Global EOR Services in Malaysia

Employment Laws and Policies in Malaysia

Employment Contracts in Malaysia

Employment law in Malaysia is governed by Employment Act 1955 (for certain categories of employees), Industrial Relations Act 1967 (for disputes, trade unions), Minimum Retirement Age Act 2012, and various regulations.

Important Note: Employment Act 1955 applies to:

• Employees earning ≤RM 4,000/month (for certain provisions – though many apply to all)
• Manual workers regardless of salary
• Certain categories (domestic workers, government servants excluded)

For employees >RM 4,000/month (professional, managerial): Employment Act still applies for some protections, but contract terms more important, common law principles apply.

Contract Requirements

Employment contracts should be in written form (strongly recommended, though oral contracts recognized for some).

For employees under Employment Act (<RM 4,000/month or manual): Written contracts becoming more common practice (though not strictly mandated by Act itself – Section 10 requires certain terms communicated).

For all employees: Best practice to have written contract including:

• Full names and identification of employer and employee
• Job title and description of duties
• Place of work
• Start date of employment
• Contract type (permanent, fixed-term, temporary)
• Duration (if fixed-term)
• Probationary period (if applicable)
• Working hours and schedule
• Salary/wage (amount in MYR) and payment frequency
• Allowances and benefits
• Annual leave entitlement
• Sick leave provisions
• Notice periods for termination
• Any other agreed terms and conditions

Language:

• Contracts typically in English (most common for business)
• Bahasa Malaysia also used (national language, official)
• Bilingual contracts (English-Bahasa) acceptable
• If dispute, Bahasa Malaysia version may take precedence in some interpretations (national language), but English widely accepted

Registration:

• Employment contracts do not require registration with government (though employer must register employees with EPF, SOCSO, EIS, LHDN tax)

Copies:

• Two copies: employer and employee

Types of Contracts

1. Permanent/Indefinite Contract

• Open-ended employment relationship
• No predetermined end date
• Standard for permanent employees
• Full protections and benefits

2. Fixed-Term/Temporary Contract

• Defined end date or completion of specific project
• Can be used for:
  • Temporary increase in workload
  • Seasonal work
  • Replacement of absent employee (maternity, long leave)
  • Specific project with defined completion
• Maximum duration: No strict statutory limit (unlike some countries)
• Renewal: Can be renewed, but if repeatedly renewed and effectively permanent employment, courts may deem it permanent contract
• At expiry: Employment ends (unless renewed)

3. Part-Time Contract

• Less than standard full-time hours
• Pro-rata entitlements under Employment Act

4. Contract for Service (Independent Contractor)

• Not employee (self-employed, contractor)
• Different legal treatment (no Employment Act protections, no EPF/SOCSO unless voluntary)
• Careful: Courts look at substance, not label – if relationship effectively employment, may be deemed employee despite contract label

Probation Period (Tempoh Percubaan – Trial Period)

• Typical duration:
  • 3 months most common
  • 6 months for senior positions, technical roles (less common but acceptable if agreed)
• Not strictly mandated by Employment Act but well-established practice
• Should be clearly stated in written employment contract
• During probation:
  • Full salary applies (some employers pay slightly lower – e.g., 90% – by agreement, but must meet minimum wage)
  • Notice period: Typically 1 day to 1 week for either party (much shorter than confirmed employees – allows easier termination if unsuitable)
  • Employer can terminate more easily (unsuitability, performance)
  • Employee can resign more easily
  • Benefits typically apply (EPF, SOCSO, annual leave accrues, etc.)
• After probation:
  • Automatic transition to confirmed employment (unless employer explicitly extends probation or terminates – should notify in writing)
  • Standard notice periods and protections apply

An EOR ensures employment contracts comply with Malaysian Employment Act (where applicable), are properly drafted in English/Bahasa, specify probation clearly, and protect both employer and employee.

---

Working Hours in Malaysia

Working time in Malaysia is regulated by Employment Act 1955 (for covered employees).

Standard Working Hours

Statutory maximum (Employment Act):

• 48 hours per week (standard maximum)
• 8 hours per day (for 6-day work week) or 9 hours per day (for 5-day work week – averaged)

Common practice:

• 5-day work week increasingly common (Monday-Friday, especially offices, professional services, IT)
• 6-day work week still exists (especially retail, manufacturing, hospitality – Monday-Saturday, half-day Saturday common)
• Typical office hours: 9:00 AM – 6:00 PM (Monday-Friday) with 1-hour lunch break

Ramadan:

• Muslim employees may have reduced working hours during Ramadan month (common practice, though not strictly mandated by law – employers often allow early finish or flexible hours)
• Friday prayers: Muslim employees entitled to break on Friday (~1-2 hours around 12:30-2:30 PM) to attend prayers (well-established practice, culturally expected)

Rest Periods and Breaks

Weekly rest:

• Minimum 1 full day (24 hours) per week
• Typically Sunday (or Friday in some states – Kedah, Kelantan, Terengganu have Friday-Saturday weekends; Johor has Friday half-day + Saturday-Sunday)

Meal breaks:

• Not strictly mandated by Employment Act but customary:
  • Typically 1 hour lunch break if working 6+ hours (unpaid)
  • Common: 12:00-1:00 PM or 1:00-2:00 PM

Overtime (Kerja Lebih Masa – Overtime Work)

Overtime = hours beyond normal working hours (48 hours/week or 8-9 hours/day).

