Employer of Record in Malaysia

An Employer of Record in Malaysia acts as the legal employer of Malaysian hires, handling contracts, payroll, and compliance on behalf of the engaging company. Using an EOR allows businesses to hire within days rather than waiting the three to six months typically required to register and operationalize a local Sdn Bhd entity.

Every local hire in Malaysia triggers mandatory EPF, SOCSO, and EIS contributions, with employer EPF contributions running between 12% and 13% depending on salary level and employee age. Foreign workers additionally require JTKSM approval, payroll contributions are due by the 15th of the following month, and standard notice periods range from four to eight weeks based on length of service, making compliant hiring without a registered local entity a complex undertaking.

What Is an Employer of Record in Malaysia?

An EOR becomes the legal employer on record in Malaysia, taking on responsibility for Employment Act compliance, statutory filings, and employment contracts on behalf of the client company.

Foreign companies without a Malaysian entity use an EOR to hire local or expatriate talent without registering a local business.

The workflow runs as follows: the client selects a candidate; the EOR issues an Employment Act-compliant contract; the EOR registers the employee with EPF, SOCSO, and EIS; monthly payroll runs with PCB withholding applied; the EOR manages leave and benefits; and the client directs day-to-day work. For a full explanation of the model, see how does EOR work.

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Your Hiring Options in Malaysia: EOR vs. Entity vs. PEO vs. Contractor

Four paths exist for hiring in Malaysia: an EOR, a locally registered entity (Sdn Bhd), a PEO, and an independent contractor. Each carries different compliance ownership, cost structure, and time to first hire.

An EOR fits companies with no local entity, an immediate hiring need, or a plan to test the Malaysian market before committing to a permanent structure. Learn more about EOR services.

Entity setup suits long-term, large-scale operations where full operational control justifies the registration cost and timeline.

How to Hire in Malaysia Through an EOR: Step by Step

Hiring in Malaysia through an EOR follows six steps, from the initial decision on employment structure through to offboarding.

Each step has a defined owner. The client company makes strategic decisions: which candidate to hire, what role to fill, and what compensation to offer. The EOR executes the legal and administrative work: contracts, registrations, payroll, and filings.

Understanding each step helps you set accurate timelines, assign internal responsibilities, and avoid gaps in compliance coverage before the employee's first day.

Step 1: Decide Between EOR and Entity

Assess hiring volume, timeline, and your long-term Malaysia strategy. If you are testing the market or hiring fewer than 10 employees, an EOR is typically faster and lower-risk than registering a Sdn Bhd.

Step 2: Vet and Select a Malaysian EOR Provider

Confirm the EOR holds its own Malaysian entity rather than relying on a partner network. Verify its Employment Act compliance record and check how it handles personal data under PDPA. For a broader evaluation framework, see best employer of record.

Step 3: Draft a Compliant Employment Contract

The EOR prepares a written contract covering parties, start date, workplace, job description, base salary, payment terms, probation period, working hours, leave entitlements, notice periods, and health and safety provisions as required by the Employment Act 1955.

Step 4: Onboard and Register Statutory Requirements

The EOR registers the employee with EPF (KWSP), SOCSO (PERKESO), and EIS. For foreign workers, the EOR obtains prior JTKSM Director General approval before commencement. Equipment and welcome communications are prepared before Day One.

Step 5: Run Compliant Monthly Payroll

The EOR processes monthly payroll, withholds PCB income tax, and remits EPF, SOCSO, and EIS contributions by the 15th of the following month. Late EPF payment incurs a late payment charge with a minimum of $2 (MYR 10).

Step 6: Manage Offboarding and Exit

The EOR issues written termination notice per the Employment Act, calculates severance pay, settles final salary and outstanding leave, and for foreign workers, reports termination to JTKSM within 30 days.

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How to Choose the Right EOR in Malaysia

Selecting an EOR in Malaysia requires evaluating specific legal, operational, and financial criteria before signing any agreement.

The right provider must demonstrate direct knowledge of Malaysian employment law, not just general regional coverage. Verify that the EOR has handled Employment Act 1955 filings, EPF and SOCSO remittances, and JTKSM foreign worker approvals in practice.

Pricing structure matters as much as compliance capability. Look for a provider that offers predictable, country-specific pricing with no hidden entity or setup fees. Unclear cost models create budget risk as headcount grows.

Operational support is a practical requirement. Confirm the EOR assigns a named account owner, not a shared support queue. Human-led operations reduce resolution time when payroll or compliance issues arise.

