Do I Need a Local Entity to Hire in Malaysia?

In Malaysia, a "local entity" refers to a recognized business presence that can act as the employer, typically a subsidiary or branch office. This setup allows you to be recognized as an employer and meet local payroll and employment obligations.

Without a local entity, you can't effectively register as an employer, manage mandatory contributions, run compliant payroll, or issue local employment terms. Malaysia's Social Security Organization (SOCSO) outlines employer responsibilities for contributions, which are essential for compliance.

What is Required to Employ Someone in Malaysia?

• Local employing entity required to directly employ? Yes (You need a local entity to hire employees directly.)
• Payroll registration required? Yes (You must register with the Inland Revenue Board of Malaysia for payroll compliance.)
• Withholding/tax remittance required? Yes (Employers must withhold income tax and remit it to the tax authority.)
• Social contributions required? Yes (Contributions to SOCSO and the Employees Provident Fund (EPF) are mandatory.)
• Local employment agreement required? Yes (Written contracts are standard and required under Malaysian law.)
• Mandatory benefits to budget? Yes (Includes statutory leave, EPF, and SOCSO contributions.)
• Works council/collective agreements considerations? Usually (Some sectors may be influenced by collective agreements.)

Best Options If You're Hiring in Malaysia

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but be cautious about misclassification risks.

While you can hire contractors without establishing a local entity, Malaysia has strict labor laws. Misclassifying a contractor as an independent worker when they function like an employee can lead to legal issues.

• Ensure contractors have control over how they complete their work.
• Avoid exclusive relationships that resemble employment.
• Be mindful of the contractor's integration into your business operations.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–8 weeks to set up an entity in Malaysia, depending on the type of entity and required registrations.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated MYR 1,500–3,000 per month ($350–$700)
• Payroll provider: Estimated MYR 200–500 per employee per month ($45–$115)
• Employer registrations and recurring compliance: Varies by complexity, typically MYR 1,000–2,000 per year ($230–$460)
• Corporate tax filings and annual reporting: Estimated MYR 3,000–5,000 per year ($700–$1,150)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer contributions to EPF and SOCSO)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Malaysia

Hiring in Malaysia can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Malaysia quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s managed payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.