Employment Act provisions (for covered employees <RM 4,000/month or manual):

Overtime rates:

• Regular days (Monday-Saturday): 1.5× hourly rate minimum
• Rest days (typically Sunday): 2× hourly rate minimum for first 8 hours, 3× hourly rate for hours beyond 8
• Public holidays: 3× hourly rate for all hours worked

Calculation:

• Hourly rate = Monthly salary ÷ 26 days ÷ normal daily hours (e.g., ÷ 26 ÷ 8 for 8-hour day)
• Or: Hourly rate = Monthly salary ÷ (48 hours/week × 52 weeks ÷ 12 months) = Monthly salary ÷ 208 hours

Employee consent:

• Employer can require overtime (within limits)
• Employee entitled to refuse if total hours exceed limits

Limits (Employment Act):

• Maximum overtime not to exceed 104 hours per month (though rarely enforced strictly)

For employees >RM 4,000/month (professional, managerial):

• Not covered by Employment Act overtime provisions
• Overtime compensation based on contract terms, company policy
• Many companies do not pay overtime for managerial/professional staff (expected to work additional hours as needed)

Public Holiday Work

If employee required to work on public holiday:

• Employment Act: Entitled to another day off in lieu, or
• Pay at 3× hourly rate if work on public holiday

Flexible Work Arrangements

Malaysia increasingly supports flexible work (especially post-COVID, IT sector):

• Remote work: Common in IT, professional services, BPO
• Flexible hours: Flextime arrangements in some companies
• Compressed work week: Some companies (e.g., 4.5-day week with Friday half-day)
• Work from home policies: Increasingly formalized (especially Klang Valley – Kuala Lumpur traffic congestion makes WFH attractive)

---

Employee Leave in Malaysia

Malaysian Employment Act provides statutory leave entitlements (for covered employees).

Annual Leave (Cuti Tahunan – Paid Vacation)

Statutory minimum (Employment Act – for employees <RM 4,000/month or manual):

Varies by length of service:

• Years 1-2 (less than 2 years service): 8 days
• Years 2-5 (2 to <5 years service): 12 days
• Year 5+ (5+ years service): 16 days

For employees >RM 4,000/month (professional, managerial – not covered by Employment Act leave provisions):

• Annual leave based on contract terms, company policy
• Common practice: 12-20 days for professionals (competitive packages to attract talent)

Accrual:

• After completing relevant service period

Scheduling:

• Employer approves timing (considering employee preferences, operational needs)

Carry-over:

• Practices vary (some companies allow carry-over, others require use within year)

Cash payment:

• Generally cannot be paid in lieu during employment (must take leave)
• Exception: Upon resignation/termination, accrued unused leave paid out

Payment:

• Paid at normal salary rate

Many employers offer more generous leave:

• 14-18 days common for permanent staff in competitive sectors (IT, finance, MNCs)

Public Holidays (Cuti Umum – Official Holidays)

Malaysia observes minimum 11 public holidays annually (national level – states may have additional state-specific holidays):

National public holidays (minimum 11 – applicable nationwide):

• New Year’s Day (1 January)
• Federal Territory Day (1 February – Kuala Lumpur, Labuan, Putrajaya only; not Selangor/other states)
• Chinese New Year (2 days – variable, typically late January/February)
• Thaipusam (variable – January/February – major Hindu festival)
• Hari Raya Puasa / Eid al-Fitr (2 days – variable, end of Ramadan – major Muslim festival)
• Labour Day (1 May)
• Wesak Day (variable – April/May – Buddha’s Birthday)
• Agong’s Birthday / King’s Birthday (first Monday of June)
• Hari Raya Haji / Eid al-Adha (variable – Feast of Sacrifice – major Muslim festival)
• Awal Muharram / Islamic New Year (variable)
• Malaysia Day (16 September – 1963 formation of Malaysia)
• Merdeka Day / Independence Day (31 August – 1957 independence from Britain)
• Deepavali / Diwali (variable – October/November – major Hindu festival)
• Christmas Day (25 December)

State-specific holidays: Each state has additional holidays (e.g., Sultan’s/Governor’s birthdays, state holidays) – total can reach 14-16 days per state.

Note: Malaysia’s multi-ethnic, multi-religious society reflected in public holidays (Islamic – Hari Raya Puasa/Haji, Awal Muharram; Chinese – Chinese New Year; Hindu – Thaipusam, Deepavali; Buddhist – Wesak; Christian – Christmas; national – Merdeka, Malaysia Day).

