How to Hire in Malaysia: Essential Guide for Employers

Malaysia lies in southeast Asia, and the country is known for its culture and diversity alongside a plethora of features that make the country an attractive destination for the business sector. With an estimated GDP of $415.375 billion, Malaysia is quickly growing, and as of 2021, the nation ranks as the 34th most competitive country economy in the world.

By the end of 2022, Malaysia’s GDP is expected to grow at a stable rate and end up anywhere between 5.5% to 6.5% by the Ministry of Finance Malaysia.

These tips will help you hire employees in Malaysia to take advantage of the growing market in the country.

Before you start your hiring process in Malaysia, you must learn about the basics of the Malaysian workforce and about the various employment laws that are practiced in the country. Educating yourself about these essential elements is crucial to a successful business. Basic knowledge will help you avoid making mistakes that can often arise by not following the country’s regulations.

Here are some key points you should know about before starting your foreign employee hiring process in Malaysia.

Language barrier – Malaysia is a culturally rich and diverse country and is home to various ethnic groups that co-exist in the country. Some of the most widely found groups are Malay, Chinese, and Indian. Because of this mixed culture and an indigenous population, more than 100 languages are spoken in the country. Malaysian Malay is Malaysia’s official and national language, and English is commonly used as a second language in the education sector.

If you are prepared to hire foreign employees in Malaysia who do not speak your native language, you will need a translator for various processes.

Malaysian workforce – Malaysia is home to a diverse population that is well educated compared to other Southeast Asian countries. As of 2019

• Malaysia has an adult literacy rate of 95%.
• As of 2020, an estimated 593,000 students are enrolled in higher institutions.

Some of the most popular job sectors in the country include

• IT
• Financial Services and Banking
• Manufacturing and Production
• Construction/Building/Engineering
• Education sectors

Being a multilingual and multicultural society has opened various doors for Malaysia. The country is slowly becoming one of the top locations globally for different multinational companies to settle into because of foreigners’ ease in the country.

Because of these regulations, Malaysia is home to multiple MNCs like Intel Corporation, Exxon Mobile Corporation, Panasonic Corporation, Honda Motor Co., Alphabet Inc., etc., to name a few.

Malaysia has a plethora of industries across the manufacturing and service sectors. The population provides a diverse range of skill sets that are a part of hiring staff in Malaysia.

‍Work hours and statutory leaves – The Employment Act 1955 is the primary regulatory force behind labor matters in Malaysia. The act defines a 48-hour workweek, with a maximum of 8 working hours and six working days per week.

Overtime in Malaysia is rewarded with a monetary value that is 1.5 times the standard pay rate, and employees are entitled to 1 off the day after a six-day workweek.

Overtime pay = 1.5 x (employee’s standard pay)

Employees in the country are also entitled to an annual paid vacation, and before they reach their 2-year mark in the company, they should have had received at least eight days of leave annually. After this period, the minimum day goes up to 12, and after five years, it increases to 16 days.

Employees are also entitled to

• Sick and hospitalization leave
• Maternity leave
• Public holidays
• Lay-off benefits (alternatively known as severance pay)

Compensation – Compared to other Southeast Asian countries, Malaysia has the highest minimum wage. As of 2020, the Malaysian Ministry of Human Resources declared regulations that required employers to pay at least RM 1,200 per month, or around RM 5.77 per hour.

The Malaysian workforce is accustomed to performance-based bonuses, and many international companies include these bonuses in the contracts that employees sign. Therefore, knowing about these regulations is an integral part of hiring staff in Malaysia.

Social security and taxes – Malaysian employees are taxpayers, and the country’s tax rates are progressive up to 30%. Employers withhold a part of the income tax from the employee’s paycheck under the monthly tax deduction schemes.

The Malaysian Employment Provident Fund accounts for up to 11% of the gross worldwide income. The provident fund serves as a savings account available for employees during their retirement period.

