How to Hire Employees in Malaysia

Explore the advantages of hiring in Malaysia, a hub of diverse economic activities and cultural richness. Ideal for businesses seeking to penetrate the Southeast Asian market, Malaysia offers access to a skilled workforce in emerging sectors such as technology, biotechnology, and manufacturing. With its strategic location and dynamic economy, Malaysia serves as a gateway to broad talent pools and substantial growth opportunities in a vibrant and stable business environment.
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Since 1970, Malaysia has evolved from a raw materials-based economy, centered around rubber and tin exports, to a robust, multifaceted powerhouse in Southeast Asia. Today, it remains a key player in the production of rubber, palm oil, petroleum, natural gas, and hardwoods. More recently, the focus has shifted towards export-oriented manufacturing, leveraging an affordable, skilled workforce, advanced infrastructure, political stability, and a competitive currency to attract substantial international investment, particularly from Japan and Taiwan.

The nation has also been proactive in socio-economic reforms through initiatives like the New Economic Policy (NEP) and the New Development Policy (NDP), aimed at promoting economic parity and enhancing the business acumen of indigenous populations. These policies have successfully encouraged privatization and greater private sector engagement in critical areas such as transportation, telecommunications, and energy, fostering a conducive environment for business and investment.

What you need to know before hiring employees in Malaysia

Job market in Malaysia

Malaysia's job market is dynamically evolving, especially in technology-driven sectors. As cybersecurity becomes increasingly crucial, the country is investing heavily in developing robust defenses, highlighted by a RM60 million allocation for a 5G cybersecurity framework. The gaming industry is also booming, supported by educational initiatives and substantial private investment, creating demand for game developers and 3D artists. 

Additionally, Malaysia's strategic initiatives in shared services and legal compliance are attracting regional delivery centers, boosting the need for tech-savvy legal professionals and IT specialists. This environment is ripe for fostering a skilled workforce, ready to meet the growing demands of these emerging sectors.

Malaysia Hiring Trends

Several key developments across various sectors influence Malaysia hiring trends in 2024:

  • In 2024, employees remaining in their roles can expect salary increases close to 4%, consistent with the previous year. However, those moving to roles in emerging technologies like AI and big data may see their salaries jump by 15 to 35%, reflecting the high demand for advanced skills.
  • The current job market favors candidates, with many leveraging the demand for their skills to seek better offers. There's a growing trend for seeking positions that not only offer higher pay but also non-monetary benefits like flexible working arrangements.
  • Organizations offering diverse project experiences and strong learning and development programs are likely to attract and retain top talent. These opportunities are especially appealing in high-growth areas.
  • Hybrid work models are highly valued, with many professionals preferring jobs that support a better work-life balance. This preference is shaping recruitment strategies, with flexible working conditions becoming a key factor in attracting talent.
  • With the competitive talent landscape, swift hiring processes are becoming crucial. Companies may need to expedite interviews and decision-making to secure top candidates, who often have multiple offers to consider.

How to hire employees from Malaysia

1. Set up an entity in the country

Setting up a legal entity in Malaysia is pivotal for firms aiming to secure a strong market presence and foster long-term growth. This process involves selecting a suitable corporate structure like a Sendirian Berhad (Sdn. Bhd.) or Berhad (Bhd.), followed by registration with the Companies Commission of Malaysia (SSM). It's also necessary to secure a Business Registration License and a Tax Identification Number to comply with local regulatory and tax requirements. The complexities of this process require engaging with local experts and strategic planning to ensure compliance with Malaysia's corporate laws and maintain smooth operations.

2. Hire independent contractors

In Malaysia, engaging contractors is a strategy employed to manage specific tasks or projects with a need for specialized skills or temporary labor. This method offers flexibility and is particularly useful for short-term needs. However, it is essential to correctly classify these workers to avoid legal issues and penalties under Malaysian employment regulations. 

Additionally, the commitment level of contractors may differ from full-time, permanent employees, which can affect team dynamics and project consistency. Recognizing these nuances is vital in Malaysia, where effective team integration and meeting business goals are crucial. Properly managing these aspects ensures that contracting aligns with strategic objectives and workplace culture.

3. Partner with an EOR in the country

Employing an Employer of Record (EOR) service in Malaysia offers a streamlined approach to entering the market, bypassing the need to establish a formal legal entity. This strategy decreases liabilities and increases cost efficiency. Working with an EOR ensures compliance with Malaysian employment laws, taxation, and regulatory standards, thus reducing legal risks and enhancing operational smoothness. This method not only simplifies administrative tasks but also quickens the pace of market penetration, making it a favorable option for businesses planning to expand their footprint in Malaysia.

Employment Laws You Must Know Before Hiring in Malaysia

Compliance risk while hiring in Malaysia

Employers in Malaysia face compliance risks when hiring employees, including restrictions on hiring foreigners and the need for immigration department approval. Data privacy laws require employers to protect employee information, and accurate employee classification is crucial for tax and rights implications. Failure to follow termination procedures can lead to legal disputes and compensation claims.

