How to hire employees in Malaysia.

Business expansion into Malaysia requires thorough due diligence. Foreign companies looking to hire employees in Malaysia must familiarise themselves with local legislation in order to avoid noncompliance penalties such as back pay, fines, and even imprisonment.

This guide provides an overview of Malaysian employment law and offers guidance on how foreign companies can hire employees in Malaysia in a compliant manner.

Two ways of hiring employees in Malaysia

Setting up a local entity

If you are considering long-term investments in Malaysia, then establishing a legal entity there would be the best option. There are four incorporated and two unincorporated structures available to foreign employers with the most common one being the Private Limited Company—a separate legal entity that offers 100% foreign ownership.

To set up a legal entity in Malaysia, you must gather all the necessary documents, submit your company name for approval and apply with the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia or SSM). This process usually takes several weeks.

But if you are not ready to make long-term investments in Malaysia just yet, consider partnering with an employer of record instead.

Using a PEO to be the employer of record

Using the services of a PEO becomes exceedingly useful when you are not yet ready to make a commitment to establishing within Malaysia but do need to have employees on the ground. A PEO can make sure your employee is fully registered on your behalf.

A PEO is a third-party company equipped to hire, manage and pay employees within global markets on your behalf, that is, they offer the service of Employee of Record (EoR). An EoR service streamlines the process by managing all payroll, benefits and mitigation associated with your workforce, ensuring you stay compliant with local regulations and labour laws. And thus, sharing all hiring-related risks and obligations without the client company having to establish a local separate entity.

Once you decide that you wish to formalise your expansion in Malaysia and are ready to make the investment, you can begin your process of incorporation and easily transfer employees from the PEO contractor to your registered entity.

What foreign businesses should know about before hiring employees in Malaysia

Employment law

Employers in Malaysia must meet the basic provisions of the Employment Act of 1955, such as work contract terms, standard working hours, statutory leave entitlements, mandatory notice periods, and severance pay.

Work contracts: Employees must formalise any employment arrangement lasting longer than one month with a written contract. Contracts must outline all the key terms, such as work scope, work location, and wages.

Leave entitlements: Employees in Malaysia are entitled to annual and sick leaves depending on their tenure with the company, alongside 98 days of maternity leave, 11 public holidays, and seven days of paternity leave.

Working hours: A standard workweek consists of 45 hours. Standard workdays are eight hours.

Termination. Both employers and employees must offer termination notices. The minimum notice period depends on the employee’s tenure.

Severance. Employees those are earning RM4000 and below, entitled to severance pay, except in cases of gross misconduct. The amount depends on the employee’s tenure.

Hiring local employees

The minimum wage for locals in Malaysia

Malaysia has increased the minimum monthly wage to RM 1,200 in 56 cities and municipal areas. The minimum hourly and daily wages are as follows:

• Minimum hourly rate – RM 5.77
• Daily minimum wage:
• Four working days – RM 69.23
• Five working days – RM 55.38
• Six working days – RM 46.15

The minimum monthly wage for cities and municipal council areas other than the 56 areas is RM 1,100.

The minimum daily and hourly wage rates are:

• Minimum hourly rate – RM 5.29
• Daily minimum wage:
• Four working days – RM 63.46
• Five working days – RM 50.77
• Six working days – RM 42.31

Employee provident funds

Employers are required to register the employee with the Employee Provident Fund (EPF) within seven days. EPF contributions must be made by the 15th of the following month.

The EPF contribution rates for local employees are the following:

Hiring foreign employees

How can foreigners legally work in Malaysia?

Malaysia offers three types of work permits for foreigners who intend to work in Malaysia, these are the employment pass, temporary employment pass and the professional visit pass.

Employment pass

The employment pass allows foreign employees to legally work in Malaysia under a contract and is issued to employees who have specific skills for technical or managerial jobs.

The employment pass consists of three categories, which are category I, category II, and category III.

Companies must receive approval from the Local Centre of Approval of the Ministry of Home Affairs (MOHA) or other relevant authorities before hiring foreign employees as Malaysia restricts the number of foreign employees allowed to work in a Malaysian company.

Other authorities include:

• Malaysia Investment Development Authority (MIDA)
• Multimedia Development Corporation (MDEC)
• Central Bank of Malaysia (BNM)
• Securities Commission (SC)
• Malaysian Biotechnology Corporation
• Expatriate Committee (EC)

The employment pass is only eligible for certain positions, usually for highly-skilled managerial technical positions which cannot be filled by locals. These positions include:

• Top managerial posts for foreign companies in Malaysia
• Professional or mid-managerial positions
• Highly-skilled, technical positions

Employers are responsible for applying for an employment pass on the foreign employee’s behalf, and once the quota is approved, the employer must submit the following documents to the Immigration Department of Malaysia:

• Employment pass application form
• Approval letter from the relevant authority
• Passport copy
• CV and education certificate
• Company profile
• Employment contract

Once the foreign employee has obtained the employment pass, the foreign employee can only work for the company that is in the employment pass. In the case that the foreigner moves companies, an application for a new employment pass must be submitted.

