Using an employer of record in Malaysia

While there are endless benefits to hiring talent in Malaysia, the legal process can be complicated. Even though your business is U.S.-based, you’ll still need to comply with Malaysian labor law when onboarding and paying employees. 

While you can opt to register your business locally and handle compliance yourself, you could also use a Malaysia Employer of Record (EOR). 

With Payoneer Workforce Management (WFM)’s EOR services in Malaysia, hiring locally becomes easier. We handle local employment regulations, so you can continue business as usual. 

Learn about Payoneer WFM, or read on to find out more about EOR solutions in Malaysia.

How to hire employees in Malaysia

Employers can hire Malaysian employees in any of the following ways:

1. Set up a local entity: You can register your business in Malaysia, though this can be expensive and time-consuming. You’ll also need to hire experts in Malaysian labor law.
2. Hire independent contractors: You could hire independent contractors, but this gives you less control over their work. 
3. Work with an employer of record in Malaysia: This way, you won’t need a legal entity or a team of local labor law experts. A Malaysia EOR helps you stay compliant by taking care of payroll, taxes, and benefit packages on your behalf. 

Partnering with an EOR in Malaysia

If you’re looking to hire workers abroad, the quickest and easiest approach is to partner with an employer of record. Malaysia has a unique set of employment laws and regulations, which an EOR can help you navigate. 

An EOR acts as the legal employer of your Malaysian workers, handling compliance matters like payroll, tax contributions and deductions, employment contracts, statutory employee rights, and more. 

You won’t need to register a legal entity or hire a team to deal with payroll and compliance locally. 

Payoneer WFM offers employer of record services in Malaysia, giving businesses of all sizes the opportunity to scale effortlessly across borders. 

How to onboard employees in Malaysia 

When you hire international employees, having a thorough and smooth onboarding process is so important. They should have all the tools they need to hit the ground running and feel part of the company. 

To onboard employees in compliance with Malaysian law, you need to register with the Malaysian authorities for payroll and tax purposes. You also need to set up their pension and social security contributions. 

Beyond that, here are some onboarding best practices to consider: 

• Prepare onboarding documentation about the company and their role within it
• Order and configure their work devices, setting up logins for key apps 
• Schedule their orientation and introduce them to their immediate team 
• Prepare their training on any key tools or programs they’ll be using 

To provide the best onboarding experience possible, you can work with an employer of record in Malaysia. We’ll handle compliance so you can focus on welcoming your new employee to the team.

Pay employees in Malaysia

The Companies Act 2016 doesn’t specify a fiscal year in Malaysia. Instead, businesses can choose their own, though most either align with the calendar year (January 1st to December 31st) or with the end of a quarter (March 31st, June 30th, or September 30th). 

The payroll cycle in Malaysia is usually monthly, and employees should be paid no later than 7 days after the last day of the wage period. They should also receive at least the minimum wage, which is currently MYR 1,700 per month. 

Many employers opt to pay their workers an Annual Wage Supplement (AWS) or a 13th-month bonus at the end of the year, though this isn’t mandatory. 

Income tax

Employers in Malaysia are responsible for withholding employee income tax, which is calculated as follows:

Income (MYR)	Tax rate (%)
0 to 5,000	0
5,001 to 20,000	1
20,001 to 35,000	3
35,001 to 50,000	6
50,001 to 70,000	11
70,001 to 100,000	19
100,001 to 400,000	25
400,001 to 600,000	26
600,001 to 2,000,000	28
2,000,001+	30

Employer provident fund

Employers must also register their employees in the Employee Provident Fund, paying into the scheme. Contribution rates are as follows:

Employee age	Monthly wage	Employer contribution	Employee contribution
Below 60	MYR 5,000 and below	13%	11%
	Above MYR 5,000	12%	11%
60 and above	MYR 5,000 and below	6.5%	5.5%
	Above MYR 5,000	6%	5.5%

Statutory insurance

All employees in Malaysia must also be registered and covered by PERKESO, a statutory insurance in Malaysia. The contribution rates are as follows:

Scheme	Employer contribution	Employee contribution
Employment Injury & Invalidity Scheme	1.75%	0.5%
Employment Insurance System (EIS)	0.2%	0.2%

Employer tax and contribution responsibilities are complex. Employer of Record solutions in Malaysia make it simple. 

Employment laws in Malaysia

The Employment Act 1955 lays out the labor code in Malaysia. Key regulations include:

• Working hours: Employees cannot be contracted 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: Overtime work should be paid at least 1.5 times regular pay.
• Rest days: Employees are entitled to at least 1 whole rest day per week. 
• Remuneration frequency: Where an employee is paid monthly, they should receive their wages no later than 7 days after the wage period. 

Minimum wage in Malaysia

As of August 1st, 2025, the minimum wage in Malaysia applies to all companies and is set to:

Payment basis	Amount (MYR)	Amount ($)
Hourly rate	8.72	2.05
Daily rate (4 days/week)	98.08	23.10
Daily rate (5 days/week)	78.46	18.48
Daily rate (6 days/week)	65.38	15.40
Monthly rate	1,700	400.33

The minimum wage has been set in line with rising inflation, increasing living costs, and calls for wage equity across Malaysia. 

They will continue to be reviewed periodically, which is why you need to stay updated and compliant in Malaysia. 

