foreign workers, there are additional steps:

  1. Apply for a Work Permit: Foreign workers need a valid work permit to work in Malaysia. You’ll need to apply for the permit on behalf of the worker.
  2. Medical Examination: Foreign workers are required to undergo a medical examination in their home country before coming to Malaysia, and again within a month of their arrival in Malaysia.

Remember to consult with a local expert or legal counsel to ensure that you are compliant with all relevant laws and regulations when hiring employees in Malaysia. 

Malaysia Business Guides

FAQs

  1. Probation periods in Malaysia typically range between three to six months, but they can be extended for another three months with valid reasons. The length of the probation period should be clearly stated in the employment contract.

Yes, the termination of employment in Malaysia is governed by the Employment Act 1955. The Act outlines the notice period required for termination which is typically 4 weeks after confirmation of employment, and the conditions under which an employee can be dismissed for misconduct. Wrongful dismissal can lead to legal consequences, so it's crucial to understand and follow the regulations.

Foreign companies can hire employees in Malaysia without setting up a local entity by using an Employer of Record (EOR) or a Professional Employer Organization (PEO). These companies become the legal employer in Malaysia, handling HR tasks like payroll, tax compliance, and benefits, while the employee works for the foreign company.

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