Guide to Hiring in Malaysia

Employment trends and job market analysis 

Malaysia is a prime location for hiring skilled talent, boasting a pipeline of highly literate, tertiary educated, multilingual talent. This is further supported by information in the Global Competitiveness Report 2019 by the World Economic Forum, where Malaysia ranked 6th out of 141 countries in terms of its pay-to-productivity ratio.

There are more than 330,000 students enrolled in tertiary programs at over 240 higher-learning institutions and more than 40% of Malaysians are below the age of 25.

It is easy to immigrate to and settle in Malaysia for work, as the Malaysian government provides expatriates with the Employment Pass (EP).

Taxes and payroll

Employer contributions

EPF, SOCSO, and EIS are three of the most commonly provided contributions to an employee’s salary in Malaysia.

Employee Provident Fund (EPF). Manages the compulsory savings plan and retirement planning for Malaysia’s private sector employees.

• 12 to 13% is provided to employees up until the age of 60 years old.
• 4 to 6.5% is provided to employees over the age of 60 years old.
  

Social Security Organisation (SOCSO). Also known as PERKESO, it provides social security protection to Malaysia’s private sector employees in case of workplace emergencies such as injuries, illness, or death.

• 1.75% is contributed by the employer

Employment Insurance Scheme (EIS). Is a financial scheme that collects funds from employers to provide retrenched with re-employment services, career counselling, training allowance, etc.

• 0.2%

Human Resource Development Fund (HRDF). A mandatory levy payment put in place to ensure that all Malaysian employees have access to training and upskilling resources. All employers are required to register under the Pembangunan Sumber Manusia Berhad Act 2001 (PSMB).

• 1% of each Malaysian employees’ monthly wages for companies with 10 or more Malaysian employees
• 0.5% of each Malaysian employees’ monthly wages for companies with five to 9 Malaysian employees.
  
  

Employee taxes

Personal income tax falls between 1 to 30%, depending on the employee’s average income bracket.

All employees in Malaysia are required to file their income tax for each calendar year by the 30^th of April.

Labour laws

When it comes to navigating the employment landscape in Malaysia, there are several statutory instruments that serve as the legal framework for employment matters. The main legislation governing employment in Malaysia is the Employment Act (EA).

This act outlines important employment terms and conditions such as basic wages, monthly minimum wage, annual leave, paid maternity leave, minimum working conditions standards, termination of employment contracts, and anti-discriminatory activities.

Alongside other employment regulations, these laws ensure that employees are protected and that there is a strong employer-employee relationship in Malaysia. Now let's take a look at the key sources of employment law in Malaysia.

The Employment Act 1955 (EA)

The Employment Act (EA) is a crucial legislative document in Malaysia that addresses employment matters. It establishes minimum standards for working conditions and terms of service, encompassing aspects such as normal working hours, employment contracts, wage payments, rest periods, and termination notices. It is important to note that the EA predominantly applies to 'employees,' as legally defined, which includes individuals with earnings below a specific monthly limit or those engaged in manual labour.

Industrial Relations Act 1967 (IRA)

The IRA handles trade disputes, trade unions, and industrial court matters. It provides a framework for resolving issues between employers and employees, including cases of unfair dismissal. It also regulates the recognition of trade unions and collective agreements.

Occupational Safety and Health Act 1994 (OSHA)

The OSHA oversees workplace safety and health regulations to prevent occupational accidents and diseases.

Employees Provident Fund Act 1991 (EPFA)

The EPFA requires mandatory contributions from both employees and employers towards a retirement fund.

Employees’ Social Security Act 1969 (SOCSO)

SOCSO details the social security scheme for employees, offering benefits to employees and their dependents in case of work-related accidents or occupational diseases.

Minimum Retirement Age Act 2012 (MRAA)

The MRAA establishes 60 years as the minimum retirement age for private sector employees, safeguarding them from age-based termination.

Alongside these primary sources, various other laws address specific aspects of employment, such as data privacy regulations and maternity leave regulations.

Employee rights

Employment contracts

In contrast to other countries, the Malaysian Employment Act ensures the inclusion of employment contracts. It mandates that any employment exceeding a one-month probationary period must be formalised through a written contract. This contract should distinctly include the employee's job description, work nature, compensation packages, benefits, as well as health and safety provisions. Both parties are required to sign the document.

Having a well-drafted contract can help prevent potential disputes in the future. For drafting employment contracts, you may reference a Sample Letter of Agreement. 

However, it is important to note that employment contracts cannot violate Malaysia's employment laws. They must not provide fewer rights or protections than those granted by the Employment Act 1955 and other relevant laws.

Data privacy

Data privacy is a significant concern in Malaysia, regulated by the Personal Data Protection Act 2010 (PDPA). Employers must comply with these regulations, which safeguard employees' personal data.

Minimum wage

As of May 1, 2022, Malaysia has increased the national monthly minimum wage by 25% from MYR 1200 to MYR 1500. Under the National Wage Consultative Council Act 2011, the Malaysian government is obligated to review its minimum wage every two years.

The average salary in Malaysia is 79,000 MYR annually. 