Key Aspects of Malaysian Labor Law:

Employment Contract: In Malaysia, the Employment Act mandates written employment contracts for employees working more than one month. These contracts detail terms such as notice periods, maternity leave entitlements, and rest day allowances. 

While contracts must generally be in writing, oral agreements may suffice under certain conditions. The language of the contract must be in Malay or English. In disputes, the written contract serves as legal evidence. Compliance with statutory requirements ensures clarity and adherence to specified employment terms, protecting the interests of both employers and employees under Malaysian labour regulations.

Working Hours: Standard working hours in Malaysia consist of eight hours per day, not exceeding 45 hours weekly. However, many workplaces observe a 40-hour workweek. This practice aligns with common norms, ensuring a reasonable balance between work and personal time for employees.

Overtime

Any work beyond standard weekly hours warrants overtime pay, as stipulated by the Employment Act, employment contracts, and collective agreements. Typically, the Employment Act serves as a guideline, particularly for manual and non-manual workers earning less than 2,000 MYR. Overtime on weekdays commands 150.00% of the regular rate, while weekend and rest day overtime is compensated at 200.00%. Public holiday overtime is remunerated at 300.00% of the regular rate.

Minimum Wage: The national monthly wage in Malaysia stands at 1,500 MYR. Wage hikes are mandated solely for private sector firms employing five or more workers.

Payroll laws in Malaysia 

Malaysia, payroll is processed on a monthly basis, with employees receiving their payments on the final working day of the month.

Employment benefits in Malaysia

Leave Policies in Malaysia

Paid Time Off:

In Malaysia, the terms of paid time off are stipulated in the employment agreement and are contingent upon the duration of employment. This allocated paid time off is separate from any public holidays.

During the initial two years of employment, an employee is granted eight days of paid leave annually.

Subsequently, from the second to the fifth year of service, the employee's entitlement rises to 12 days per year, with a further increase to 16 days for those serving over five years. Typically, employees begin with around 12-15 days annually and see increments with tenure. Accumulation of leave occurs from January through December.

Public Holidays:

There are 11 national holidays in Malaysia.

Sick Days:

In Malaysia, the allocation of paid sick leave is outlined in the employment agreement, contingent upon the duration of employment and presentation of a valid medical certificate. The entitlement to paid sick leave is determined by the length of service:

  • Employees with under two years of service receive 14 days of sick leave annually.
  • For employees with two to five years of service, the entitlement is 18 days per year.
  • Employees with over five years of service are entitled to 22 days of sick leave annually.
  • Additionally, employees hospitalized receive 60 days of hospitalization leave per year, in addition to regular sick leave entitlement.

Maternity Leave:

In Malaysia, female employees in the private sector are entitled to 98 consecutive days of fully paid maternity leave. The leave cannot commence earlier than 30 days before the expected delivery date and applies only to the first five surviving children. A female employee may return to work at any point during the 98-day period with employer approval and medical clearance.

Paternity Leave:

In Malaysia, married fathers who have completed 12 months of service are eligible for seven continuous days of fully paid leave per childbirth. Employers must receive prior notification of the expected due date at least 30 days in advance.

Public Health Insurance 

In Malaysia, public health insurance primarily serves low-income individuals and foreign workers through schemes like the Foreign Worker Hospitalization and Surgical Scheme (SKHPPA). This system offers coverage for medical treatments, temporary and permanent disablement, dependents' benefits, and more. 

However, pre-existing conditions and outpatient procedures are typically not covered. While public facilities provide heavily subsidized healthcare to citizens, expats are encouraged to obtain private health insurance for broader coverage. Private insurance costs vary based on factors like age and coverage level but generally range from RM100 to RM500 per month. Overall, Malaysia's healthcare system emphasizes accessibility and affordability for its diverse population.

Filing tax in Malaysia

Income Tax:

In Malaysia, the income tax system is progressive, meaning that individuals with higher incomes are subject to higher tax rates. The tax rates range from 0% for the lowest income bracket to 30% for incomes exceeding a certain threshold. This progressive taxation system aims to ensure fairness and equitable distribution of the tax burden, with higher-income individuals contributing a larger proportion of their income in taxes. The income tax revenue generated plays a crucial role in funding public services and government expenditures, supporting social welfare programs, infrastructure development, and other essential initiatives for the benefit of Malaysian society. For a comprehensive view of Malaysia tax structure, please refer to our detailed guide.

Other Tax and Social Security Contributions:

In Malaysia, both employers and employees make contributions to various social security and other funds aimed at providing comprehensive support to the workforce. These contributions are structured to cater to different needs such as retirement savings, job security, and professional development.

Employers typically contribute to several funds, including the Provident Fund, Social Security (SOCSO), Employment Insurance (EIS), and the Human Resource Development Fund. The percentage of contributions varies based on factors such as employee age and salary levels.

Employees also make contributions to these funds, which typically include the Provident Fund, Social Security, and Employment Insurance. The exact percentage of contributions varies depending on factors such as age and salary.

These contributions play a vital role in ensuring that employees receive necessary support throughout their careers, leading to enhanced economic stability and productivity within the Malaysian workforce. For a comprehensive view of Malaysia tax structure, please refer to our detailed guide.

