Employer of Record in Malaysia

Hiring independent contractors has boomed in popularity because of the cost savings and flexibility they offer. It can be a great option if you require niche skills or short-term project support. Contractors allow businesses to access specialized skills quickly, without the time and cost of setting up a local entity.

However, it’s important to know the limits of this model: contractors are not a substitute for full-time employees. Relying on them for ongoing, long-term roles can create serious compliance risks, including employee misclassification, which can lead to fines, back taxes, and reputational damage.

Playroll’s contractor management solutions make it simple to compliantly engage, onboard, and pay contractors around the world. We provide clear visibility into agreements, streamline payments, and reduce compliance risks – so you can focus on getting the work done. And when you’re ready to take the next step, we can help seamlessly convert contractors into full-time employees through our global Employer of Record service.

Businesses can only operate smoothly in Malaysia if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Malaysia below, to avoid any compliance issues.

Employment Contract Requirements

The regulation of employment in Malaysia falls under the 1955 Employment Act, applicable to both fixed-term and permanent employment. According to this law, any arrangement exceeding one month requires a written employment contract. Such contracts are mandated to incorporate specific terms of employment, which include:

• Identification of both parties
• Starting date (and duration for temporary contracts)
• Workplace and working hours
• Job description, duties, and responsibilities
• Basic salary (including compensation and benefits)
• Payment conditions
• Probation period
• Total number of holidays
• Notice periods and guidelines for termination
• Clauses concerning workplace health and safety

Onboarding Process

We can help you get a new employee started in Malaysia quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

Probation Period in Malaysia

In Malaysia, probationary periods generally span from 3 to 6 months, however there is no legal requirement to put an employee on probation before they are hired. According to the Employment Act, there is no distinction in entitlements whether an employee is within or outside the probationary period.

The usual working hours in Malaysia consist of 8 hours per day, not exceeding 45 hours per week. However, it is common for employees to work 40 hours per week. No employee should work more than five consecutive hours without a rest break of at least 30 minutes.

Malaysian law limits overtime to 104 hours per month. Employers must pay premium rates for overtime as follows:

• For overtime on regular workdays, employees must receive at least 1.5 times their hourly rate.
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• When working on rest days, compensation depends on the duration: 0.5 times the ordinary rate for work up to half the normal hours, 1 time the ordinary rate for work exceeding half but not exceeding normal hours, and 2 times the hourly rate for hours beyond normal working hours.
   
• Public holiday work receives the highest compensation: 2 times the ordinary rate for normal hours worked, plus 3 times the hourly rate for any overtime beyond normal hours.

Employees are restricted from working more than 12 hours in a day, inclusive of overtime.

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Global expansion shouldn't mean losing time to paperwork or dealing with complicated, country-specific HR systems. An Employer of Record helps you keep your focus on talent by handling the operational side of employment in Malaysia. That includes onboarding, contract management, payroll processing, and statutory compliance, all aligned with local laws and best practices. The EOR guarantees that employees are legally employed and properly supported from day one.

This streamlined setup allows you to prioritize recruiting the best people and integrating them into your company culture. Your team stays lean, and you avoid getting caught up in the details of local processes or shifting regulations. For founders, global hiring managers, or HR teams working across borders, an EOR multiplies your impact, reducing admin time, preventing errors, and helping ensure that new hires have a smooth experience from the get-go.

Overall, for employers operating in Malaysia, understanding payroll tax obligations is key to maintaining compliance with the law and ensuring that employees are paid accurately and on time. Employers must navigate various taxes such as income tax withholding, EPF contributions, SOCSO, and EIS contributions, each of which has its own regulations, deadlines, and filing requirements. Non-compliance with these tax laws can lead to fines, penalties, and legal complications.

Using payroll management software, like Playroll, can simplify the process of managing these taxes and ensure timely and accurate submissions. This helps employers stay organized and compliant with the ever-evolving regulatory landscape in Malaysia, reducing the risk of errors and ensuring a smoother payroll process for both employers and employees.

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Hiring in Malaysia means taking on local payroll obligations, which often include unique tax rates, contribution rules, and strict documentation. If you're not familiar with the system, or don't have a local entity, it’s easy to make mistakes. That’s where an Employer of Record ccomes in. The EOR manages payroll for your team on your behalf, ensuring every process is accurate, timely, and legally compliant.

Key Ways an EOR Supports Payroll in Malaysia:

• Full Legal Compliance: Ensures all payments, deductions, and filings meet country-specific requirements.
• Payroll Setup & Processing: Handles salary calculations, tax withholdings, and local reporting obligations.
• Statutory Benefit Contributions: Pays into required social programs and manages country-mandated benefits.
• Employee Documentation: Generates compliant contracts and manages hiring and termination paperwork.
• Local Currency Payouts: Delivers salaries in local currency, avoiding delays or exchange rate issues for employees.