Social security and EPF depend on an employee’s earnings. The contribution amounts to 12-13% of the gross monthly income. For employees who do not qualify for the Pension scheme, contributions are made into the Employment Insurance System by the employers. ‍

Before you start your hiring process in Malaysia, it is essential to factor in the costs of operations and additional expenses to enable a smooth transition from your native country to your recruitment process in Malaysia. Some of the expenses that you should consider are:

• Company registration: As an employer hiring employees in Malaysia, you must establish an entity to start your recruitment process. Registration of a company comes with fixed legal fees that employers have to pay. ‍
• Legal assistance: As a foreigner in the country, employers need legal assistance to learn more about the laws and regulations meant to be complied with. Creating contacts within the Malaysian law sector is a great way to operate a company in Malaysia. ‍
• Recruitment fees: The recruitment process in Malaysia is often handled by recruitment agencies that charge for their services. The recruitment fees are determined by multiplying an employee’s annual salary with the agency’s commission rate, ranging between 12-35%.‍
• HR employees: If you hire a Human resources staff for your foreign employees’ recruitment process in Malaysia, you will need to hire extra staff and factor in the cost of the operations during the hiring process. Both international and local teams will add to your cost of operations. ‍
• Travel: Setting up an office in a foreign country is another aspect of the business sector that takes up a considerable chunk of time and money. Frequent traveling from one part of the country to the other during the setup process can often incur an enormous transportation cost. Even if you hire locals in Malaysia, you will need a location to conduct interviews and other events. ‍‍
• Translator: Since your setup is located in a foreign country, you might need to appoint a translator that will help you in the communication process during interviews, surveys, or everyday work situations, especially in a multilingual country like Malaysia. However, a translator is not required when you draft registration documents for your company, as these documents are allowed to be written in English. ‍
• Job advertisement: Advertisement is one of the most important factors to count in during the recruitment process in Malaysia. This helps build a pool of applicants for certain positions you are hiring for. Advertising firms in Malaysia charge a specific amount and will popularize your company.
• ‍Background checks: Employers in Malaysia are allowed to run background checks on candidates during the recruitment of employees in the country. If you are paying a company to handle the process of background checks, you can add the cost to your hiring costs.

Before legally hiring staff in Malaysia, you must become a Malaysian employer. You can either establish a subsidiary office or a branch. To open a subsidiary office, you will need to do the following:

• Prepare and present documents.

• Register a location for an office

• Register a fresh commercial bank account in the country

• Register for Goods and Service Tax and payroll tax‍

• Register with the Malaysian Social Security Office (SOCSO)

For the recruiting process in Malaysia, it is crucial to know where an employer can find the best talent. In the modern-day, job portals are an essential part of the hiring process in Malaysia, and with a large number of platforms providing these services, a vast pool of candidates are available for the picking.

Some of the most common online job portals that you can use are:

• LinkedIn
• Adnexio
• Sling
• JobStreet
• WOBB

You can also work with other recruitment agencies in the country that will screen candidates for you and save you time and effort to use somewhere else in your newly set up company. These agencies usually require a fee. However, they can be a bad investment in some cases as their candidates might not fit your expectations.

Your hiring methods in your home country won’t translate perfectly to Malaysia. Malaysia’s hiring practices are shaped by local laws, resources, and customs. Let’s look at the basic steps for how to hire in Malaysia.

The hiring process in Malaysia is different from what you are familiar with in your native country. The recruitment process in Malaysia is dependent on the local customs, laws, regulations, and resources.

These simple steps will help you learn more about the process:

1. Advertisement of job positions: You can start your employment process by writing job descriptions and stating the required criteria that you are looking for an employee in your company. You can use offline and online advertising agencies to reach a bigger crowd. You can use agencies like LinkedIn and Sling to advertise online while using local or national newspapers as an offline advertisement method.
2. Evaluate applications based on your preferences: Most Malaysians are used to submitting cover letters and one or two-page resumes when they apply for jobs. However, you can either process the evaluation processes yourself or hire an agency that will select the most suitable applicant based on the job preference.
3. Interviewing applicants: Once you select an applicant, you can inform them about the interview process. Employers in Malaysia prefer an in-person interview, but you can also take online interviews for remote employees interested in the growing ‘Work From Home’ environment. ‍
4. Dispatch offer letters and employment contracts: After selecting the most qualified applicants, you should dispatch an offer letter to them and share a draft of the work contract to educate the potential employee. The hiring process in Malaysia requires a legal written employment contract.
5. ‍Onboarding: Onboarding is an essential step in the recruitment process for all companies in Malaysia. This process involves employees filling out paperwork to help employers create payroll and add them to your company’s internal systems. Onboarding should also include general preparation and training to help employees settle into the new work culture.

If you are looking into the benefits of hiring staff in Malaysia, you will need to establish a base in the country to handle your daily objectives. However, this process can be time-consuming and overwhelming in a new country.

Partnering with Multiplier can be great for success as we will assist you with HR solutions internationally or with a local presence in the country where you wish to operate. Our team of experts will aid you in the hiring process and choose the best candidates for your company.