Entitlements:

• Public holidays are paid days off (in addition to annual leave)
• If required to work: 3× hourly rate (Employment Act), or another day off in lieu

Sick Leave (Cuti Sakit – Medical Leave)

Statutory sick leave (Employment Act – for covered employees):

Duration and payment (varies by length of service):

Outpatient sick leave (medical certificate from registered doctor/medical officer):

• <2 years service: 14 days per year
• 2-5 years service: 18 days per year
• 5+ years service: 22 days per year

Hospitalization (admitted to hospital – certificate from hospital):

• 60 days per year (regardless of length of service)
• Includes outpatient days (cumulative with above)

Total maximum: Outpatient days + hospitalization = up to 60 days per year maximum

Payment:

• Paid by employer at normal salary rate for statutory days

Medical certificates:

• Required from day 1 of sick leave
• From registered medical practitioner (government clinic, panel clinic, private doctor)

Employer obligations:

• Pay sick leave as per statutory provisions
• Cannot dismiss employee for legitimate illness (within statutory period)

For employees >RM 4,000/month (not covered by Employment Act sick leave):

• Sick leave based on contract terms, company policy
• Common practice: Similar to Employment Act (14-22 days) or more generous

Maternity Leave (Cuti Bersalin – Maternity Leave)

Statutory maternity leave:

Duration:

• 98 days (14 weeks) paid maternity leave
  • Increased from 60 days in 2022 reforms (effective 2023)
  • One of region’s most generous

Eligibility:

• Female employees who have worked for employer for at least 90 days in 9 months immediately before confinement
• For first 5 children only (maternity leave not provided for 6th child onward)

Maternity pay:

• Paid by employer at normal salary rate
• For entire 98 days

Job protection:

• Employer cannot dismiss pregnant employee or mother on maternity leave (except serious misconduct, company closure)
• Position must be held open
• Right to return to same job

Additional protections:

• Cannot require pregnant woman to work at night, overtime, on public holidays/rest days without her consent
• Entitled to maternity examination leave (for prenatal medical appointments)

Paternity Leave (Cuti Paterniti)

Statutory paternity leave:

• 7 days paid paternity leave
• Introduced in amendments (effective 2023)
• For married male employees
• Must be taken within reasonable period around child’s birth (typically within first few months)
• Paid by employer at normal salary rate

Parental Leave

No extensive statutory parental leave beyond maternity/paternity (as of current regulations).

Some companies voluntarily offer additional unpaid parental leave or extended leave options.

Other Leave

Compassionate/Bereavement Leave:

• Not statutory under Employment Act
• Common practice: 3-5 days paid leave for death of immediate family (spouse, child, parent, sibling)

Marriage Leave:

• Not statutory
• Some employers provide 3 days for employee’s marriage (company policy)

Pilgrimage Leave (Hajj/Umrah):

• Not statutory
• Some employers (especially government, GLCs, Islamic organizations) provide unpaid leave for Hajj (pilgrimage to Mecca – once in lifetime)

Unpaid Leave:

• By mutual agreement for personal reasons

---

Employee Benefits in Malaysia

Mandatory Statutory Benefits

1. Employees Provident Fund (EPF – Kumpulan Wang Simpanan Pekerja / KWSP) Contributions

EPF is Malaysia’s mandatory retirement savings scheme for private sector employees.

EPF Contribution Rates (2024 – recent changes):

For employees <60 years:

• Employer contribution:12-13% of monthly wages (varies by wage level – see below)
  • If monthly wage ≤RM 5,000: 13%
  • If monthly wage >RM 5,000: 12%
• Employee contribution: 11% of monthly wages (standard rate)

Total: ~23-24% of monthly wages

Note: EPF rates changed January 2024 (previously employer 12%, employee 11% flat; now tiered employer contribution to encourage higher contributions for lower-wage workers).

Calculation:

• Based on gross monthly wages (including allowances, bonuses if regular)
• No maximum ceiling (unlike some countries – contributions on full salary)

Example (Monthly salary RM 4,000):

• Employer EPF: RM 4,000 × 13% = RM 520
• Employee EPF: RM 4,000 × 11% = RM 440
• Total monthly EPF: RM 960 (24%)

Example (Monthly salary RM 8,000):

• Employer EPF: RM 8,000 × 12% = RM 960
• Employee EPF: RM 8,000 × 11% = RM 880
• Total monthly EPF: RM 1,840 (23%)

What EPF provides:

• Retirement savings: Accumulated contributions + dividends (EPF invests funds, declares annual dividend – historically 5-6%)
• Withdrawals: Retirement age (currently 60 years), partial withdrawals for housing, education, healthcare (pre-retirement under specific schemes)
• Not insurance: EPF is savings scheme, not social insurance (no unemployment, disability, death benefits per se – though heirs inherit EPF savings if member dies)

Who contributes:

• Malaysian citizens and permanent residents: Mandatory EPF
• Foreign workers: Generally not required to contribute to EPF (though can opt-in voluntarily – rare)

2. Social Security Organisation (SOCSO – Pertubuhan Keselamatan Sosial / PERKESO) Contributions

SOCSO provides social insurance for work injury, invalidity, death, survivors’ benefits.

