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Malaysia – Employer of Record

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Introduction – Malaysia:

Capital –  Kuala Lumpur
Currency –  Malaysian Ringgit (MYR)
GDP –  BUSD 10,500 per capita (estimated for 2022)
People/Nationality- Malaysian
Language – Malay
Major Religion – Islam and Buddhism
Population – estimated 33.9 Million as of December 2022

A federal country with 13 states and 3 federal territories in Southeast Asia and comprised of 2 regions separated by the South China Sea and is bordered by Brunei, Indonesia, and Thailand, Malaysia has a strategic location and is one of the many countries to be highly considered for your global expansion.

Malaysia takes pride of Southeast Asia’s most vibrant economies, the fruit of decades of industrial growth and political stability. This eye-catching country is famous for The Petronas Twin Towers in Kuala Lumpur, the 88-floor building is the 21st-century icon for Malaysia.

Economically, the manufacturing industry became a significant contributor to the country’s economy in the post-independence period. In the recent years, the manufacturing industry recorded a 3.8 percent growth. Leading Malaysia’s manufacturing industry are the electrical, electronic and optical sectors.

What makes Malaysia even more fascinating is its diversity. In the same country, you can explore thriving, modern cities, explore colonial architecture, relax on some of the most beautiful beaches on the planet and hike through lush green jungles. Making this even more renowned is the slogan, “Malaysia Truly Asia”, it sums up the distinctiveness and allure of Malaysia as an exceptional tourist destination.

Contract of Employment

A contract of employment is an agreement between an employer and an employee. In Malaysia, any form of employment that lasts for more than a month must be formalised by a written and duly signed contract. This should specify the key terms of the employment relationship, including the job description, work location, scope and period of work, salary, holidays, benefit entitlement and health coverage.

Employment contracts can be either for a fixed term or indefinite period. Good news is if a fixed-term contract is renewed on multiple occasions, the Malaysian courts may consider the employee concerned to be a permanent staff member should they be dismissed.

Probation Period

Probation period in Malaysia usually lasts up to 3 months. Employers may possibly prolong the probationary period if a team member needs more training or adjustment in his new role.

Termination

An employee may only be terminated given a just cause or excuse. Generally, misconduct, poor performance and redundancy are accepted as just reasons for termination.

Since Malaysia does not follow an “at-will” employment system, employers cannot hire and fire employees at will. If an employee is to be terminated, it must be done following a fair procedure, giving the latter termination benefits. The employment contract must include clear entitlement and termination terms that the employer must follow when dismissing an employee.

The notice period is between 30 to 90 days (depending on what is stated in the employment contract) must be served before terminating an employee. The notice must be in writing, clearly stipulating the reason for termination. An employee may seek the help of a labour lawyer if a proper and timely notice is not served before his termination.

Working Hours

45-48 hours per week, with a maximum of 8 working hours per day and maximum of 6 working days per week. Given a 30-minute to an hour break after 5 consecutive hours of working, usually used as lunch break.

Overtime

No employer shall require any employee under any circumstances to work for more than 12 hours on any one day inclusive of overtime hours.

13^th Month Pay

In Malaysia, giving out of 13th-month pay is customary and is released during the month of December. The stipulation of such must be observed in the employment contract.

Annual Leave

Employees in Malaysia are entitled to paid annual leave according to the period of employment.

Upon commencement up to 2 years of employment: 8 days per annum
2 to 5 years of employment: 12 days per annum
More than 5 years of employment: 16 days per annum

Sick leave

Employees in Malaysia are entitled to paid sick leave according to the period of employment.

Upon commencement up to 2 years of employment: 14 days per annum
2 to 5 years of employment: 18 days per annum
More than 5 years of employment: 22 days per annum

If hospitalisation is necessary, employees are entitled to 60 days of paid sick leave.

Maternity and Paternity Leave

Working mothers are entitled to a minimum of 60 consecutive days of fully paid maternity leave. Companies can also extend the leave beyond this initial period, but without pay.

Fathers in Malaysia can now enjoy having 7 days of paternity leave, an increase from the previous 3 days, after an amendment to the Employment Act 1955 (Act 265) was approved.

VAT / GST:

The standard VAT ad GST rate for all taxable goods and services in Malaysia ranges between 6% to 10%. This includes digital services and acquired goods.

Income Tax

Employer/ Employee Contributions

Employer Contributions:

1.77% – Social Security
12% – Retirement Fund for employees below age 55
6% – Retirement Fund for employees aged 55 and up

Employee Contributions:

0.51% – Social Security
11% – Retirement Fund for employees below age 55
5.5% – Retirement Fund for employees aged 55 and up

Public Holidays

January 1- New Year’s Day
January 22-24- Chinese New Year
April 8- Nuzul Al-Quran
April 22-24- Hari Raya Aidilfitri
May 1- Labor Day
May 4- Wesak Day
June 5- Agong’s Birthday
June 29- Hari Raya Haji
July 19- Awal Muharraw
August 31- Merdeka
September 16- Malaysia Day
September 28- Prophet Muhammad’s Birthday
November 12-13- Deepavali
December 25- Christmas Day

Severance Pay

Terminated employees are duly entitled to severance pay, although the amount differs based from the service period.

Employee Tenure        Severance Pay and Rate

0 – 2 years                   10 days, at regular pay rate per year of service
2 – 5 years                   15 days, at standard pay rate per year of service
5 years or more           20 days, at standard pay rate per year of service

Work and Residence Permits (Expatriates)

EWS will assist you in processing all necessary permits in onboarding your employees, our team will also make sure you are well-guided in the process. A Malaysian work visa is a work permit that allows foreign nationals to work in Malaysia for a particular period. All foreign nationals are required to have a work permit to take up any employment legally in Malaysia for a long duration. Below are the usual requirements to acquire such:

–  Valid passport with remaining validity of at least 6 months.
–  Accomplished and signed application form from residence country
–  Copies of education certificates
–  Past employment testimonials
–  Government IDs
–  ID photos
–  Detailed job description from employer
–  Confirmed flight ticket
–  Approved request from the Immigration Department in Malaysia made by your employer

Gaining permanent residence in Malaysia can be tedious but ultimately fulfilling. Permanent residents can stay and remain in the country indefinitely, freely seek employment, start a business, acquire properties, and enter and exit the country in the same way Malaysian citizens do. In order to qualify for a permanent residency permit, the following must be met:

–  Minimum employment period of 3 years in Malaysia
–  Have an Employment Pass (EP) with more than 3 months validity at time of application
–  Basic monthly salary of RM 15,000 (not including allowances or bonuses)
–  With Malaysian income tax file number and have paid income tax for at least 2 years