For a broader comparison of EOR providers across markets, see the best employer of record guide.

Local Legal Knowledge and Compliance Track Record

Confirm the EOR has direct experience with the Employment Act 1955 including 2022 amendments, EPF, SOCSO, and EIS filings, PCB withholding, and JTKSM foreign worker approval processes.

Own Entity vs. Partner Network

An EOR with its own Malaysian legal entity carries direct compliance liability. A partner-network model adds an intermediary layer that can slow response times and dilute accountability.

Support Model and Response Time

Verify whether the EOR offers dedicated in-country support operating in GMT+8. Confirm that support is available in both English and Malay before committing.

Pricing Transparency

Request a full cost breakdown covering the per-employee fee, statutory contribution pass-through, and any setup or offboarding fees. Compare that total against the cost of running a direct entity. Review employer of record cost benchmarks and check Gloroots pricing for a country-specific figure.

Data Security and PDPA Compliance

Confirm the EOR has documented PDPA-compliant data handling procedures. This includes employee consent mechanisms for payroll and HR data processing under Malaysia's Personal Data Protection Act.

Integration Capability

Assess whether the EOR's platform integrates with your existing HRIS or payroll software to avoid manual data re-entry. See our guide to employer of record software for a feature comparison.

Workforce and Talent Pool in Malaysia

Malaysia's labor force stands at approximately 17.61 million, with a 2.9% unemployment rate and GDP growth of 5.1% in 2024, making it one of Southeast Asia's most stable hiring markets.

Key talent hubs are Kuala Lumpur, Penang, and Johor Bahru, with strengths in manufacturing, technology, financial services, and shared services.

Malaysia's workforce is multilingual, covering Malay, English, Mandarin, and Tamil, and ranks third in Asia for English proficiency. Formal workplace hierarchy and indirect communication norms are common. Salary benchmarking must account for the cost-of-living gap between Kuala Lumpur and rural areas. Companies hiring across the region also compare conditions with the employer of record Singapore market for regional context.

Employment Law Essentials in Malaysia

Malaysia's primary employment statute is the Employment Act 1955, which sets minimum standards for contracts, working hours, leave, and termination across the private sector.

The Employment (Amendment) Act 2022 expanded the Act's scope significantly. Coverage now extends to all employees regardless of salary level, not only those earning below $495 (MYR 2,000) per month. Key additions include paternity leave entitlements, stronger protections against forced labour, and mandatory flexible working arrangement provisions.

Three areas carry the most compliance weight for foreign employers: written contracts, working hour limits, and statutory contributions. Each is governed by specific thresholds and rates under the Act.

Gloroots manages Employment Act compliance as part of its Global Employer of Record service, covering contracts, payroll filings, and statutory benefit enrolment for every employee hired in Malaysia.

Employment Contracts

The Employment Act 1955 requires a written contract for any engagement exceeding one month. The contract must cover the parties involved, start date, workplace, job description, salary, payment terms, probation period, working hours, leave entitlements, notice periods, and health and safety provisions.

Working Hours and Overtime

The Employment Act 1955 caps working hours at 45 per week and 8 per day. Overtime is payable at 150% of the regular rate on weekdays, 200% on weekends, and 300% on public holidays.

Minimum Wage

Malaysia's national minimum wage is $421 (MYR 1,700) per month. This rate applies to private sector employers with five or more employees across Peninsular Malaysia, Sabah, Sarawak, and Labuan.

Employers with fewer than five employees are subject to a separate wage order. The current rate was last revised in May 2022 and remains in effect.

Leave and Statutory Benefits in Malaysia

The Employment Act 1955 sets minimum leave entitlements for annual leave, sick leave, maternity leave, and paternity leave. Statutory benefit obligations run alongside these entitlements.

Public holidays: employees are entitled to 11 gazetted public holidays per year, of which 5 are mandatory. These include National Day, the Yang di-Pertuan Agong's Birthday, the ruler's birthday for the relevant state, Labour Day, and Malaysia Day.

Mandatory benefits: employers must provide work-injury insurance under the Workmen's Compensation Act 1952. Employers with 10 or more employees must also provide medical and hospitalisation benefits under the Employee's Social Security Act 1969.

Gloroots administers statutory leave tracking and mandatory benefit enrolment for Malaysian employees as part of its Employment Lifecycle Management service.