SOCSO Contribution Rates:

For employees <60 years earning <RM 5,000/month:

Total contributions: ~2.5% of monthly wages

Breakdown:

• Employment Injury Scheme (EIS – Skim Kecederaan Pekerja):
  • Employer: 1.25%
  • Employee: 0.5%
  • Total: 1.75%
• Invalidity Pension Scheme (IPS – Skim Pencen Hilang Upaya):
  • Employer: 0.5%
  • Employee: 0.5%
  • Total: 1%

Combined SOCSO: Employer ~1.75%, Employee ~1%, Total ~2.75% (for wages <RM 5,000/month; rates vary by wage bracket – consult SOCSO tables)

For employees earning ≥RM 5,000/month:

• Only Employment Injury Scheme applies (not Invalidity Pension Scheme)
• Lower rates (employer only contributes for EIS)

Calculation:

• Based on wage brackets (SOCSO has contribution tables – not flat percentage but varies by wage level)
• Maximum contribution ceiling (~RM 4,000-5,000 wage level for full contributions)

What SOCSO covers:

• Employment Injury Insurance: Medical treatment, temporary/permanent disability benefits, dependents’ benefits if death due to work injury or occupational disease
• Invalidity Pension: Pension if employee becomes invalid/disabled (not work-related), survivors’ pension if death (not work-related)

Who contributes:

• Malaysian citizens and permanent residents: Mandatory SOCSO (once covered, contributes for life – even if salary increases above ceiling)
• Foreign workers: Generally not covered by SOCSO (though recent discussions about extending coverage – verify current status)

3. Employment Insurance System (EIS – Sistem Insurans Pekerjaan / SIP) Contributions

EIS provides unemployment insurance and retraining support for retrenched workers.

Introduced: January 2018

EIS Contribution Rates:

For employees <60 years earning <RM 5,000/month:

• Employer contribution: 0.2% of monthly wages
• Employee contribution: 0.2% of monthly wages
• Total: 0.4%

Calculation:

• Based on monthly wages
• Maximum contribution ceiling (RM 4,000 insurable salary)

Example (Monthly salary RM 4,000):

• Employer EIS: RM 4,000 × 0.2% = RM 8
• Employee EIS: RM 4,000 × 0.2% = RM 8
• Total monthly EIS: RM 16 (0.4%)

What EIS covers:

• Job loss protection: Monthly allowance if lose job due to redundancy, company closure (not resignation, dismissal for misconduct)
  • Up to 6 months (or 12 months depending on contributions)
  • 80% of salary first month, decreasing monthly
• Retraining and job placement: Training programs, employment services, career counseling

Who contributes:

• Malaysian citizens and permanent residents: Mandatory EIS
• Foreign workers: Generally not covered by EIS

4. Income Tax (Cukai Pendapatan – Personal Income Tax / PCB – Potongan Cukai Berjadual / MTD – Monthly Tax Deduction)

Malaysia uses progressive income tax system.

Personal Income Tax Rates (2024 – verify current as subject to Budget changes):

Progressive brackets (annual income – Malaysian resident individuals):

• First RM 5,000: 0%
• Next RM 15,000 (RM 5,001-20,000): 1%
• Next RM 15,000 (RM 20,001-35,000): 3%
• Next RM 15,000 (RM 35,001-50,000): 8%
• Next RM 20,000 (RM 50,001-70,000): 14%
• Next RM 30,000 (RM 70,001-100,000): 21%
• Next RM 150,000 (RM 100,001-250,000): 24%
• Next RM 150,000 (RM 250,001-400,000): 25%
• Next RM 200,000 (RM 400,001-600,000): 26%
• Next RM 400,000 (RM 600,001-1,000,000): 28%
• Above RM 1,000,000: 30% (top marginal rate)

Tax reliefs/deductions:

• Personal relief: RM 9,000
• Spouse relief: RM 4,000
• Child relief: RM 2,000-8,000 per child (depending on age, education, disability)
• EPF/KWSP relief: Up to RM 4,000
• Life insurance, medical insurance, education, others: Various amounts

Employer responsibilities:

• Calculate and deduct Monthly Tax Deduction (MTD / PCB – Potongan Cukai Berjadual) from employee salary
  • Use LHDN (Inland Revenue Board – Lembaga Hasil Dalam Negeri) PCB calculator/tables
• Remit MTD to LHDN by 15th of following month
• Annual reconciliation

Note: Malaysia’s income tax relatively low compared to many developed countries (0% up to RM 5,000/year, maximum 30% on income >RM 1,000,000/year).

