Hiring Employees in Malaysia

Malaysia has established itself as a premier destination for companies seeking to hire employees in Asia. There are several reasons why hiring employees in Malaysia aligns with business growth strategies.

Marco Förster

Director, Operations

Malaysia boasts a diverse and highly skilled workforce, featuring a strong command of English, technical proficiency, and multicultural agility. The nation’s population stands at approximately 33.85 million, with a literacy rate above 95 percent and a large cohort of graduates in science, technology, and business disciplines. Key business hubs—including Kuala Lumpur, Penang, and Johor Bahru—offer access to both tech-savvy professionals and seasoned industry talent.

Common hiring options for foreign companies

Foreign companies can employ talent in Malaysia through three main models:

Option	Requirements	Pros	Cons
1. Setting Up a Local Entity	Requirements: Company incorporation (Sdn. Bhd.) Bank account setup Tax registration Office lease	Full control over operations, branding, and HR practices. Builds long-term market presence.	Significant setup costs (legal, registration, minimum capital, physical office). Requires local director and corporate governance compliance. Time-consuming process (can take several weeks to months).
2. Employer of Record (EOR)	An EOR is a third-party service provider that becomes the legal employer while your business retains day-to-day operational control.	Fast entry (onboarding within days). Full compliance with Malaysian labour laws. No need for entity incorporation. Reduced risk of employee misclassification.	Less direct control over employment contracts and company culture. Service fees apply.
3. HR and Payroll Outsourcing	Outsourcing HR, payroll, and compliance administration to third-party experts—ideal for non-core or temporary roles.	Cost-efficient — pay only for needed services. Access to technology and HR compliance expertise. Scalable and flexible solution.	Quality and service depend on provider reliability. May not suit strategic or core HR functions.

Factor	Direct Hiring (Local Entity)	Employer of Record (EOR)	Payroll Outsourcing
Legal Setup	Required	Not required	Not required
Speed	Weeks to months	Days to weeks	Days to weeks
Cost	High upfront	Service fee	Service/subscription fee
Control	High	Medium	Limited
Compliance	Self-managed	Fully managed	Managed by provider
Best for	Long-term, core workforce	Fast entry, remote teams	Temporary/short-term roles

Legal framework for hiring in Malaysia

Malaysia’s labour and employment environment is regulated by a robust legal framework:

Employment Act 1955: Governs contracts, wages, working hours, leave, overtime, and termination. Covers most employees (including foreign workers) earning up to RM4,000/month, with many provisions extended through contractual practice.

Industrial Relations Act 1967: Outlines dispute resolution procedures and union rights.
Occupational Safety and Health Act 1994 (OSHA): Mandates safe and healthy workplaces for all.
EPF, SOCSO and EIS: Statutory benefits covering retirement, work injury, and retrenchment insurance for local and (since 2025) some categories of foreign workers.

Both local and foreign hires are generally covered by these laws, although specific coverage for social security may differ.

Hiring local employees in Malaysia

Required in writing for roles exceeding one month. Must specify position, salary, benefits, working hours, leave, termination provisions, and statutory compliance.

Probationary period typically lasts for 3–6 months. Probationers are still entitled to all statutory benefits.

Working hours, leave and benefits

Standard: 8 hours/day, 45 hours/week.
Overtime: 1.5x pay after 8 hours; 2x on rest days; 3x on public holidays.
Annual Leave: 8–16 days (tenure-based).
Sick Leave: Up to 22 days; 60 days if hospitalized.
Maternity/Paternity: 98 days (female), 7 days (male).
Public Holidays: 11 annually.
Flexible work arrangements are mandated for companies with over 10 employees.

Payroll cycle, deductions and taxes

Monthly payroll, paid within 7 days after cut-off.
Statutory deductions: EPF (12–13%), SOCSO (1.75%), EIS (0.2%), PCB (income tax, by bracket).
Payslips are mandatory; digital payroll systems are recommended.
Non-compliance may result in fines/penalties.

Rights to a safe workplace, fair wage, statutory leave, and non-discrimination. Dismissal must be based on misconduct, poor performance (after warnings), or redundancy—with proper notice. Wrongful termination can be challenged in the Industrial Court.

Hiring foreign employees in Malaysia (work permit guide)

Malaysia allows the hiring of foreign employees under specific work permit categories based on skill level, job type, and duration of employment. Employers must ensure compliance with the Ministry of Human Resources (MOHR) and Immigration Department regulations before onboarding any foreign worker. Below is a summary of the main work pass types and their key features.