Working hours

In Malaysia, companies typically have a 40-hour work week, with working days capped at eight hours. Business hours are usually 9am-5pm. 

Employee benefits

In the Employment Act 1955, employers are legally obligated to provide their employees in Malaysia with certain basic rights and support. However, they are encouraged to develop additional policies that go beyond these fundamental requirements.

Benefits in Malaysia can be broken down into two categories: Mandatory and optional.

Mandatory benefits include leave entitlement, taxes, capped working hours of up to 48 hours per-week, taxes, and wages.

On the other hand, optional benefits typically run the gamut of:

• Medical, optical, dental, and/or life insurance
• Flexible working hours
• Bonuses
• Overtime pay
• Personal and professional training
• Paid or subsidied gym memberships
• Travel and/or parking allowance
• Additional paid leave

When thinking about which optional benefits to implement, consider them from the perspective of your staff. Thinking about what is most meaningful to their needs and how you can help them at every stage of growth helps you understand what they need from you.

This will not only result in more loyal and productive employees, but it will also help you retain them and positively impact your bottom line.

Types of leave

According to the Employment Act 1955 (EA), all employees in Malaysia are entitled to a certain number of leave requirements.

Annual leave

Section 60E of the EA outlines the annual leave entitlement for employees in Malaysia as follows:

• For the first two years of service, an employee is entitled to eight days of leave for every 12 months of continued service.
• For two to five years of service, an employee is entitled to 12 days of leave for every 12 months of continued service.
• For five years and more of service, an employee is entitled to 16 days of leave for every 12 months of continued service.

For employees that don’t complete 12 months of continuous service with the same employer, their annual leave will be prorated according to the number of months of completed service prior to their contract being terminated.

Malaysia public holidays

Public holidays in Malaysia occur on both a national and state level. Employees are entitled to 11 gazetted public holidays according to Section 60D of the EA, five of which must be:

• National Day,
• The Birthday of Yang-Di Pertuan Agong,
• The Birthday of the Ruler or the Yang di-Pertua Negeri or Federal Territory Day,
• Worker’s Day
• Malaysia Day

For the remaining six, it is up to the employer to determine and list which gazetted public holidays will be observed by the company.

In addition, any day that is declared as a public holiday by the Prime Minister under section 8 of the Holidays Act 1951 will entitle employees to a paid public holiday on that day. For public holidays that fall on a rest day (I.e. the weekend), it will be carried forward to the next working day.

Sick leave

Paid sick leave in Malaysia is based on an employee’s number of years of service. Section 60F of the EA declares that an employee is entitled to:

• 14 days of paid sick leave for less than two years of service
• 18 days of paid sick leave for two to five years of service
• 22 days of paid sick leave for more than five years of service

If hospitalisation in needed, the employee is eligible for total of 60 days of paid sick leave per calendar year. However, the must be able to provide a medical certificate and inform the employer within 48 hours or run the risk of being considered as absent without permission.

Maternity and paternity leave

In Malaysia, female employees are entitled to up to 98 consecutive days of paid maternity leave. They can also receive a maternity allowance if they have less than five surviving children and have been employed by the employer for at least 60 days in the 3 months preceding their delivery date.

The Employment (Amendment) Act 2022 now also grants working fathers a total of seven days of paid paternity leave.

Attracting Malaysian talent

As competition increases and becomes more globalised, companies must compete for local talent by offering more than just a high salary. According to Digital News Asia, eight out of 10 employees in Malaysia want to continue working from home while 89% of employees feel training and development are necessary to helping them stay relevant in an evolving job market. To confront this new wave of employee expectations, hiring managers must find ways to push the boundaries to meet candidates' expectations.

Here are some of the ways businesses can attract top talent in Malaysia:

Implement policies that promote work-life balance

In a recent survey, 88% of Malaysians have expressed that they want work-life balance. Covid-19 brought about a change in perspective in and employees in Malaysia today highly value working for companies that promote employee wellbeing and flexibility.

Upskilling and reskilling

As business pick up pace and digitisation accelerates in Malaysia, 9 out of 10 employees are interested in upskilling and reskilling. Many have even resorted to taking personal initiatives to upskill themselves. Companies that can help workers bridge their skills gap and provide them with various L&D resources will be the ones to stand out from the competition and appeal to a talent pool hungry for the opportunity to develop their skills and thrive in a digitally dominant business climate.

Career growth opportunities

Job seekers who are high performers and talented are always keen on learning new things, so they're always interested in joining organisations where there are opportunities for career growth. Whether these opportunities take the form of mentorships or professional development plans, business should focus on providing candidates with clear information about potential career pathways within the company.

Termination of employment

In Malaysia, any termination of employment must be done with "just cause or excuse." The following are the most widely recognised types of just cause or excuse for terminating an employment contract:

• Misconduct
• Retrenchment
• Poor performance
• Retirement
• The expiry of a legitimate fixed-term contract
• Resignation
• Mutual agreement

The burden of proof in an unfair dismissal case is on the employer. They must show that they terminated the employment contract with just cause or excuse.

An employee who believes they were fired without reason or justification can file a written request with the Director-General of Industrial Relations (DGIR) to be reinstated to their previous position.