5. Minimum Wage (Gaji Minimum)

National Minimum Monthly Wage (2024 – increased February 2024):

• RM 1,500/month (for all sectors, all states)
  • Increased from RM 1,200 (previous minimum in major towns)
  • Applies to all employees (regardless of Employment Act coverage)

Hourly equivalent: ~RM 7.21/hour (for 8-hour day, 26-day month)

Adjustment:

• Periodically reviewed by National Wages Consultative Council (NWCC)

Enforcement:

• JTKSM (Department of Labour, Peninsular Malaysia – Jabatan Tenaga Kerja Semenanjung Malaysia) inspects
• Violations subject to fines, prosecution

Note: Minimum wage relatively modest. Market salaries significantly higher for skilled workers (typical entry-level graduates RM 2,500-3,500/month, professionals RM 4,000-15,000+/month).

6. Termination Benefits / Severance

No statutory mandatory severance pay under Employment Act (unlike some countries with mandatory 1-2 months per year formulas).

However:

• Retrenchment benefits (redundancy): Strong expectation/custom that employers pay retrenchment compensation (though not strictly mandated by Act)
  • Common practice: 1 month’s salary per year of service (or pro-rata) on redundancy
  • Based on case law, Industrial Court awards, custom and practice
• Unfair dismissal: If dismissal found unfair by Industrial Court, can award compensation (typically backwages + compensation in lieu of reinstatement – can be substantial)

Industrial Relations Act: Employees can challenge dismissal as unfair (Industrial Court can order reinstatement or compensation).

Employer Costs Summary

Total employer statutory costs on top of gross salary (approximate):

• Employer EPF: 12-13% (depending on wage level)
• Employer SOCSO: ~1-1.75% (varies by wage bracket)
• Employer EIS: 0.2%
• Total employer statutory cost: ~13-15% on top of gross

Example (Malaysian employee, RM 4,000/month salary):

• Employer EPF: RM 520 (13%)
• Employer SOCSO: ~RM 70 (1.75% approx)
• Employer EIS: RM 8 (0.2%)
• Total: ~RM 598 (~15%)
• Total employer cost: ~RM 4,598

Employee deductions from gross:

• Employee EPF: 11%
• Employee SOCSO: ~1%
• Employee EIS: 0.2%
• Income Tax (MTD/PCB): Varies (0-30% progressive, after reliefs – typical middle income ~3-10% effective)
• Total employee deductions: ~13-25% of gross

Net salary: ~75-87% of gross (depending on income, reliefs)

Common Additional Benefits Provided by Employers

To attract and retain talent in competitive sectors (IT, finance, professional services, MNCs), Malaysian employers often offer:

Financial:

• Performance bonuses (annual, quarterly – very common in MNCs, professional services)
• 13th month salary / year-end bonus (AWS – Annual Wage Supplement, common practice especially MNCs, GLCs)
• Profit-sharing schemes

Transportation:

• Petrol/car allowance (common – RM 200-800/month)
• Company car (senior management, sales)
• Parking allowance (Kuala Lumpur parking expensive)

Meals:

• Meal allowance (RM 10-20/day)
• Subsidized cafeteria (large companies, manufacturing plants)

Health & Insurance:

• Private health insurance / medical benefits (very common – panel clinics, hospitalization coverage)
  • Supplements government healthcare (Malaysia has public healthcare system but private insurance common benefit)
• Dental, optical coverage
• Life insurance, personal accident insurance

Leave:

• Additional annual leave (beyond statutory 8-16 days – companies offer 12-20 days)
• Birthday leave (1 day off for birthday – trendy benefit, especially tech companies)

Professional Development:

• Training budget, certifications (IT – AWS, Microsoft, Cisco; finance – ACCA, CPA; professional – CPD)
• Conference attendance

Work-Life Balance:

• Flexible work arrangements (remote work, hybrid, flextime – post-COVID, increasingly standard in IT, professional services)
• Wellness programs (gym memberships, health screenings)

Other:

• Mobile phone or phone allowance
• Childcare allowance or subsidies
• Housing loan assistance (some large companies/GLCs)

An EOR ensures all mandatory statutory contributions (EPF 23-24%, SOCSO ~2.75%, EIS 0.4%, income tax MTD/PCB) are calculated accurately, remitted on time, and competitive market-standard benefits can be included.

---

Payroll & Tax in Malaysia

Payroll Currency

• All salaries paid in Malaysian Ringgit (MYR / RM)

Payroll Cycle

• Monthly payroll standard (universal)
• Payment typically end of month or beginning of following month (1st-7th)
• Payment by bank transfer (direct deposit) universal (RENTAS system – electronic transfer)

Payslips:

• Must be provided (showing gross, deductions – EPF, SOCSO, EIS, income tax MTD/PCB, net)

Personal Income Tax

See detailed rates in Benefits section above.