In Malaysia, work permits and visas are essential for employers hiring foreign workers. The process includes obtaining approvals from regulatory authorities, submitting applications, and meeting specific eligibility requirements.

The key permits are the Employment Pass for highly skilled professionals (with three categories based on salary levels: Category III for RM3,000-RM4,999 monthly, Category II for RM5,000-RM9,999 monthly, and Category I for higher salaries), the Temporary Employment Pass for unskilled and semi-skilled workers, and the Professional Visit Pass for short-term assignments. Employers must adhere to Malaysian immigration laws and ensure that applications are accurate and timely to avoid delays or penalties.

Mandatory Leave Entitlement in Malaysia

The annual leave entitlement in Malaysia is 8 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.

Public Holidays In Malaysia

In Malaysia, there are 11 recognised public holidays in a calendar year, which are separate from annual leave. The initial five holidays are national holidays observed throughout Malaysia, and employers have the flexibility to select 6 out of the following 8 holidays to complete the total of 11 public holidays per year (many of these public holidays vary by state):

Paid Time Off in Malaysia

Paid leave is specified in the employment contract, typically starting at 12-15 days per year and expanding with increased seniority. Accrual occurs from January to December and is contingent on the employee's length of service:

• First 2 years of service: 8 days paid leave per year
• 2-5 years of service: 12 days paid leave per year
• More than 5 years of service: 16 days paid leave per year

Maternity Leave In Malaysia

In the private sector in Malaysia, pregnant employees are entitled to 98 days of fully paid maternity leave, commencing no earlier than 30 days before the due date. They can resume work at any point during this period with the employer's and a medical practitioner's consent. This benefit is applicable for the employee's first five surviving children and if the employee has worked for the employer for at least 90 days continuously in the nine months before they give birth.

Paternity Leave In Malaysia

Married fathers with at least a year of service in Malaysia are eligible for 7 consecutive days of fully paid paternity leave per birth if the same employer has employed them for at least 12 months before the commencement of the paternity leave. To avail this leave, employees need to notify their employers 30 days before the expected due date. This entitlement is limited to a maximum of 5 confinements, irrespective of the number of spouses.

Sick Leave In Malaysia

The employment contract outlines paid sick leave requirements and the necessity of a valid medical certificate. The compensation during this leave is determined by the employee's length of service:

• Less than 2 years of service: 14 days sick leave per year
• 2-5 years of service: 18 days sick leave per year
• More than 5 years of service: 22 days sick leave per year
• Employees admitted to the hospital: 60 days hospitalisation leave per year (in addition to regular sick leave)

Parental Leave In Malaysia

There is no provision for shared parental leave that allows parents to divide a set amount of leave between them.

When hiring across multiple countries, maintaining consistency in how you deliver employee benefits quickly gets tricky. Each country, including Malaysia, has its own legal rules, cultural norms, and contribution systems. An Employer of Record helps you strike the right balance between global structure and local compliance. They take over the complexity of delivering benefits that are aligned with Malaysia’s legal requirements and competitive with local market expectations.

From ensuring statutory benefits are in place to managing local onboarding timelines and enrollment systems, the EOR provides a seamless experience for both employer and employee. This makes it easier to grow your team across borders without reinventing your benefits process in each new location. You stay in control of your overall benefits strategy, while the EOR takes care of executing it in a way that works legally and culturally in Malaysia. It’s a smarter way to scale benefits globally without losing local relevance.

Termination Process in Malaysia

In Malaysia, terminations must be justified, and at-will termination does not apply. Acceptable reasons for termination include:

• Voluntary employee resignation
• Mutual agreement
• Contract expiration
• Unilateral decision by the employer (based on probation period, objective reasons, disciplinary dismissal, inadequate job unsuitability)
• Genuine redundancy (where the role is no longer required)
• Gross misconduct, poor performance, and negligence

Notice Period in Malaysia

Workers in Malaysia have the right to minimum notice periods, and either party can offer payment in lieu as an alternative to giving notice. The duration of the notice periods depends on the length of their employment:

• Less than 2 years of service: 4 weeks notice
• 2-5 years of service: 6 weeks notice
• More than 5 years of service: 8 weeks notice

Severance in Malaysia

Severance pay is compulsory in Malaysia when applicable. The amount of payment varies based on the duration of service:

• First 2 years of service: 10 days severance pay at regular salary pay rate
• 2-5 years of service: 15 days per year of service
• More than 5 years of service: 20 days per year of service