How to Hire in Malaysia: Complete Employer Guide (2026)

Malaysia has a labor force of 16.8 million workers with a national minimum wage of RM 1,500 per month (effective May 2022). Employers must comply with the Employment Act 1955 (as amended in 2022), register with the Employees Provident Fund (EPF), SOCSO, and the Inland Revenue Board (LHDN). This guide covers every aspect of hiring in Malaysia from legal framework to payroll processing.

What Are the Hiring Options for Foreign Companies in Malaysia?

Foreign companies can hire in Malaysia through four structures. Entity registration with the Companies Commission of Malaysia (SSM) takes 2-4 weeks. An EOR provides immediate hiring capability without entity setup.

An EOR in Malaysia handles EPF, SOCSO, EIS, and PCB tax deductions. The EOR registers as the legal employer with Malaysian authorities. A PEO in Malaysia provides co-employment where the client company retains more operational control.

What Employment Laws Govern Hiring in Malaysia?

The Employment Act 1955 was significantly amended in 2022, expanding coverage to ALL employees regardless of salary (previously limited to those earning RM 2,000 or less). Key changes include: reduced maximum working hours from 48 to 45 hours per week, flexible working arrangement rights, extended maternity leave from 60 to 98 days, and new protections against discrimination.

Additional governing legislation includes the Industrial Relations Act 1967 (trade unions and disputes), the Minimum Wages Order 2022, the Employment Insurance System Act 2017, and the Personal Data Protection Act 2010. Sabah and Sarawak have separate labor ordinances with minor differences.

What Types of Employment Contracts Are Used in Malaysia?

Malaysian law does not prescribe specific contract categories like some Southeast Asian countries. Employment is either permanent (no fixed end date) or fixed-term (specified end date). Contracts must be in writing for employees covered under the Employment Act 1955. Key contract clauses include job title, salary, working hours, probation period, notice period, and benefits.

Minimum statutory notice periods under the Employment Act 1955: 4 weeks (less than 2 years service), 6 weeks (2-5 years), and 8 weeks (5+ years). Contracts may specify longer notice periods. Probation periods of 3-6 months are standard practice; employees on probation have the same statutory protections as confirmed employees.

What Are the Mandatory Employer Costs in Malaysia?

Malaysian employer contributions are primarily driven by EPF, SOCSO, EIS, and the Human Resource Development Fund (HRDF). Total statutory burden ranges from 15-17% of gross salary depending on employee age and citizenship.

The EPF (KWSP) is Malaysia's mandatory retirement savings. Employers contribute 13% for employees earning above RM 5,000 (12% for RM 5,000 and below). Foreign workers are exempt from mandatory EPF but must contribute to SOCSO and EIS. For headhunting services, see top headhunting companies in Malaysia.

How Does Payroll Work in Malaysia?

Malaysian payroll runs monthly. Employers must pay wages by the 7th of the following month under Section 19 of the Employment Act 1955. Statutory deductions include EPF, SOCSO, EIS, and PCB (Potongan Cukai Berjadual, or scheduled tax deduction).

Malaysia uses the Monthly Tax Deduction (MTD/PCB) system administered by the Inland Revenue Board (LHDN). Employers calculate PCB using the Jadual PCB tables or e-PCB calculator. Annual tax filing (Form BE for residents) is due April 30. Non-residents are taxed at a flat 30% with no personal reliefs.

What Work Permits Do Foreign Employees Need in Malaysia?

Foreign professionals need an Employment Pass (EP) from the Immigration Department. Malaysia offers multiple pass categories depending on the role, salary, and duration.

Applications go through the Expatriate Services Division (ESD) or MyXpats system. Processing takes 5-14 business days. Employers must demonstrate that the position cannot be filled by a Malaysian national. Companies in the Multimedia Super Corridor (MSC) have expedited EP processing through MDEC.

What Are the Termination and Retrenchment Rules in Malaysia?

Malaysian employment law requires just cause for termination. The Industrial Court evaluates whether dismissal is with "just cause or excuse." Retrenchment follows the Last In, First Out (LIFO) principle and requires LIFO compliance reporting to the Manpower Department.

Retrenchment benefits under the Employment (Termination and Lay-Off Benefits) Regulations 1980: 10 days wages per year (less than 2 years service), 15 days wages per year (2-5 years), 20 days wages per year (5+ years). Employers must report retrenchments to the Employment Insurance System within 30 days.

What Are the Leave Entitlements in Malaysia?

The Employment Act 1955 (post-2022 amendment) mandates minimum leave entitlements that increase with tenure.

The 2022 amendment to the Employment Act 1955 introduced 7 days paternity leave (previously no statutory entitlement) and increased maternity from 60 to 98 days. Employers with 5+ employees must also accommodate flexible working arrangement requests in writing within 60 days.

What Are the Salary Benchmarks in Malaysia?

Malaysia's minimum wage is RM 1,500/month nationwide (employers with fewer than 5 employees are exempt). Professional salaries in Kuala Lumpur and Selangor are 15-30% higher than other states.

Penang is the semiconductor and electronics manufacturing hub, with higher demand for engineering roles. Johor (Iskandar Malaysia) attracts logistics and manufacturing talent. For executive search in Malaysia, C-level roles command RM 20,000-50,000+ monthly.

What Is the Step-by-Step Process to Hire in Malaysia?

Step 1: Choose hiring structure. Register a Sdn Bhd with SSM (2-4 weeks) or engage an EOR (3-5 days). Step 2: Draft a written employment contract with EA 1955 compliant terms. Step 3: Register the employee with EPF, SOCSO, EIS, and LHDN. Step 4: Set up monthly payroll with correct PCB, EPF, SOCSO, and EIS calculations. Step 5: Apply for Employment Pass if hiring foreign workers (5-14 business days). Step 6: Conduct onboarding and register with HRDF if applicable.

For teams of 1-15 people, starting with an employer of record in Malaysia avoids SSM registration, eliminates direct liability for employment disputes, and reduces time-to-hire from weeks to days.

Frequently Asked Questions

Can a foreign company hire directly in Malaysia without an entity?

No. Under Malaysian law, only a locally registered entity can employ workers. Foreign companies use an EOR or register a Sdn Bhd (private limited company) with SSM.

Do foreign workers contribute to EPF?

Foreign workers are exempt from mandatory EPF contributions. However, they must contribute to SOCSO and EIS. Voluntary EPF contributions are permitted for foreign workers with Employment Pass Category I.

What changed with the 2022 Employment Act amendments?

Key changes: maximum working hours reduced from 48 to 45 per week, maternity leave increased to 98 days, 7 days paternity leave introduced, coverage expanded to all employees regardless of salary, flexible working arrangement requests formalized, and anti-discrimination provisions added.

How long does it take to get an Employment Pass?

Standard processing through MyXpats takes 5-14 business days. MSC-status companies may get faster processing. Category III (lowest salary bracket) is the most restrictive and may take longer due to additional scrutiny.

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