Hiring in Malaysia through an Employer of Record (EOR)

Discover an employer’s guide to employment laws, regulations, and Employer of Record (EOR) services in Malaysia.

Ready to hire in Malaysia? An EOR can help

Want to expand your business into Malaysia? An Employer of Record (EOR) service can help.

An EOR becomes the legal employer of your Malaysian team, handling hiring, payroll, benefits, and compliance. This means you don’t have to set up a whole new entity there.

EORs take care of the complicated Malaysian employment laws, so you can focus on growing your business.

How to hire in Malaysia 

Step 1: Decide between an entity and an EOR

When hiring in Malaysia, you can either establish a local entity or take advantage of an Employer of Record (EOR) service.

Creating a local office involves a significant investment of time, money, and effort. The process includes registering your business with the Malaysian authorities, appointing directors, and managing complex tax regulations. This can extend over several weeks or even months, potentially delaying your hiring schedule.

Though setting up a local entity gives you extra control over your HR function, you will be directly responsible for adhering to all local employment laws and regulations.

Using an EOR service can help you circumvent the complexities of Malaysian labor laws. This approach enables you to quickly bring new employees on board and automate key HR tasks. You’ll still retain control of your operations.

If your goal is to hire a substantial number of employees and establish a robust presence in Malaysia, creating a local entity might be more beneficial. Conversely, if you want a faster and more straightforward hiring process, an EOR offers a more efficient solution.

Step 2: Finding an EOR

A poor choice of EOR can lead to compliance issues, unnecessary costs, and a subpar experience for your new employees. Here’s what you should consider:

• Legal compliance. Make sure the EOR has a thorough understanding of Malaysia’s labor laws, employee protections, tax regulations, and local benefits. Review their track record and inquire about their experience with industry-specific cases.
• Customer service. Evaluate whether the EOR offers continuous support and provides dedicated account managers for each client. For example, Multiplier offers 24/7 personalized support and assigns dedicated managers to each account.
• Transparent pricing. Be cautious of EOR services that advertise low initial costs but have hidden fees or complicated pricing structures. Ensure you understand all associated costs upfront before making a decision.
• Total cost of ownership. Opting for the lowest price isn’t always the best strategy as inexpensive solutions can end up being more costly if they are ineffective. When choosing an EOR, ensure you are investing in a quality service that fits your budget without sacrificing essential features.

Step 3: Employing and onboarding in Malaysia

Send over a contract

Once you have selected the ideal candidate, you need to send a locally compliant employment contract. Multiplier can draft these contracts in line with Malaysian law within minutes. You can customize the terms to include job duties, working hours, salary, and termination conditions.

After the contract is finalized, the EOR will securely send it to the candidate and ensure all necessary signatures are obtained.

Enhance compensation with competitive benefits

An EOR can help you offer an attractive benefits package. Instead of dealing with local vendors yourself, it can provide various locally managed benefits options. Multiplier also ensures that employees receive the necessary IT equipment to start working effectively.

Get all your documentation in order

Gathering the new hire’s tax and banking information is essential. If you’re using an EOR like Multiplier, this data will be automatically collected to set up payroll. The EOR will manage all required documentation, making the process smooth and free of paperwork hassles.

Onboarding employees in Malaysia might seem challenging at first, but with the assistance of an EOR, the process can be straightforward and stress-free.

Step 4: Run payroll for employees based in Malaysia

Managing payroll for employees in Malaysia requires attention to local tax regulations and mandatory contributions. The Malaysian tax system is progressive, with rates ranging from 0% to 30% based on income levels.

Employers also need to handle several obligatory contributions, such as the Employees Provident Fund (EPF) and the Social Security Organization (SOCSO).

The EPF is Malaysia’s primary retirement savings scheme. It’s designed to ensure that employees have financial security for their retirement years. Employers must contribute a specified percentage of each employee’s salary to their EPF account, helping them prepare for future financial needs.

SOCSO provides coverage for work-related injuries and diseases. Employers contribute to this fund, which assists with medical expenses and compensates employees who suffer from work-related health issues.

Using an EOR like Multiplier simplifies payroll management. We ensure timely and accurate salary payments while managing all local taxes and contributions.

With Multiplier’s global payroll solution, you can handle payroll for all your international employees from a single platform, eliminating the hassle of coordinating with multiple local providers.

Employment laws and regulations in Malaysia

Malaysia’s employment laws are structured to safeguard employee rights and establish a fair labor environment. Key aspects include:

• Employment contracts. Employers in Malaysia can utilize both fixed-term and indefinite-term contracts. Although written contracts are not mandatory, they are highly recommended to avoid legal disputes. These contracts should clearly specify job duties, salary, working hours, and conditions for termination.
• Working hours and overtime pay. The standard workweek in Malaysia is set at 48 hours, with overtime pay required for hours worked beyond this limit. Employees are entitled to a minimum of one hour of rest after every five consecutive hours of work.
• Termination of employment. Termination procedures must adhere to legal requirements, including providing adequate notice and, in some cases, severance pay, depending on the length of employment. Employees have the right to claim compensation for wrongful dismissal.
• Employees Provident Fund (EPF). Employers are required to contribute to the EPF, which provides retirement savings for employees. Both employers and employees contribute a fixed percentage of monthly salaries to the EPF.

Employee benefits and compensation

In Malaysia, labor laws mandate several standard employee benefits, including:

• Annual leave. Employees are entitled to a minimum of eight days of paid annual leave after completing one year of service. This leave entitlement increases with longer tenure.
• Sick leave. Employees are entitled to up to 14 days of paid sick leave per year. For absences exceeding 14 days, employers are required to provide sick leave if shown a medical certificate.
• Parental leave. Malaysia provides 90 days of paid maternity leave, which is fully covered by the employer. Paternity leave is available for up to seven days, though it is generally unpaid.
• Public holidays. Employees are entitled to paid leave on national public holidays, which are observed throughout Malaysia.
• Retirement benefits and workplace security. Employers must contribute to the EPF, a retirement savings plan, and SOCSO, which provides coverage for work-related injuries and diseases.

Employers often go beyond these statutory requirements by offering additional perks to attract and retain top talent. For tailored and competitive benefits solutions, consider leveraging services like Multiplier’s Global Benefits Administration which ensures compliance and provides a comprehensive benefits package for your international employees.