EOR partners are helpful with this and other compliance-related issues, taking the burden off employers. 

Employment contracts in Malaysia

According to Malaysia’s Employment Act, any employment contract (whether permanent, fixed-term, training, or part-time) that is longer than 1 month has to be in writing. It must also include a clause stating that either party can end the contract. 

Essential elements to include in a Malaysian employment contract are:

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

Leave policy in Malaysia

Employees in Malaysia are entitled to the following leave:

Public holidays and vacations

Malaysia observes 11 public holidays, which are non-working days. Employers also get at least 8 vacation days per year, though this increases over time:

• Employed for less than 2 years: 8 vacation days for every 12 months of continuous service
• Employed for 2 to 5 years: 12 days of vacation for every 12 months of service
• Employed for more than 5 years: 16 days for every 12 months of service 

Sick leave

Employees are entitled to at least 14 days of sick leave per year, though this also increases with years of service:

• Employed for less than 2 years: 14 days of sick leave 
• Employed for 2 to 5 years: 18 sick days 
• Employed for more than 5 years: 22 sick days
• Where hospitalization is necessary: Up to 60 days of sick leave

Parental leave 

Pregnant employees are entitled to 98 days of maternity leave, as long as they have been employed for at least 90 days. Maternity leave can start up to 30 days before the birth, but must start at least 1 day before. 

Married male employees receive 7 days of paternity leave with full pay if they have been employed for 12 months. They must provide their employer with 30 days’ notice.

To grant employees the correct leave, it’s best to partner with an EOR. Malaysia has evolving leave policies that are hard to keep up with, and without the help of an Employer of Record in Malaysia, you may risk non-compliance.

Work permit in Malaysia

Before foreign nationals can work in Malaysia, they need a job offer from an employer. The employer will then apply for the relevant work visa on their behalf. 

The available work visas are:

• The Employment Pass: For high-skilled positions, valid for 1 to 5 years
• The Temporary Employment Pass: For workers in Manufacturing, Construction, Plantation, Agriculture, and Services, valid for up to 2 years
• The Professional Visit Pass: For foreign nationals who want to work in Malaysia but are still employed by a foreign employer, valid for up to 1 year.

Background check in Malaysia

There are no laws against running background checks on prospective employees in Malaysia. You just need to get the candidate’s consent and comply with the Personal Data Protection Act. 

This includes telling the applicant what checks you’ll be carrying out and how you’re collecting their personal data.

Background checks are usually run after an offer of employment has been made. Some of the more common checks in Malaysia include:

• Criminal records check
• Reference check
• Educational history check
• Social media check

The simplest way to carry out compliant checks is through a Malaysia Employer of Record.

Employment termination in Malaysia

Malaysian labor law stipulates that both the employer and employee can terminate a contract. The employment agreement should specify the required notice period. 

However, if it doesn’t, the notice period should be:

Time of service	Notice period
Less than 2 years	No less than 4 weeks
2 to 5 years	6 weeks
More than 5 years	8 weeks

Alternatively, the employer can terminate a contract without notice by paying the employee the wages they would have earned during this time. 

Employers may terminate employees without notice on the grounds of misconduct, though an enquiry must be made to prove it. During this enquiry, the employee should receive at least 50% of their wages. 

Where an employee is made redundant or a company closes, statutory severance pay is:

Time of service	Severance pay per year of employment
Less than 2 years	10 days’ wages
2 to 5 years	15 days’ wages
5 or more years	20 days’ wages

Company registration in Malaysia

Registering a company in Malaysia is a big step, but it can be the right decision if you’re expecting to develop a significant presence in the area.

To register a company in Malaysia, you’ll need to:

1. Reserve your company name
2. Submit your registration application
3. Pay the registration fee (MYR 1,000)
4. Wait for approval

However, for many U.S.-based companies, it’s easier to hire local talent through an EOR in Malaysia.

PEO in Malaysia

An Employer of Record offers more services than a Professional Employer Organization (PEO). 

While a PEO performs domestic HR tasks for companies, EORs enable companies to scale their operations worldwide, taking care of HR, payroll, taxes, and compliance, among other Employer of Record services. 

Malaysia workers can be legally employed through an EOR’s own legal entity, while a PEO would require a company to register its own local entity.

Payoneer WFM: Leading employer of record services in Malaysia

To make hiring abroad as simple as hiring in your base country, you’ll need reputable EOR solutions. Malaysia has a complex set of labor regulations that an EOR like Payoneer WFM can help you to comply with. 

We handle payroll, taxes, and more in 160+ countries, allowing your team to function smoothly. 

Try Payoneer WFM’s EOR solutions in Malaysia to manage teams seamlessly.

FAQs about Malaysia employer of record

1) What is an EOR in Malaysia?

An EOR in Malaysia legally employs workers on behalf of foreign companies and handles compliance, payroll, taxes, and more, allowing their partner business to scale global operations with ease. 

2) Is an employer of record legal in Malaysia?

Yes, EORs in Malaysia enable international companies to legally hire Malaysian nationals, as well as foreign employees with a work permit. 

3) What is the best Employer of Record?

Payoneer WFM is a leading employer of record that enables companies, U.S.-based or otherwise, to hire employees in 160+ countries. They also help businesses to pay and manage employees effortlessly and compliantly, removing the hassle of international payroll, taxes, and more.