Summary:

• Progressive rates 0-30% on annual income (after reliefs/deductions)
• Monthly Tax Deduction (MTD/PCB): Employers deduct and remit monthly based on LHDN tables/calculator

Payroll Deductions Summary

From employee gross salary:

• Employee EPF: 11%
• Employee SOCSO: ~1%
• Employee EIS: 0.2%
• Income Tax (MTD/PCB): 0-30% progressive (after reliefs – typical middle income ~3-10% effective)
• Total employee deductions: ~13-25% of gross

Net salary: ~75-87% of gross

Employer Payroll Responsibilities

Malaysian employers must:

Monthly obligations:

• Calculate and deduct Employee EPF (11%), SOCSO (~1%), EIS (0.2%)
• Pay Employer EPF (12-13%), SOCSO (~1-1.75%), EIS (0.2%)
• Calculate and deduct Income Tax (MTD/PCB) (progressive, LHDN tables)
• Remit EPF to KWSP by 15th of following month (via i-Akaun portal)
• Remit SOCSO to PERKESO by 15th of following month (via ASSIST portal)
• Remit EIS to PERKESO (same as SOCSO, combined)
• Remit MTD/PCB income tax to LHDN by 15th of following month (via e-PCB system)
• File monthly returns (EPF Borang A, SOCSO/EIS combined return, LHDN CP39)
• Issue payslips to employees

Annual obligations:

• File EA Form (Borang EA) for each employee by last day of February (annual remuneration statement)
• Submit E Form to LHDN by 31 March (employer’s annual return of remuneration – summary of all employees)
• Employees file own Income Tax Returns (Form BE/B) by 30 April (though most salaried employees with MTD/PCB only may not need to file if no additional income)
• Reconcile EPF, SOCSO, EIS, PCB

Ongoing:

• Maintain payroll records (7 years minimum)
• Register employees with EPF, SOCSO, EIS before start (online portals)
• Register with LHDN (employer registration, obtain employer number)
• Accurate tracking of leave, attendance

Systems:

• EPF (KWSP): i-Akaun portal (online contributions, returns)
• SOCSO/EIS (PERKESO): ASSIST portal (online contributions, returns)
• LHDN (Income Tax): e-PCB system (online MTD/PCB payments), e-Filing (for returns)

An EOR manages all payroll calculations, EPF/SOCSO/EIS/LHDN remittances (by 15th monthly), monthly returns, annual EA/E Forms, and compliance with Malaysian payroll regulations.

---

Employment Laws & Compliance in Malaysia

Key Compliance Areas

1. Written Employment Contracts

• Strongly recommended for all employees (best practice)
• In English or Bahasa Malaysia
• Copy to employee

2. Employment Equality and Non-Discrimination

Malaysia has anti-discrimination provisions (though less comprehensive than some Western jurisdictions).

Protected characteristics (various laws, Constitutional provisions):

• Gender/sex (Constitution Article 8 – equality)
• Religion (Constitution protects freedom of religion)
• Race/ethnicity (Constitution prohibits discrimination)

Note:

• Bumiputera policies: Affirmative action policies favor ethnic Malays/indigenous groups (Bumiputera – “sons of the soil”) in government contracts, some sectors, education – not private employment discrimination but affects business environment
• Gender equality: Women’s workforce participation growing; equal pay principles recognized (though enforcement varies)

Sexual harassment:

• Prohibited (Code of Practice on Prevention and Eradication of Sexual Harassment in the Workplace, 1999)
• Employers must have policies, investigation procedures

3. Department of Labour (JTKSM) Compliance

• Jabatan Tenaga Kerja Semenanjung Malaysia (JTKSM – Department of Labour, Peninsular Malaysia)enforces Employment Act
• For Sabah/Sarawak: Separate labour departments
• Labour inspections (wages, working hours, safety, foreign workers)

Enforcement:

• Inspections, investigations
• Violations: Fines, prosecution, orders to rectify

4. EPF, SOCSO, EIS, Tax Compliance

• Timely registration (EPF, SOCSO, EIS, LHDN) before employees start
• Accurate calculations and remittances (EPF, SOCSO, EIS by 15th, MTD/PCB by 15th monthly)
• Monthly returns filed (i-Akaun, ASSIST, e-PCB portals)
• Annual returns (EA, E Forms by deadlines)
• Penalties for late/non-payment: Interest charges, fines, prosecution

5. Minimum Wage Compliance

• Must pay at least minimum wage (RM 1,500/month as of Feb 2024)
• Enforcement by JTKSM

6. Working Time, Overtime, Rest (Employment Act)

• 48-hour work week (or less per contract)
• Overtime premiums (1.5× regular days, 2-3× rest days/holidays for covered employees)
• Weekly rest (1 day minimum)
• Annual leave (8-16 days depending on tenure for covered employees; more for others per contract)

7. Leave Entitlements

• Annual leave (8-16 days statutory minimum for covered employees)
• Sick leave (14-22 days outpatient, 60 days hospitalization for covered employees)
• Maternity leave (98 days employer-paid, for first 5 children)
• Paternity leave (7 days employer-paid)
• Public holidays (minimum 11 days)

8. Occupational Safety and Health

Malaysia implements Occupational Safety and Health Act 1994 (OSHA):