Annual Leave

Employees are entitled to 8 days of annual leave after less than 2 years of service, 12 days after 2 to 5 years, and 16 days after more than 5 years. All leave is paid at the full daily rate.

Sick Leave

Paid sick leave in Malaysia ranges from 14 to 22 days per year based on tenure and requires a valid medical certificate. Employees admitted to hospital receive an additional 60 days of hospitalization leave per year on top of their standard entitlement.

Maternity and Paternity Leave

Female employees in the private sector receive 98 consecutive days of paid maternity leave, applicable for the first five surviving children.

Paternity leave is 7 consecutive days, including weekends and public holidays. To qualify, the employee must be married, have completed at least 12 months of service with the same employer before leave starts, and notify the employer at least 30 days before the expected birth or as soon as practicable. Paternity leave is capped at 5 confinements regardless of the number of wives and took effect on 1 January 2023.

Public Holidays

Malaysia observes 11 national public holidays per year. Additional state-specific public holidays apply depending on the employee's work location.

Payroll, Tax and Statutory Contributions in Malaysia

Malaysia operates a monthly payroll cycle. EPF, SOCSO, and EIS contributions must be remitted by the 15th of the following month.

A common compliance error involves EPF contributions for non-Malaysian employees. Foreign employees registered with EPF from 1 August 1998 onward are not exempt: the correct rate is 2% employee and 2% employer. The tables below reflect this correction. Employers and EOR providers must apply these rates accurately to avoid underpayment penalties.

Employer payroll contributions

Employee payroll contributions

Under the Personal Data Protection Act 2010, an EOR must obtain employee consent before processing payroll data. This applies to all payroll records, contribution filings, and salary disbursements handled on behalf of the employer.

Work Visas and Permits in Malaysia

Foreign employees in Malaysia typically require an Employment Pass, Temporary Employment Pass, or Professional Visit Pass depending on role and salary level.

An EOR can support the work permit application process through the Malaysia Expatriate Services Division (ESD) portal. The sponsoring employer of record must hold a valid operating entity in Malaysia to act as the permit sponsor.

Visa types

Equity and ESOP Consulting in Malaysia

Equity compensation is increasingly common in Malaysia's growing technology and startup sector, particularly in Kuala Lumpur.

ESOP gains are taxed as employment income at the point of exercise under Malaysian income tax law. Employees must declare the benefit-in-kind value in their personal tax filings, and employers must report it through the PCB (Potongan Cukai Bulanan) withholding system. EOR providers managing equity-compensated employees in Malaysia must account for this reporting obligation within their payroll governance processes.

Misclassification Risk in Malaysia

Misclassifying an employee as an independent contractor in Malaysia exposes the engaging company to back-payment of EPF, SOCSO, EIS, and PCB obligations.

Classification criteria

• Control test: The employer directs how, when, and where the worker performs their duties on an ongoing basis.

• Integration test: The worker is integral to the core business operation rather than providing an external service.

• Economic reality: The worker carries no independent business risk and has no separate client base of their own.

• Exclusivity: The worker operates solely for one company over an extended period without other engagements.

Penalties for misclassification

• Back-payment of EPF contributions plus late payment charges and dividend penalties applied to the full arrears period.

• SOCSO and EIS arrears with statutory interest calculated from the date contributions were first due.

• PCB income tax shortfall with penalties assessed by the Inland Revenue Board (LHDN) on underpaid amounts.

• Potential Employment Act claims covering unpaid annual leave, overtime, and severance entitlements for the affected period.

An EOR services model eliminates misclassification risk by making the EOR the legal employer, with all statutory obligations properly registered and filed.

What our clients are saying

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Hiring, Onboarding, Termination and Offboarding in Malaysia

Hiring in Malaysia requires compliance with the Employment Act 1955 and, for foreign workers, prior approval from the JTKSM Director General before any work begins. Each stage of the employment lifecycle carries specific statutory obligations.

The sections below cover onboarding, termination, and offboarding in sequence. Employers must complete registration with EPF, SOCSO, and EIS before the first payroll run and must display a sexual harassment awareness notice in the workplace, a requirement that took effect on 1 January 2023 under the Employment Act Amendment 2022.

Gloroots manages each stage through its Employment Lifecycle Management service, giving your team centralized governance over every filing, payment, and document across the full employee lifecycle in Malaysia.

Onboarding

Before day one

• Obtain JTKSM Director General approval if hiring a foreign worker before any work commences on the role.

• Register the employee with EPF (KWSP), SOCSO (PERKESO), and EIS before the first payroll run is processed.