Business culture in Malaysia 

Business culture in Malaysia is characterized by a blend of traditional and modern influences, reflecting the country's diverse cultural landscape. 

  • Malaysian businesses often follow a hierarchical structure, with a clear chain of command. Decisions are typically made by senior executives, and respect for authority is highly valued. It’s important to recognize and respect this structure in interactions.
  • Building strong, personal relationships is crucial in Malaysian business culture. Trust and rapport are considered foundational before any business dealings can effectively take place. Networking and face-to-face meetings are essential aspects of establishing business relationships.
  • Malaysians tend to use a polite and indirect communication style to maintain harmony and avoid confrontation. It’s important to read between the lines and understand that non-verbal cues often convey as much meaning as words.
  • Decision-making can be a slow process, as it often involves seeking consensus among all parties involved. Patience and persistence are necessary qualities when negotiating or closing deals.
  • Malaysia’s workforce is ethnically diverse, predominantly consisting of Malay, Chinese, and Indian communities. Each ethnic group may bring its own nuances to business practices, especially during cultural and religious festivals, which are given high importance.
  • Business attire in Malaysia is formal, with an emphasis on modesty. Men typically wear suits and ties, while women wear business suits or traditional attire that does not reveal the arms or legs.

Top sectors to hire from in Malasyia

1. Technology and Emerging Fields

Malaysia’s technology landscape is rapidly expanding, particularly in cybersecurity and digital transformation. Increased investment in 5G infrastructure and AI applications across various industries highlights the growing need for expertise in these areas. As digital technologies move from back-end operations to strategic business functions, professionals with skills in software development, automation, and data analytics are in high demand.

2. Gaming and Creative Industries

The gaming sector in Malaysia is experiencing significant growth, fueled by educational programs and substantial industry investments. Opportunities abound for game developers, 3D artists, and professionals in related creative fields, supported by initiatives to make Malaysia a hub for e-sports and digital entertainment.

3. Energy and Green Technologies

With a national goal of achieving 70% renewable energy by 2050, Malaysia is fostering the growth of the green technology sector. This includes expanding capabilities in hydrogen production and environmental sustainability projects, creating a demand for skilled professionals in renewable energy integration and project management.

4. Legal and Compliance

As businesses navigate evolving data protection regulations and the increasing importance of ESG standards, there is a heightened need for legal professionals specialized in compliance, cybersecurity, and corporate governance. This sector’s growth is propelled by the necessity to adapt to stricter legal frameworks and sustainable business practices.

5. Shared Services and Business Operations

Malaysia is becoming a favored destination for regional shared services centers due to its competitive operational costs and skilled workforce. This sector is seeing increased demand for roles in IT support, financial services, and human resources, offering extensive opportunities for professionals to advance in multinational operational environments.

Top cities to hire from Malaysia 

1. Kuala Lumpur

As the capital and the largest city, Kuala Lumpur is the heart of Malaysia's economic and business activities. It hosts numerous multinational corporations and startups, especially in finance, technology, and creative industries, making it a prime location for diverse talent acquisition.

2. Penang

Known for its strong electronics manufacturing sector, Penang is also growing in software development and services industries. The city’s blend of industrial history and innovation-driven present makes it an attractive spot for professionals in engineering, technology, and creative digital content.

3. Johor Bahru

Close to Singapore, Johor Bahru has a dynamic industrial sector and is rapidly expanding its services and manufacturing industries. It’s an important hub for logistics, trade, and manufacturing talents, especially with ongoing developments in green energy and construction.

4. Cyberjaya

Often referred to as Malaysia’s Silicon Valley, Cyberjaya is a core area for technology companies and innovation. This city attracts professionals specializing in IT, cybersecurity, and telecommunications, supported by a robust infrastructure for tech-driven businesses.

Hire in Malaysia compliantly with Gloroots

Gloroots, as an Employer of Record (EOR) in Malaysia, offers a streamlined solution for businesses aiming to establish and expand within the Malaysian market. Our EOR platform enables rapid onboarding of candidates, facilitating swift operational setup while maintaining adherence to both local and international regulatory standards. Tailored to support businesses of varying sizes, Gloroots alleviates the complexities involved in payroll management, benefits administration, and tax obligations, removing the need to set up a local entity. This service empowers companies to efficiently assemble and oversee a remote workforce in Malaysia. For further details on how Gloroots can assist with your recruitment needs in Malaysia, please reach out to us.

Frequently Asked Questions 

What do I need to hire employees in Malaysia legally?

Register your business with the Companies Commission of Malaysia, enroll in social security with SOCSO, and set up contributions to the Employment Provident Fund (EPF) and Human Resources Development Fund (HRDF). Ensure compliance with the Malaysian Employment Act for all employment terms.

How can foreign companies employ people in Malaysia?

Foreign companies can establish a local entity or use an Employer of Record (EOR) to manage employment contracts and compliance without setting up a direct presence.

What work permits do foreign workers need in Malaysia?

 Foreign workers typically need an Employment Pass for professional roles, with requirements including a specific job position and a minimum salary. Other permits include the Temporary Employment Pass and the Professional Visit Pass, depending on job type and duration.

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