• Employers must ensure safe working environment
• Risk assessments mandatory
• Safety training for employees
• Personal protective equipment (PPE) (provide free)
• Accident reporting to DOSH (Department of Occupational Safety and Health)
• Safety committee (in workplaces with 40+ employees)

Enforcement:

• DOSH inspects
• Violations: Improvement notices, prohibition orders, fines, prosecution

9. Foreign Workers Compliance

• Work permits required for all foreign nationals (except certain categories)
• Cannot employ foreign workers without valid permits (severe penalties – fines RM 10,000-50,000 per worker, imprisonment, closure)
• Recent reforms (2024): Recalibration policy reducing foreign worker dependency in certain sectors, stricter enforcement, ePPx (online permit system) mandatory

Termination & Notice Periods

Notice Period Requirements

Statutory minimum notice periods (Employment Act – for covered employees <RM 4,000/month or manual):

Varies by length of service:

Employer-initiated termination:

• <2 years service: 4 weeks notice
• 2-5 years service: 6 weeks notice
• 5+ years service: 8 weeks notice

Employee-initiated resignation:

• Same as above (4, 6, or 8 weeks depending on tenure)

Contractual notice:

• Contracts can specify longer notice than statutory (common for senior positions – e.g., 1-3 months)
• Cannot be less than statutory minimums (for Employment Act covered employees)

For employees >RM 4,000/month (not covered by Employment Act notice provisions):

• Notice period based on contract terms
• Common practice: 1-3 months notice (both parties)

During notice:

• Employee continues working, receives full salary
• OR employer can release employee immediately (paying notice period salary – payment in lieu of notice)

Example:

• Employee (covered by Employment Act, 3 years service) resigns: Must give 6 weeks notice
• Employer dismisses for redundancy (5+ years service): Must give 8 weeks notice + retrenchment compensation (customary)

Grounds for Termination

Employer can terminate for:

1. Mutual Agreement:

• Both parties agree to end employment (terms negotiated)

2. Expiry of Fixed-Term Contract:

• Contract ends on agreed date
• No notice required (unless contract specifies)

3. Redundancy/Retrenchment:

• Position eliminated, business closure, restructuring, economic reasons
• Must follow procedures:
  • Genuine business reason (Last In First Out – LIFO principle often applied)
  • Notify employee (notice period: 4-8 weeks depending on tenure)
  • Retrenchment compensation: Customary (typically 1 month’s salary per year of service, though not statutorily mandated – based on custom, Industrial Court precedents)
  • Notify JTKSM (Department of Labour) and Department of Statistics if large-scale retrenchment
• Constructive dismissal: If employer makes working conditions intolerable, employee can resign and claim constructive dismissal (treated as dismissal)

4. Misconduct (Salah Laku):

• Serious misconduct allowing dismissal:
  • Theft, fraud, dishonesty
  • Violence, assault, threats
  • Gross insubordination, serious breach of duties
  • Persistent absence, lateness (after warnings)
  • Breach of safety rules (endangering self/others)
  • Intoxication (alcohol, drugs) at work
• Requires domestic inquiry (internal investigation – employee given opportunity to respond, present defense)
• No notice, no retrenchment compensation if proven misconduct

5. Poor Performance:

• After performance reviews, warnings, opportunity to improve (progressive discipline)
• Notice period (4-8 weeks depending on tenure)
• Retrenchment compensation debatable (if not misconduct-based dismissal, may be payable)

Unlawful/Prohibited dismissals:

• Cannot dismiss:
  • Pregnant women, mothers on maternity leave (except serious misconduct, company liquidation)
  • For trade union activity, asserting labor rights
  • For discriminatory reasons (race, religion, gender – Constitution, various provisions)

Fair Procedures for Dismissal

Best practice (Malaysian law emphasizes procedural fairness – Industrial Court heavily scrutinizes):

For misconduct:

1. Investigation: Gather evidence, witness statements
2. Show cause letter: Written notification of allegations, ask employee to explain
3. Domestic inquiry: Formal hearing
   • Employee given opportunity to respond, present defense, call witnesses
   • Can be represented (colleague, union rep – not lawyer unless agreed)
   • Panel hears evidence, makes findings
4. Decision: Based on domestic inquiry findings
5. Dismissal letter: Written notice with reasons, effective date, rights (appeal to Industrial Court)

For redundancy:

• Business justification documented
• Selection criteria (LIFO, business needs, performance – objective, non-discriminatory)
• Consultation with employee, union (if applicable)
• Notice period (4-8 weeks)
• Retrenchment compensation (1 month per year typical)

Malaysian Industrial Court: Emphasizes natural justice, procedural fairness. Many dismissals overturned on procedural grounds (inadequate domestic inquiry, lack of proper notice, etc.) even if substantive reason valid.