• Prepare an Employment Act-compliant written contract covering all statutory elements including notice periods and leave entitlements.

• Set up equipment and system access, and send a welcome communication outlining role expectations and reporting lines.

Day one

• Conduct team introductions and assign a designated onboarding contact to support the new hire throughout their first week.

• Provide a policy overview covering working hours, leave entitlements, and the company code of conduct.

• Explain statutory benefits including EPF, SOCSO, EIS, medical coverage, and any applicable housing or transport allowances.

• Display the sexual harassment awareness notice in a visible workplace location as required by law from 1 January 2023.

First week

• Deliver job-specific training and introduce key stakeholders across relevant business units and functions.

• Explain the performance review cycle, probation expectations, and career development pathways available to the employee.

• Confirm PCB income tax withholding is correctly configured for the employee's tax residency status with LHDN.

• Schedule a first check-in meeting to address questions about the role, benefits, and workplace norms.

Beyond

• Conduct a formal performance review at the end of the probation period, which typically runs from one to three months.

• Run monthly payroll with EPF, SOCSO, EIS, and PCB contributions remitted by the 15th of each month.

• Manage leave requests in line with Employment Act entitlements for annual, sick, and hospitalization leave categories.

• Support flexible working arrangement requests under the Employment Act Amendment 2022 within the 60-day employer response window.

Termination

Termination in Malaysia requires written notice based on tenure: 4 weeks for under 2 years of service, 6 weeks for 2 to 5 years, and 8 weeks for over 5 years, or payment in lieu. Dismissal must be for just cause under the Employment Act 1955. Pregnant employees may only be dismissed for misconduct, contract breach, or business closure.

Offboarding

Settlement

• Calculate and pay the final salary including any outstanding annual leave balance owed to the departing employee.

• Process severance pay at the statutory rate based on the employee's completed years of service.

• Remit final EPF, SOCSO, and EIS contributions by the 15th of the month following the last payroll run.

• Deregister the employee from EPF, SOCSO, and EIS and issue all required statutory documentation to the individual.

Documents

• Issue a formal termination letter stating the grounds and effective date in compliance with the Employment Act 1955.

• Provide the employee with EPF Form KWSP 22 (cessation of employment) and the SOCSO cessation notification form.

• Return any company property and revoke all system access on or before the employee's last working day.

• For foreign workers, submit a termination report to JTKSM within 30 days of the date of cessation.

Exit

• Conduct an exit interview to capture feedback and document any outstanding disputes or claims before closure.

• Retain employee records in compliance with PDPA 2010 data retention requirements for the legally required period.

What's New: Recent Regulatory Changes in Malaysia

The Employment Act 1955 Amendment 2022 (Act A1651), effective 1 January 2023, introduced the most significant overhaul of Malaysian employment law in decades, expanding coverage and adding new employer obligations across multiple areas.

• Maternity leave was extended from 60 to 98 consecutive days for all female employees in the private sector.

• Paternity leave of 7 consecutive days was introduced for married male employees with at least 12 months of service.

• A flexible working arrangement right was introduced: employees may apply in writing and employers must respond within 60 days.

• Anti-discrimination provisions were added, prohibiting employment discrimination based on race, religion, gender, or political opinion.

• Prior JTKSM Director General approval is now mandatory before any foreign worker is hired, with penalties up to $24,751 (MYR 100,000) or 5 years imprisonment.

Employers should review employment contracts, HR policies, and foreign worker hiring procedures against the 2023 requirements without delay.

Costs and Financial Planning for Hiring in Malaysia

The total cost of employing someone in Malaysia extends well beyond base salary and includes mandatory statutory contributions.

Additional costs include the HRDF levy of 1% for employers with 10 or more employees, work-injury insurance under the Workmen's Compensation Act 1952, and housing or transport allowances that appear regularly in Malaysian employment contracts.

For a full breakdown of fees, see Gloroots pricing.

Common Challenges and How Gloroots Solves Them in Malaysia

Hiring in Malaysia involves practical compliance challenges that go beyond reading the Employment Act. Execution is where most foreign employers run into difficulty.

Why Gloroots Is a Strong EOR Partner in Malaysia

Gloroots is suited for foreign companies hiring small or growing teams in Malaysia without establishing their own Sdn Bhd entity, particularly technology companies, shared services teams, and regional expansion projects that need compliant employment infrastructure without building a local HR function.

