Hire Staff in Malaysia without Establishing a Local Entity.
New Horizons’ innovative PEO service offers a cost-effective and stress-free alternative to setting up a separate business entity in Malaysia. A PEO is a Professional Employer Organization. It is usually a separate entity that a company will use, contract with or hire to supply employees or to run some other part of company operations.
The foreign business usually has the option of a PEO to hire employees and for the entity to run payroll in a country such as Malaysia without needing to create the foreign business first. This is usually cost-efficient, quick and easy for a business owner or someone wanting to branch out in a different country than the one in which he or she resides. The PEO assumes responsibilities of the employer while he or she maintains control over the day-to-day function of employees.
When a company contracts with a PEO, the PEO takes on the liabilities associated with employment. It is responsible for complying with local laws. We ensure full compliance with all governmental entities and utilize best practices to protect your interests. Our employment contracts consider the following subjects:
Malaysian Written Employment Contracts
When hiring employees, the owner of a company will need a written contract with strong language of what is important and necessary. The contract provisions should be written in the local language. Important terms to include in employment contracts in Malaysia include:
- Job description and duties
- Compensation for work
- Benefits including time off
- Termination requirements
- Severance pay
The offer letter and the employment contract should explain compensation for salary in Malaysian Ringgit instead of foreign currency. New Horizons provides an employment contract template as a service to our clients.
Employment Hours in Malaysia
The standard workweek in Malaysia is 40 hours with a usual eight hours per each workday. The normally run business hours of operation are 9 a.m. to 5 p.m. Monday through Friday. For every six days the employee works, he or she must receive one rest day during which he or she cannot be forced to work.
Employees should not work employees more than48 work hours per week without requesting more time. Any requested time over 48 hours is payable at a rate of 1.5 times the base rate.
Public Holidays in Malaysia
Employees in Malaysia receive at least thirteen paid holidays each year. These include the following:
- Awal Muharram
- Chinese New Year
- Prophet Muhammad’s Birthday
- Labor Day
- Vesak Day
- The birthday of Seri Paduka Baginda Yang di-Pertuan Agong
- Hari Merdeka or Independence Day
- Eid al Fitr or Hari Raya Puasa
- Hari Malaysia or Malaysia Day
- Christmas Day
- Eid al Adha or Hari Raya Haji
If a holiday falls on a regular rest day, the employee will receive an additional paid holiday the following workday.
Vacation Days in Malaysia
Employees should receive paid leave annually. Tenure determines how much total leave is given. Minimum vacation days based on time of service include:
- Less than two years with the company, the employee receives eight days a year
- More than two years with the company but no more than five, the employee receives twelve days of leave a year
- For five or more years with the company, the employee receives sixteen days a year
If the employee is not with a single employer in a twelve-month period, he or she will receive the proportionate number of months. In Malaysia, male employees that complete three or more years of employment can take paid religious time that cannot exceed a 30- day period which includes holidays. This is a one-time action.
Sick Days in Malaysia
The Employment Act in Malaysia governs sick leave in the country for most employers. The employee must have a contract, receive less than 2,000 Malaysian Ringgit each month and work in manual labor or vehicle operations to have classification as an EA employee. No other employee is considered an EA employee.
Sick leave as an EA employee is based on the amount of time the employee has been with the company, according to the following:
- Less than two years with a company provides fourteen days a year for sick leave
- Between two and five years of service with a company provides eighteen days a year for sick leave
- More than five years of service with a company provides 22 days a year for sick leave
If the employee has an illness or condition severe enough for hospitalization, he or she can become eligible for 60 days paid sick leave a year but must provide certification in that event. Any employee not covered through EA sick leave must look to their particular employment contract to determine sick leave entitlement.
Maternity and Paternity Leave in Malaysia
Expecting mothers have up to 60 consecutive days of leave and may acquire a maternity allowance when pregnant. Male counterparts have up to 30 days before the birth date to start this leave but cannot start it after the birth occurs.
Women qualify for maternity allowances when they have less than five children and are with the company for no less than 60 days before the birth. The standard rate of pay applies with the allowance or RM 6 each day, whichever is higher at the time. If there is no policy to the contrary, fathers can take off at least one day and at most fourteen days.
Additional Benefits for Employees
The country of Malaysia has compulsory universal healthcare funded through payroll taxes and a general budget in the nation. However, private healthcare is also possible and available. Some choose to utilize private healthcare because of long lines and the time it takes to see a doctor.
Another common benefit is a thirteen-month bonus, but it is not a legal requirement. Performance bonuses are also standard. Companies often also engage in the use of Group Private Health Insurance, Group Life Insurance and Group Accident Insurance to provide assistance to employees. Some employers may need to negotiate allowances monthly for the employee if the owner of the business wants to offer these options. Other possible benefits are at the behest of the owner.
Severance Pay and Termination
Severance pay is available to EA employees covered through the Malaysian Employment Act with a minimum amount set by the notice period. The pay term is based on the years of service the employee had in the industry. If the workers are not EA employees, the severance pay amount is determined by the employment contract.
The owner cannot terminate an employee on maternity leave unless the company is closing. Disabled and other protected classes have safeguards in place against discrimination and through trade union groups. The employer must provide the State Labor Department with notice no less than 30 days before termination for all other employees and submit necessary documentation.
Taxes for Employment in Malaysia
Residents pay income tax in the country of Malaysia with rates between 0 and 28 percent. Income greater than MR 1,000,000 in 2016 required a 28 percent rate. If accidental death, disability or illness happens to the employee, the Malaysian Social Security system or the SOCSO will provide monetary assistance to the employee and his or her family.
The program comes from funds contributed by employers and employees. The amount depends on monthly salary and is calculated at 0.5 percent of monthly earnings with the employer adding 1.75 percent. Additionally, the Employment Provident Fund covers pensions and provides employees with the ability to withdraw money for certain reasons, such as buying a new house or for serious medical conditions.
Both employers and employees contribute to this fund as well at a rate of eleven percent for employees and twelve percent for employers when the worker grosses more than MR 5,000 each month. The employer contributes thirteen percent if this rate is lower than MR 5,000. If the worker is a foreign employee, this is optional. However, for Malaysian citizens and permanent residents, contributions are mandatory.
Using a PEO in Malaysia
No matter what type of company the employer has or what type of business operations he or she wants to accomplish in Malaysia, a PEO is available to help with these challenges. Through the PEO, foreign businesses can hire new employees without needing to screen each individual since the PEO handles this function.
Contracts, paperwork and additional tasks are usually taken care of by the PEO and the employer need not worry about little details and instead can focus his or her attention on the business operations. The company can set up termination clauses, probationary work periods and short-term or extended contracts for employment.
The PEO will assist in shortening the time it takes to hire employees. The company will also resolve payroll issues, move items to a monthly invoice and process expense reports. This takes care of personal income tax problems and provides a way to set up employee’s statutory local benefits for Malaysian resident employees. The owner of the company can skip these processes and need only review them to ensure compliance with the necessary standards and requirements in the country.
Foreign Owners and the PEO
Taxes, currency and employment contracts have requirements based on the country of residence and where the employee will work. Because of these issues, the owner may need to look into a PEO that works best for him or her. This organization should have a track record of successfully hiring qualified candidates.
New Horizons is Asia’s leading PEO and recruitment agency. We provide turnkey solutions for foreign businesses that allow them to deploy faster and more effectively. Contact our representatives today to learn how we can make your expansion to Malaysia a success.