Retrenchment / Severance Compensation

Not strictly mandated by Employment Act but strong custom/expectation:

• Typical: 1 month’s salary per year of service
• Based on case law (Industrial Court awards), custom and practice, industry norms

Example:

• Employee: 5 years service, salary RM 5,000/month
• Retrenchment compensation: 5 × RM 5,000 = RM 25,000

Dispute Resolution

If employment dispute arises:

1. Internal Resolution:

• Grievance with employer (internal procedures)

2. Department of Labour (JTKSM):

• File complaint with JTKSM (for Employment Act violations – wage non-payment, working hours, leave, etc.)
• JTKSM investigates, mediates
• Can issue orders (pay owed wages, reinstate, etc.)

3. Industrial Relations Department:

• For dismissal disputes, unfair labor practices
• Conciliation (mediation attempt)

4. Industrial Court:

• If conciliation fails, case referred to Industrial Court (Mahkamah Perusahaan)
• Employee can claim unfair dismissal
• Time limit: 60 days from dismissal to file complaint (with Industrial Relations Department)

Remedies:

• Reinstatement to former position (Industrial Court can order – though often impractical, not commonly granted)
• Compensation in lieu of reinstatement:
  • Backwages: Typically 24 months’ backwages (average award, though can vary from 0 to full period from dismissal to award date)
  • Compensation for unfair dismissal
  • Industrial Court has discretion (considers circumstances, employee’s conduct, employer’s reasons)

Burden of proof:

• Employer must prove dismissal was fair (valid reason, fair procedure)
• Malaysian courts/Industrial Court employee-protective (procedural fairness heavily emphasized)

Legal costs:

• Generally each party bears own costs
• No legal aid typically for Industrial Court (though unions may support members)

Immigration and Work Permits

Malaysian citizens:

• Unlimited right to work in Malaysia

Foreign nationals (expatriates, foreign workers):

• Require work permit/pass to work legally in Malaysia

Work permit/pass types:

1. Employment Pass (EP):

• For professional, managerial, technical, executive positions
• Categories:
  • EP Category I: Salary RM 10,000+/month (validity up to 5 years renewable)
  • EP Category II: Salary RM 5,000-9,999/month (validity up to 2 years renewable)
  • EP Category III: Salary RM 3,000-4,999/month (validity up to 1 year renewable, restrictions)
• Recent 2024 reforms: EP Category III being phased out; minimum salary thresholds increasing (Category II now RM 7,000+/month in many sectors – verify current Immigration Department guidelines)
• Requires employer sponsorship
• Application: Employer applies online via ESD (Expatriate Services Division) portal or MyIMMs system

2. Professional Visit Pass (PVP):

• For short-term professional assignments, conferences, training, business meetings
• Duration: Up to 12 months (renewable)
• Salary threshold lower than EP

3. Work Permit (for foreign workers – semi-skilled, low-skilled):

• For sectors like manufacturing, construction, plantation, agriculture, services (typically for Indonesian, Bangladeshi, Nepalese, Myanmar, etc.)
• Recent 2024 recalibration policy: Government reducing foreign worker dependency (quotas tightened, certain sectors restricted, enforcement increased)
• Requires employer sponsorship, sector-specific quotas/approvals

Application process (Employment Pass):

1. Employer applies to Immigration Department via ESD/MyIMMs portal
2. Provides:
   • Employment contract
   • Employee qualifications (degree, certifications, CV)
   • Company documents (SSM registration, financial statements, tax clearance)
   • Justification for foreign hire (specialized skills, experience)
3. Processing: 2-4 weeks (if no issues; can be longer if queries, additional documents requested)
4. EP approval (Approval Letter)
5. Employee obtains Entry Visa from Malaysian embassy/consulate abroad (or visa on arrival for certain nationalities)
6. Upon arrival, employee undergoes medical examination (FOMEMA – Foreign Workers Medical Examination Monitoring Agency)
7. Employee collects Employment Pass sticker/card from Immigration Department
8. Social Visit Pass endorsement and final EP issuance

Processing Time: 1-3 months total (from application to EP issuance)

Costs:

• Employment Pass fees: RM 500-1,000+ (depending on category, duration)
• Visa fees, medical examination fees (~RM 200-300)
• Employer typically covers

Renewal:

• Before expiry (typically 2-3 months before)
• Updated employment contract, company documents
• Medical re-examination

Dependents (Dependent Pass):

• Spouse, children (under 21) of EP holder can apply for Dependent Pass
• Cannot work (unless obtain own work permit)

Employer obligations:

• Sponsor Employment Pass for expatriate employees
• Ensure employees have valid passes before commencing work
• Cannot employ foreign nationals without valid authorization (penalties: fines RM 10,000-50,000 per worker, imprisonment up to 12 months, company blacklisting)
• Notify Immigration of employee changes (termination, job change, address change)
• 2024 stricter enforcement: Enhanced inspections, penalties (Ops Mega operations targeting illegal workers)

An EOR with Malaysian entity sponsors Employment Passes (EP) for expatriate employees, navigating Immigration Department ESD/MyIMMs systems, meeting salary thresholds (now higher post-2024 reforms), and handling renewals.