Gloroots manages core Malaysian payroll and employment requirements, including EPF, SOCSO, EIS, and PCB administration, with contribution calculations based on the employee's citizenship, employment status, age, and other applicable statutory rules. Malaysia's EPF framework was expanded in October 2025 to require mandatory contributions for eligible non-Malaysian employees with valid work passes, making accurate payroll treatment particularly important for international employers.

For foreign-worker hiring, Gloroots can support the applicable JTKSM prior-approval process under Section 60K of the Employment Act 1955, where required. Malaysian law requires employers to obtain prior approval before employing foreign workers, subject to the applicable requirements and process.

Gloroots operates through its own Malaysian legal entity, rather than relying on a partner-employer structure. This can give clients a more direct relationship with the local employing entity and greater visibility into employment administration. This entity structure should be verified before signing.

The service is well suited for companies entering Malaysia, hiring distributed teams, or expanding across Southeast Asia without immediately establishing their own local entity. Any stated onboarding timeline should be confirmed against the employee's circumstances and current operational processing times.

Buyers should confirm that any EOR they evaluate, including Gloroots, can demonstrate experience with the Employment Act 1955 and its 2022 amendments, current EPF/SOCSO/EIS requirements, foreign-worker approval processes, and Malaysia's Personal Data Protection Act before signing. They should also verify the provider's employing-entity structure and clarify which statutory registrations, government fees, and immigration services are included in the quoted fee.

Options include EOR for startups and EOR for enterprises.

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Conclusion

Malaysia's Employment Act Amendment 2022 changed employer obligations across paternity leave, foreign worker approval, and anti-discrimination rules, making compliance more complex than before.

Companies evaluating Malaysia as a hiring destination should map their specific workforce needs, whether local hires, expatriates, or contractors, against the four hiring paths covered in this guide before selecting an EOR or registering an entity.

Frequently Asked Questions About Employer of Record in Malaysia

What is an Employer of Record in Malaysia and how does it work?

An Employer of Record in Malaysia is a local legal entity that employs workers on behalf of a foreign company. The EOR handles employment contracts, statutory contributions such as EPF, SOCSO, and EIS, payroll processing, and compliance with the Employment Act 1955. The foreign company directs the day-to-day work of the employee.

How long does it take to hire an employee in Malaysia through an EOR?

For Malaysian citizens, an EOR can typically onboard an employee within five to seven business days once the employment contract is signed and statutory registration is complete. For foreign nationals requiring a work permit, the timeline extends to several weeks depending on JTKSM approval processing times.

What is the difference between an EOR and setting up a Sdn Bhd in Malaysia?

A Sdn Bhd is a locally registered private limited company that requires SSM registration, paid-up capital, and ongoing corporate compliance. An EOR allows a foreign company to employ workers in Malaysia without forming a local entity, reducing setup time and fixed overhead costs significantly.

Can an EOR in Malaysia sponsor work visas for foreign employees?

Yes. An EOR with a Malaysian legal entity can apply for Employment Pass or other relevant work authorisations on behalf of foreign employees. The EOR must obtain prior approval from the Department of Labour (JTKSM) before a foreign worker commences employment, as required under the Employment Act.

What statutory contributions does an employer pay in Malaysia?

Employers in Malaysia contribute to EPF at 12% to 13% of salary, SOCSO at 1.75%, and EIS at 0.20%. Employers with 10 or more employees also pay the HRDF levy at 1%. Contribution rates vary based on employee age, salary level, and nationality.

Can I hire independent contractors in Malaysia instead of using an EOR?

Contractors are an option for project-based or short-term engagements, but Malaysian labour authorities assess the substance of the working relationship, not just the contract label. Misclassifying an employee as a contractor can result in back-payment of statutory contributions and penalties under the Employment Act.

How does an EOR ensure compliance with the Employment Act 1955 Amendment 2022?

A compliant EOR updates employment contracts to reflect the 2022 amendments, including paternity leave entitlements, flexible work arrangement rights, and anti-discrimination provisions. The EOR also manages PDPA obligations and ensures payroll contributions are remitted by the statutory deadline of the 15th of each month.

What does HR compliance mean for employers in Malaysia?

HR compliance in Malaysia means meeting obligations under the Employment Act 1955, the EPF Act 1991, the SOCSO Act 1969, the EIS Order 2017, and the PDPA 2010. Employers must maintain accurate employee records, issue compliant contracts, remit contributions on time, and follow prescribed procedures for termination and leave entitlements.