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Employment in Malaysia

Malaysian employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. However, there are key differences that one must be aware of for compliance with local laws. For this and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Malaysia.

Key points on employment in Malaysia

There are several key areas to be aware of within Malaysia’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

  1. Contracts

    For employment periods over one month, the employee must be given a contract that specifies work hours, overtime, benefits and termination policies.

  2. Probation Periods

    The general consensus appears to be that Malaysian law does not distinguish between employees and those under probation. However, JustLanded.com reports that if the employment period of an employee in a Malaysian company exceeds 1 month, they have to be given a written contract and that even if a probation period continues past 1 month dismissal still needs to be justified.

    This means that after 1 month any employee will enjoy the same benefits as a full employee regardless of status. An industrial relations consultant’s blog states that it “is very clear that a probationer will be entitled to the minimum benefits provided under the EA. There are no exceptions stated in specific sections excluding probationers from such benefits.”

  3. Termination Procedures

    A.  Notice

    The Practical Law guide for Malaysia states that there is no minimum statutory notice period for termination if it is on grounds of poor performance or misconduct. Otherwise, according to a report by Baker McKenzie, the minimum notice is:

    employment length notice period
    ●       less than two (2) years 4 weeks
    ●       more than two (2) years but less than five (5) years 6 weeks
    ●       more than five (5) years 8 weeks

    B.  Procedure

    The Practical Law guide for Malaysia states that an employer must prove just cause, such as poor performance or misconduct, in order to dismiss an employee. Redundancy is another possible avenue, however the employer must show they considered all alternatives first, such as reducing expenses, working hours, or others, and observe the following rules:

    • Employees who have attained their retirement age must be dismissed before other employees.
    • Casual workers and fixed term employees must be dismissed before permanent employees.
    • Within the same job scope, foreign workers must be dismissed before local employees.
    • The employee with the least number of years’ service must be the first employee to be identified for dismissal (the “last in-first out” principle).

    C.  Severance Pay

    The Practical Law guide for Malaysia states that there is no severance payment for termination on grounds of poor performance or misconduct, or for employees employed continuously for a period less than twelve months. Otherwise, the termination and lay-off benefits is reported by the SME Guide as follows:

    • ten days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for a period of less than two years; or
    • fifteen days’ wages for every year of employment under a continuous contract of serviced with the employer if he has been employed by that employer for two years or more but less than five years; or
    • twenty days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for five year or more, and pro-rata as respect an incomplete year, calculated to the nearest month.
  4. Statutory Leave

    A.  Annual Leave

    According to the Malaysian law site MYLabourLaw, an employee in Malaysia shall be entitled to paid annual leave of:

    • 8 days for every 12 months of continuous service with the same employer if he has been employed by that employer for a period of less than 2 years;
    • 12 days for every twelve months of continuous service with the same employer if he has been employed by that employer for a period of 2 years or more but less than 5 years; and
    • 16 days for every twelve months of continuous service with the same employer if he has been employed by that employer for a period of 5 years or more.

    If an employee has not completed 12 months of continuous service with the same employer during the year in which his contract of service terminates, his entitlement to paid annual leave shall be in direct proportion to the number of completed months of service.

    Any fraction of a day of annual leave so calculated which is less than one-half of a day shall be disregarded, and where the fraction of a day is one-half or more it shall be deemed to be one day.

    An employee who is on paid annual leave becomes entitled to sick leave or maternity leave while on such annual leave, the employee shall be granted the sick leave or the maternity leave and the annual leave shall be deemed to have not been taken.

    If at the request of his employer, the employee agrees in writing not to taken annual leave, he is then entitled to payment in lieu of annual leave.

    B.  Maternity Leave

    According to the Malaysian law site MYLabourLaw, every female employee shall be entitled to maternity leave for a period of not less than sixty consecutive days, if:

    • she has been employed by the employer at any time in the four months immediately before her ‘confinement’; and
    • she has been employed by the employer for a period of, or periods amounting in the aggregate to, not less than ninety days during the nine months immediately before her confinement.

    It shall be an offence for her employer to terminate her services or give her notice of termination of service during her ‘confinement’ period.

    C.  Sick Leave

    Employees are entitled to paid sick leave, with the exact amount depending upon whether hospitalization is necessary. Where no hospitalization is necessary, MYLabourLaw reports sick leave as:

    • fourteen days if the employee has been employed for less than two years;
    • eighteen days in the employee has been employed for two years or more but less than five years;
    • twenty-two days if the employee has been employed for five years or more.

    If hospitalization is necessary, they are entitled to up to sixty days as certified by a registered medical practitioner or officer.

    The employer shall pay the employee’s ordinary rate of pay for every day of such sick leave, No employee shall be entitled to paid sick leave at the same time as being under maternity or disablement leave.

  5. Pensions and Benefits

    A.  Statutory Pension

    The Employees’ Provident Fund (EPF) requires employers and employees to make contributions to a retirement fund. Expatriates and foreigners however are not required to contribute.

    According to a Malaysian insights report by KMPG, employees of Malaysian nationality or of permanent residence status are required to contribute to the Employees Provident Fund (EPF). The employee’s and employer’s contributions to the EPF are 11% and 12%, respectively, of the employee’s wages. Foreign employees have the option of voluntarily becoming members of the EPF. The minimum statutory contribution by the foreign employee and employer is 11% of the foreign employees’ wages.

    Contributions to the employees’ provident fund, are 12% of their employees’ gross monthly wages for employees earning above MYR 5,000 per month, or 13% for employees earning below MYR 5,000 per month.

    B.  Injury and Health Insurance

    The Social Security Organization (SOCSO) is a scheme to provide benefits to employees in case of employment injury.

    According to a Malaysian insights report by KMPG, only employees whose wages do not exceed MYR 3,000 per month are covered by this scheme.  In this sense, foreign employees are generally not required to contribute to SOCSO as their wages generally exceed MYR 3,000 per month. However, if contributing, the rates of contribution vary from MYR 0.10 to MYR 14.75 per month for the employee and from MYR 0.40 to MYR 51.65 per month for the employer.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Malaysia. For companies which intend to employ their staff directly through their incorporated Malaysian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Malaysia.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Malaysia.

The Shield GEO solution is an attractive alternative where:

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Malaysia

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Malaysia

– the company needs help with tax, employment, immigration and payroll compliance in Malaysia

Shield GEO can contract directly with the company to employ and payroll their staff in Malaysia. Shield GEO supplies local employment contracts for the staff, which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

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