Expand your business into Malaysia - without an entity
Horizons provides global employment solutions for businesses wanting to hire employees and distribute payroll in Malaysia. Through our Malaysia PEO and Employer of Record, we manage your company’s payroll, benefits, and expenses in Malaysia. Additionally, we oversee HR duties, as well as employment and tax compliance.
Horizons will act as your employees’ Employer of Record, which means you can begin doing business in Malaysia without a local entity. This not only allows your business to go to market faster, but also has the potential to save your business thousands in expansion costs.
As the only Malaysia PEO with an in-house recruitment team, Horizons will source, hire, and onboard your Malaysia workforce. We hire employees in accordance with Malaysia’s labor regulations and coordinate all expense claims and benefits payments. Although we act as your employees’ Employer of Record, you still maintain full autonomy and control over all employees.
Our Malaysia PEO simplifies your expansion
Horizons enables your business to expand its operations into Malaysia – without setting up a legal subsidiary.
Horizons ensures day-to-day guidance to help your business navigate Malaysia’s labor laws and regulations. We also provide mandatory monthly payroll requirements, and absorb all local employment liabilities. Partnering with our Malaysia PEO is the quickest and most cost-effective way to enter the Malaysian market.
Employment & Labor Laws in Malaysia
📝 Malaysia employment contract types
When hiring employees in Malaysia, employers should draft concise, written contracts that detail the terms and conditions of employment. The contract provisions should always be written in both English and Malay.
Employment contracts in Malaysia should include the following provisions:
- Job description and duties
- Compensation and benefits
- Termination requirements
- Severance pay
Letters of offer and employment contracts must detail salary and compensation in the local Malaysian Ringgit (MYR).
When your business partners with Horizons’ Malaysia PEO, our in-country experts will assist you to draft letters of offer and employment contracts that comply with local employment legislation.
⏰ Working hours in Malaysia
The standard work week in Malaysia is 40 hours, with employees generally working eight hours per workday. Business hours of operation are typically from 9am to 5pm – Monday through Friday. For every six days that an employee works, he/she must receive one rest day. During an employee’s rest day, they are prohibited from working.
Employees in Malaysia should not work more than 48 hours per week. Any requested time in excess of 48 hours is payable at a rate that is 1.5x the employee’s base salary.
📅 Public holidays in Malaysia
New Year’s Day
Birthday of the Sultan of Negeri Sembilan
Birthday of the Sultan of Kedah
Chinese New Year
Chinese New Year Holiday
Federal Territory Day
Anniversary of Installation of the Sultan
Isra and Miraj
Birthday of the Sultan of Johor
Declaration of Malacca as a Historical City
Beginning of Ramadan
Birthday of the Sultan of Terengganu
The Sultan of Pahang Hol, Wesak Day
Nuzul Al-Quran Day, Mother’s Day
Hari Raya Aidilfitri
Hari Raya Aidilfitri Holiday
Birthday of SPB Yang di Pertuan Agong
George Town Heritage Day
Birthday of the Governor of Penang
Birthday of the Raja of Perlis
Arafat Day, Birthday of the Sultan of Pahang
Hari Raya Haji
Hari Raya Haji Holiday
The Sultan of Johor Hol
Birthday of the Governor of Sabah
Melaka Governor’s Birthday
Birthday of the Governor of Sarawak
Birthday of the Sultan of Perak
Birthday of the Sultan of Kelantan
Birthday of the Sultan of Kelantan Holiday
Birthday of The Sultan of Selangor
🏦 Tax in Malaysia
Malaysian residents pay income tax with rates between 0% and 28%. Income greater than MYR 1,000,000 requires a tax rate of 28%. In the event of accidental death, disability or illness to an employee in Malaysia, the Malaysian Social Security System, or SOCSO, will provide monetary assistance to the employee and their family.
SOCSO is comprised of funds that are contributed by employers and employees. The amount depends on monthly salary and is calculated at 0.5% of monthly earnings. The employer then contributes 1.75% on top.
Additionally, the Employment Provident Fund covers pensions and provides employees with the ability to withdraw money for certain reasons. These reasons could include buying a house or obtaining treatment for a serious medical condition.
Both employers and employees contribute to the Employment Provident Fund. When employees earn more than MYR 5,000 per month, the rate of contribution is 11% for employees and 12% for employers. When employees earn less than MYR 5,000 per month, employers contribute 13%.
If an employee is a foreign citizen, these contributions are optional. However, for Malaysian citizens and permanent residents, contributions are mandatory.
🏥 Health insurance
In Malaysia, there is compulsory universal healthcare, which is funded through payroll taxes and the general budget. Additionally, private health care is available.
The public healthcare system in Malaysia is recognized as providing very good patient care. However, long wait times lead many people to pay a premium for private healthcare.
