Planning to hire employees in Malaysia? Here’s a quick guide

As globalization accelerates and remote work becomes the norm, Malaysia is quickly emerging as a preferred destination for companies seeking skilled, yet cost-effective talent. With its English-speaking workforce, strong digital infrastructure, and generous policies for businesses, Malaysia is an attractive market for international hiring. 

For American companies hiring in Malaysia, the country provides a gateway into the ASEAN market and access to a growing, educated, and tech-savvy labor pool. 

This guide will walk you through how to hire employees in Malaysia, including various hiring methods, your legal obligations as an employer, how payroll works, onboarding compliance, employee benefits, and how a workforce management platform like Payoneer Workforce Management may help streamline the entire process. 

How to hire employees in Malaysia

American companies hiring in Malaysia have several options to consider, depending on their budget, long-term plans, and operational needs. 

1) Set up a legal entity in Malaysia

One option to hire in Malaysia is to establish a local legal entity. This enables companies to directly hire full-time employees under their own legal business, giving them complete control over operations. 

However, this option comes with some considerable downsides. Registering a business in another country can be complicated and expensive, especially if you’re looking to hire in several countries at once. You’ll need to handle all of the administrative aspects of the hiring process and ongoing compliance, including any legal and tax obligations. 

This approach could work for companies looking to establish a permanent presence in Malaysia, but it’s not recommended for companies seeking fast and flexible hiring solutions. 

2) Hire contractors in Malaysia

Companies hiring in Malaysia can also hire independent contractors, especially for short-term or project-based work.

While this method can save costs and provide more flexibility, it comes with the risk of employee misclassification. If you hire a contractor, but the working relationship becomes more like an employee, your business could face severe fines and legal penalties. 

These penalties can include:

• Back pay for all missed employee benefits and taxes
• Missed contributions to the Employees Provident Fund, Social Security, and the Employment Insurance system 
• Potential fines from the court system
• Potential prison time

With these kinds of penalties, employee misclassification is simply not worth the risk to your company’s bottom line or international reputation.

3) Use a workforce management platform

If you’re looking to hire workers abroad, often the quickest approach is to partner with an employer of record. However, the EOR model may not be recognized in Malaysia, so you may use a workforce management platform, which offers support to navigate the unique set of employment laws and regulations, while assisting with handling payroll, tax compliance, benefits, and contracts. Meanwhile, you direct the employee’s day-to-day duties and activities. 

With a workforce management platform, you won’t have to set up a local entity. It’s a faster way of making international hires, enabling you to grow your team by onboarding talent in a few days. You won’t have to hire an entire team to take care of the administrative side.

Read more about using a workforce management platform in Malaysia. 

Where to find employees in Malaysia

When you’re ready to recruit, here are some effective strategies to source qualified candidates in Malaysia:

Popular job boards in Malaysia

In order to hire employees in Malaysia, you’ll need to reach them. Online job boards are great places to advertise your open roles and get in front of the right candidates. Some of the top local platforms include:

• Maukerja
• Jobstore
• Hiredly
• Jobstreet by SEEK
• Ricebowl
• Jora Malaysia

These job boards attract a wide range of professionals, from entry-level graduates to experienced engineers, marketers, and tech specialists. 

Work with local recruitment agencies

Partnering with a local recruitment agency in Malaysia can help you to find candidates faster, access talent networks that may not be publicly available, and also bridge any language or cultural gaps. 

However, recruiter fees can often be high, plus their support ends once you’ve picked a candidate.

Recruit with the support of a workforce management platform

A platform like Payoneer Workforce Management may offer comprehensive support. Working with them is a good compromise between in-house and outsourced recruitment. You still steer the hiring process, including screening candidates and conducting interviews. And the workforce management platform helps handle things like onboarding, contracts, and payroll compliance. 

Onboarding employees in Malaysia

A smooth onboarding experience builds trust and ensures your new hire hits the ground running. Some aspects are also critical for staying compliant in Malaysia. Here are the key steps for onboarding in Malaysia:

• Prepare required documents, including ID, proof of address, and any academic and employment certificates
• Provide language support by creating bilingual onboarding materials in English and Malay.
• Enroll them in the payroll system and set up tax withholding and other contributions. 
• Provide statutory benefits, including social security, health insurance, and leave entitlements.
• Set up employee training to help your new hire hit the ground running.
• Conduct a company orientation to familiarize employees with your company culture, expectations, and tools. 

Key employment laws and requirements in Malaysia

Hiring in Malaysia comes with specific legal obligations. Here’s what you need to know. 