Work Permit Type	Purpose / Eligibility	Key Details and conditions
Employment Pass (EP)	For skilled foreign professionals such as managers, executives, and technical experts.	Divided into three categories based on monthly salary and contract duration: Category I: ≥ RM 10,000/month, valid up to 5 years, dependents allowed. Category II: RM 5,000–9,999/month, valid up to 2 years. Category III: RM 3,000–4,999/month, valid 1 year, renewable twice.
Temporary Employment Pass (TEP / PLKS)	For less-skilled or semi-skilled roles in key industries (manufacturing, construction, plantation, and services).	Valid for 12 months. Open only to citizens of approved source countries. Must meet quota and medical screening requirements.
Professional Visit Pass (PVP)	For foreign professionals on short-term assignments or secondments.	Typically valid for up to 12 months. Intended for temporary work, consultancy, or project support. Cannot be converted into a long-term employment pass.
Residence Pass – Talent (RP-T)	For highly skilled, long-term professionals across various sectors.	Offers 10-year validity and greater job mobility between employers. Designed to retain global talent in Malaysia’s strategic industries.

Foreign worker hiring checklist

Step No.	Action Item	Checklist
1	Register with MOHR and Immigration Department	☐
2	Apply for and receive quota approval	☐
3	Prepare employment contract, salary offer, medical check, and supporting documents	☐
4	Submit work permit/visa application	☐
5	Obtain Pass before job start	☐
6	Register worker for SOCSO and (from 2025) EPF/EIS where required	☐
7	Retain records and file regular employment status reports	☐

Malaysian employers are legally obliged to perform multiple compliance tasks:

Statutory Deduction	Local Employees	Foreign Employees	Payment Deadline
EPF	12–13%	2% employer (Q4 2025 onward)	15th of next month
SOCSO (Injury/Invalidity)	1.75%	1.25% (for injury only)	15th of next month
EIS (Unemployment)	0.2%	Exempt	15th of next month
HRDF	1% (≥10 staff)	Exempt/uncommon	15th of next month
Income Tax (PCB)	Bracket-based	Bracket-based	15th of next month

Employers are also responsible for providing itemized digital payslips, filing annual EA forms (tax summary), and keeping payroll and tax records for at least seven years. Penalties for non-compliance range from fines (up to RM50,000) to criminal prosecution.

Salary and benefits in Malaysia

As of 2025, the national minimum wage is RM 1,700/month for all employers (RM 1,700 mandatory from February for companies with 5+ staff, August for all).

Category	Benefit type	Examples / Description
Statutory employee benefits	Mandatory benefits required by Malaysian law	EPF (Employees Provident Fund) – retirement savings contribution. SOCSO (Social Security Organisation) – protection for workplace injury and invalidity. EIS (Employment Insurance System) – income support for job loss or unemployment. Paid annual leave, sick leave, and public holidays – statutory entitlements under the Employment Act. Maternity / Paternity leave – protected parental leave provisions.
Non-statutory benefits	Optional employer-provided benefits (discretionary)	Medical coverage – outpatient, inpatient, and dental benefits. Insurance and allowances – such as housing, transport, or meal allowances. 13th-month / annual bonuses – commonly offered by larger companies. Wellness, lifestyle, and work-from-home subsidies – modern employee engagement and retention perks.

Step-by-step hiring process in Malaysia

Clarify job description, qualifications, and budget.
Select hiring model: Direct (entity setup), EOR, or outsourced provider.
Use portals like JobStreet, Jobstore, LinkedIn, Hiredly.
Shortlist and interview candidates—panel and behavioral interviews are common.
Issue compliant written contract stating all relevant terms.
Enroll for EPF, SOCSO, EIS, and register in PCB (tax).
Onboard with documentation, such as identity proof, banking, tax, social security information; digital onboarding is becoming standard.
Monitor fit and performance during 3–6 month period, document feedback.
Schedule regular upskilling, ensure policy acknowledgment.

FAQs on Hiring Employees in Malaysia

What are the legal steps to hire employees in Malaysia?

Define the role, select your hiring model (entity, EOR, or outsourcing), advertise, interview, issue a written contract, register for EPF/SOCSO/EIS/PCB, and onboard the employee in compliance with Malaysian law.

What are the main types of work permits in Malaysia?

Employment Pass (skilled professionals),
Temporary Employment Pass (unskilled/semi-skilled),
Professional Visit Pass (short-term assignment), and
Residence Pass-Talent (long-term professionals).

How long does it take to hire a foreign employee?

From application to onboarding, between 4 to 6 weeks is typical for work permit processing depending on documentation and approval speeds.

What are employer tax contributions in Malaysia?

Statutory contributions include:

EPF (12–13% local; 2% foreign),
SOCSO (up to 1.75%),
EIS (0.2%),
HRDF (1% in certain sectors), and
Monthly PCB income tax withholding by pay bracket.

Can foreigners hire local employees without a Malaysian entity?

Yes—by partnering with an Employer of Record (EOR) or a global PEO provider, allowing fast, compliant hiring without setting up a physical local office.

What is the minimum wage in Malaysia in 2025?

RM1,700/month (national minimum wage; applies to all employers from August 2025).

How do I stay compliant with Malaysia’s labour laws?

Understand the Employment Act, keep contracts up to date, process payroll and benefits accurately, use digital compliant payroll, and monitor government updates. Engaging an EOR or payroll provider can help ease compliance.