🏖 Vacation leave
Employees in Malaysia are granted paid leave annually. The amount of total leave is determined by the length of time an employee has been with a company. Based on the time that an employee has been with a company, vacation leave is as follows:
- For employees that have been with a company less than two years, they receive eight vacation days per year
- For employees that have been with a company more than two years, but less than five years, they receive 12 vacation days per year
- For employees that have been with a company more than five years, they receive 16 vacation days per year
If an employee has not been with an employer for a consecutive, 12-month period, they will receive leave that is proportionate to their time with the company.
In Malaysia, male employees that have been with a company for a period of three years, can take paid religious leave. This cannot exceed more than 30 days and is a one-time action.
😷 Sick leave
The Employment Act in Malaysia governs sick leave for most employers. In order to be covered by the local employment act, the employee must have a contract, receive less than MYR 2,000 each month, and be involved in specific work – such as vehicle operations.
For employees that meet these requirements, sick leave will be determined by the following:
- For employees that have been with a company less than two years, they are eligible for 14 day’s sick leave per year
- For employees that have been with a company more than two years, but less than five years, they are eligible for 18 day’s sick leave per year
- For employees that have been with a company more than five years, they are eligible for 22 day’s sick leave per year
If an employee has an illness or condition that requires hospitalization, they can become eligible for 60 day’s paid sick leave per year. To be eligible for this amount of leave, the employee would need to provide their employer with appropriate documentation from a certified medical practitioner.
Any employee not covered by Malaysia’s Employment Act needs to refer to their employment contract when determining their sick leave entitlements.
👶 Maternity and paternity leave
In Malaysia, expectant mothers have up to 60 consecutive days of leave. During their pregnancy, female employees may also acquire a maternity allowance that goes towards their leave entitlements. Expectant fathers have up to 30 days before the birth date to commence leave. However, they are unable to commence this form of leave after their child’s birth.
Women qualify for maternity allowances when they have less than five children. They also need to have been with their employer for no less than 60 days before the birth. Standard rates of pay apply, with either an allowance or MYR 6 per day (whichever is higher at the time). If there is no policy that states otherwise, fathers can take at least one day off and at most 14 days.
💰 Termination and severance
Severance pay is available to employees that are covered by the Malaysian Employment Act. There will be a minimum severance amount that is set by an employee’s notice period.
Payment terms are based on the number of years that an employee has served within their industry. If a worker is not classified as an Employment Act (EA) employee, the severance amount is determined by standards that are set in their employment contract.
Employers are prohibited from terminating an employee on maternity leave – unless the company is shutting down. Disabled persons are also protected from discriminatory termination by trade union groups.
Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time. Horizons’ Malaysia PEO can mitigate risk for foreign companies and provide guidance through this process.
💳 Malaysia compensation and benefits
Malaysia compensation laws
Malaysia has a standardized minimum wage of MYR 1,050 per month, or MYR 5.05 per hour. Employers are advised to include compensation amounts in all employment contracts. Contracts should be signed by both parties, to avoid any future litigation.
Overtime pay is also regulated through Malaysia’s compensation laws. For any employees that work more than 48 hours per week, additional hours must be paid at a rate that is 1.5x the employee’s normal wage.
Minimum Wage Country Comparison Chart
(Per month in USD)
Guaranteed benefits in Malaysia
For employers that manage benefits themselves, it is crucial that all employees receive the benefits that are guaranteed by Malaysian law. Benefits must include paid annual leave that reflects the length of time an employee has been with the company. As an example, employees with less than two year’s company service receive eight vacation days for each year worked. For any employees with five or more year’s company service, they receive 16 vacation days for each year worked.
Malaysia’s universal healthcare system – which is funded through employee and employer taxes – covers all employees.
Female workers are entitled to no fewer than 60 consecutive day’s maternity leave. Whilst pregnant, female employees are also entitled to a maternity allowance. Maternity leave can commence anytime within 30 days of a female employee’s expected due date.
Malaysia benefit management
To successfully oversee benefits management, employers should not only identify guaranteed benefits, but also supplemental benefits that employees may expect. As an example, whilst a 13th month bonus is not mandatory in Malaysia, a large section of employers offer one. Performance-based bonuses (such as sales commissions) are also expected by many employees – but are not compulsory.
Malaysia’s public health system often has long wait times, leading many people to pay higher premiums for private health insurance. As an incentive to their employees, some employers offer group private health insurance, group life insurance, and group accident insurance. This is often distributed as a monthly allowance for employees.
Benefits and compensation restrictions
Malaysia’s employment laws fall under the Employment Act of 1955. This documents restrictions that pertain to compensation and benefits. It’s vital that employers understand employment laws before establishing a business in Malaysia and paying employees.
When you partner with Horizons, we assist you to determine the most suitable benefits for your employees. We also ensure that your employees are paid accurately, on-time, and in accordance with Malaysian employment legislation.