If the DGIR believes there is no likelihood of these representations being settled, they may be directed to an industrial court.

Notice period

EA Employees are entitled to the following minimum notice periods:

• 4 weeks’ notice if the employee has been so employed for less than 2 years on the date on which the notice is given.
• 6 weeks’ notice if the employee has been so employed for 2 years or more, but less than 5 years on such date.
• 8 weeks’ notice if the employee has been so employed for 5 years or more on such date.

For non-EA Employees, the notice period is as stated in the employment contract, and if the contract is silent, a “reasonable” notice period will be implied.

Alternatively, a payment in lieu of notice can be made by either party.

Notice of termination is not required if there is a serious misconduct or a “wilful breach” of the employment contract.

Severance pay

EA Employees who have been employed for 12 months or more are entitled to the following minimum statutory severance payments pursuant to the Employment (Termination and Lay-Off Benefits) Regulations 1980:

• 10 days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for a period of less than 2 years.
• 15 days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for 2 years or more but less than 5 years.
• 20 days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for 5 years or more.

For non-EA Employees, the entitlement to severance payments depends on the employment contract.

If the contract is silent, there is a general expectation that a financially able employer should pay reasonable severance compensation.

Probation period

Probationary periods vary between companies. It is common to see probation periods of 1–6 months. Probationers are usually entitled to the same security of tenure as permanent employees, and any non-confirmation of employment during or at the termination of the probationary period must be reasonable.

Hiring best practices

Staff hiring practices in Malaysia are influenced by local laws, resources, and customs. It's important to note that your methods of hiring in your home country might not directly apply to other parts of the world. Let's explore how to hire people in Malaysia. 

Advertise job postings

To advertise your job positions in Malaysia, start by writing job descriptions and required qualifications. Once your job ads are complete, identify the platforms where your target audience is most likely to come across them.

In Malaysia, with an internet penetration rate of over 90 percent, job seekers are accustomed to searching for opportunities online. Additionally, consider exploring industry-specific job boards or publications to advertise your job positions. 

It's also a good idea to try and attract passive candidates through your job postings; this means appealing to people who might not be actively searching for a job but would be persuaded by the right opportunity. 

Review applications and narrow your talent pool

Malaysians typically submit one- or two-page CVs and cover letters when applying for jobs. If you advertise job openings in both English and Malay, you may receive applications in both languages. The recruiting agency or internal hiring committee will use software to filter through the received applications and identify the most qualified candidates.

Conduct interviews

In the past, conducting international interviews required either traveling to the country or arranging phone calls. If you are hiring employees for physical placements, manufacturing, or other company locations in Malaysia, in-person interviews remain beneficial. If you're focus is on hiring remotely, video calls have gained popularity as an interview method. Video calls over the internet allow you to simulate the visual feedback of face-to-face conversations without the need for travel.

When scheduling phone or video call interviews, it's important to consider any potential time difference between your location and the interviewee's. Malaysia follows Malaysia Time (MYT), which is eight hours ahead of Coordinated Universal Time (UTC).

Make the job offer

Once you have chosen the most qualified candidates, it's time to send out offer letters. This is also an opportune moment to share a draft of each candidate's employment contract. Remember, if you plan to employ someone in Malaysia for more than a month, it's legally required to have a written employment contract in place.

As per the Employment Act, employment contracts must include a termination provision. Other terms are at the discretion of the employer, but they must align with or surpass the conditions employees are entitled to under the Employment Act. Ensure that you state the salary in terms of Malaysian currency.

During this stage, there might be negotiations with job candidates before finalising their contract and obtaining their signature. If their hiring is contingent on the results of a background check, make sure to communicate this clearly and have them sign only after you have received the results.

Begin the onboarding process

Onboarding procedures vary across companies, but they are a crucial step in the hiring process. During onboarding, employees complete paperwork to establish payroll and be added to internal systems. It should also include training or general preparation to support employees as they begin their roles.

What are my options for hiring?

For businesses that want to hire locally in Malaysia, Airswift provides a variety of employment solutions that make it easy for you to hire employees efficiently and within full compliance with the local laws.

Our expertise allows us to minimise risk while bearing the administrative responsibilities of hiring and onboarding high-quality candidates while you focus on growing your business.

Hiring options businesses can explore include:

Work with an in-country talent acquisition specialist to source high-quality candidates in a competitive landscape.

• Our contract hire services can help you hire contractors fill temporary roles and provide your business with the agility to respond to shifts in needs and market demand.
• For long-term hiring needs, Airswift’s professional search can help you discover talented Malaysian candidates for permanent roles within your business.

For businesses that want to build a remote hiring strategy without setting up a physical entity, an Employer of Record in Malaysia simplifies the process of hiring Malaysian employees with minimal compromise on time and expense.

An experienced Employer of Record lets you bypass the complications of physical entity setup and focus on growing your business. Tasks an EOR can help you manage include overseeing locally compliant payroll and managing statutory benefits.

*Although the information provided has been produced from sources believed to be reliable, no warranty, express or implied, is made regarding the accuracy, adequacy, completeness, legality or reliability of any information. For the latest information and specific queries regarding particular cases, please contact our team.