Employment contracts

There are various types of employment contracts in Malaysia, including:

• Permanent employment
• Fixed-term contract
• Part-time employment
• Internship/training agreements

According to Malaysia’s Employment Act 1995, written contracts are required for employment with a duration of over 1 month.

These written contracts must include:

• Contract type 
• Job title and role description
• Compensation and benefits
• Working hours
• Leave entitlements
• Probation period
• Termination and notice period
• Confidentiality and non-disclosure

Employee benefits

Employers should provide the following statutory and common benefits:

• Vacation leave: Between 8 and 16 days, depending on the length of service
• Sick leave: Between 14 and 22 days per year. If hospitalized, it’s up to 60 days.
• Maternity leave: 98 days
• Paternity leave: 7 days
• Public holidays: 11 public holidays per year
• Pension: Retirement contributions are made by employers and employees into the Employees’ Provident Fund (EPF) and the Social Security Organization (SOCSO).
• Bonuses: A 13th-month salary bonus is common, though not mandatory in Malaysia.

Working hours, overtime, and holidays

Employees cannot be allowed to work for more than 5 consecutive hours without a 30-minute break. Daily working hours are capped at 8 hours and weekly at 45 hours. 

Overtime is capped at 4 hours per day and 104 hours per month. Overtime hours are paid at the following rates:

Regular working days	1.5 times regular hourly wage
Rest days	2 times regular hourly wage
Public holidays	3 times regular hourly wage

There are 11 national public holidays in Malaysia, though state and religious holidays may apply. These are not always paid. 

Employees are entitled to at least 8 paid days off, which can be on top of public holidays or included in their public holiday allowance. 

Tax obligations

When you hire employees in Malaysia, you must ensure compliance with tax and statutory contribution laws. Key employer responsibilities include:

• Income tax: Withheld from employee paychecks and calculated through progressive tax rates between 0 to 30%.
• Employees Provident Fund (EPF): Employers must register employees with the Employees Provident Fund (EPF). Contribution rates vary by age and salary:
  • Below age 60: 13% (≤ MYR 5,000) or 12% (> MYR 5,000)
  • Age 60 and above: 6.5% (≤ MYR 5,000) or 6% (> MYR 5,000).
  • Employees contribute 11% (for those under 60) or 5.5% (for those 60 and above).
• Social Security (SOCSO): Employers contribute 1.75%
• Employment Insurance System (EIS): Employers contribute 0.2%

Failing to meet these obligations can result in fines and legal issues. 

Termination and severance

Termination laws in Malaysia are designed to protect employees from wrongful dismissal. Employers must:

• Provide written notice: Between 4 and 8 weeks, depending on the length of service
• Provide just cause: Such as misconduct or redundancy
• Pay severance where applicable: 
  • 10 days’ wages per year for service of up to 2 years
  • 15 days’ wages per year for service of 2 to 5 years
  • 20 days’ wages per year for service longer than 5 years

Payoneer Workforce Management helps hire employees in Malaysia

Hiring in Malaysia doesn’t have to be complicated. Payoneer Workforce Management helps American Companies hire in Malaysia without establishing a local entity. 

With our unified platform, you can:

• Onboard employees in days, rather than months
• Pay global teams in multiple currencies in a few clicks
• Support to stay compliant with local labor and tax laws
• Assistance with contracts, benefits, payroll, and tax reporting

Request a demo today. 

FAQs

1) What are the options for American companies hiring in Malaysia?

International employers have three main options for hiring in Malaysia:

1. Register a legal entity: This gives you full control over the hiring process, but requires setting up a local entity. You’ll be responsible for the legal and compliance requirements and will likely need a team of experts in Malaysian employment laws. This can be an expensive and complicated process.
2. Hire independent contractors: This works for fixed-term projects. But if your contractors function more like employees, you could face severe legal penalties and fines. 
3. Partner with a workforce management platform: They legally employ workers on behalf of foreign companies without a legal entity in Malaysia, and they’ll support with legal and compliance responsibilities.

2) How much does recruitment cost in Malaysia?

Sourcing candidates through recruitment agencies or setting up a local entity often costs thousands upfront. 

While setting up your own local entity gives you full control, you may still end up needing the services of a recruiter to find the right talent. However, a recruiter only presents candidates to you. From then on, it’s your responsibility to carry out onboarding and stay compliant with tax and payroll responsibilities. 

3) What is the new requirement to hire expatriates in Malaysia?

Under the 1:3 Practical Training Policy, companies must:

• Hire 3 local interns for every foreign employee
• Provide structured, paid internships
• Limit interns to just 2% of the workforce