Temporary employment pass

The temporary employment pass is issued to semi-skilled foreign workers in specifically approved sectors.

The two categories of the temporary employment pass that are issued:

1. To foreign workers in the agriculture, construction, manufacturing, plantation and services sector
2. Foreign domestic helpers

The temporary pass is only issued to citizens of the following countries:

• Bangladesh
• Cambodia
• India
• Indonesia
• Kazakhstan
• Laos
• Myanmar
• Nepal
• Pakistan
• Philippines
• Sri Lanka
• Thailand
• Turkmenistan
• Vietnam

Requirements for the temporary employment pass

Before applying for the temporary employment pass, employers must obtain approval and pay the levy at the Local Centre of Approval, Ministry of Home Affairs.

The following documents are required when applying for a visa approval letter from the Immigration Department of Malaysia:

• Visa with reference (VDR) application form
• Letter of approval from the Ministry of Home Affairs
• Receipt of levy payment
• Form IMM.12
• Deposit/insurance guarantee/bank guarantee
• Copy of worker’s passport
• Passport-sized photo of the worker
• Medical report from the worker’s country of origin

Once the visa approval letter is issued, the employee will need to apply for a VDR at the Malaysia Embassy. The employee must also need to obtain an Immigration Security Clearance (ISC) from an ISC Centre in the country of origin.

After receiving the VDR, the employee can travel to Malaysia. To obtain the temporary employment pass, the employee must undergo a FOMEMA medical examination within 30 days.

Professional visit pass

The professional visit pass is issued to foreign employees with professional qualifications or skills to work in Malaysia.

They are only allowed to provide services or undergo training with a Malaysian company on behalf of an overseas company for a period of 12 months.

The following individuals are eligible to apply for a professional visit pass:

• Experts or volunteers
• Filming and performance artists
• Government officials
• International students attending religious courses in Malaysia
• Religious workers (priests, gurukkal, granthi, guru dharma)

The sponsoring company must submit an application and the following documents to the Immigration Department in Malaysia:

• 12 and 38 form
• Passport copies of the foreign employee
• Passport sized photo
• Letter of offer from the Malaysian company
• Academic certificates (for students)
• CV or resume
• Bank guarantee (for Chinese applicants)

Once the pass is approved, the employee will need to obtain a VDR before entering Malaysia. Upon receiving the VDR and entering Malaysia, the employee must get a professional visit pass sticker on their passport at the Immigration Department.

Restricted occupations for foreign employees

Foreign employees are restricted from working in certain sectors which are reserved for locals. The following are restricted occupations for foreigners:

• Bistros
• Convenience shops
• Fuel stations
• Jewellery shop
• Medical hall
• Mini markets and supermarkets
• National strategic interest
• Non-exclusive restaurants
• Pavement stores
• Textile industries
• Wet market stalls

Are foreign employees entitled to the employee provident fund?

EPF is mandatory for Malaysian residents and permanent residents. However, EPF is not compulsory for foreign employees, but they can choose to contribute to the EPF.

How Acclime can help with your HR needs

To hire employees in Malaysia, foreign businesses must either set up a local entity or use the services of an EoR provider, i.e. a PEO.

Acclime is a premier provider of professional formation, accounting, HR & advisory, and tax services in Malaysia. With the help of our PEO services, you can hire employees without setting up a legal entity while saving time, reducing costs, and getting localised support with payroll, HR, and more. We will keep your business compliant with Malaysia’s labour laws and regulations, giving you peace of mind and relieving you of the burden of ensuring compliance for your employees.

Once you have decided to incorporate in Malaysia, our company registration team can help you with the set up process and take care of the transfer of employees to your new company.

We have explained that a company wishing to expand to Malaysia by employing staff here has two options: incorporation or EoR. We have outlined that both can be good solutions depending on the immediate needs of the foreign company. We have also listed some of the compliance requirements and given an idea of what additional costs you can expect. For the next step we recommend talking to an advisor.

Acclime is your premier advisor by being the provider of incorporation services and by being a PEO in Malaysia. We can provide all the information you need to make the right decisions. Contact us today to learn how Acclime can support your business expansion.