Hiring Employees in Malaysia

1. Key Points in Employment Contracts

• Employment Contracts (Full – time/Part – time)
  • The contract must be written in English, in writing and signed by both parties.
  • It must include the position offered, contract term, work location, basic salary and payment date, working hours and working days, other benefits (if any), annual leave, termination clause, sick leave, probation period, notice period, duties and responsibilities.
• Service Contracts (usually used for hiring experts, etc.)
  • The contract must be written in English, in writing and signed by both parties.
  • It should include information about each party, the purpose of the contract, the specific services and scope to be provided, the time frame of the services, fees and payment methods, service standards and deliverables, responsibilities and obligations of both parties, termination clause, confidentiality clause, intellectual property clause, breach of contract clause, independent contractor relationship.

2. Overview of Local Statutory Welfare Systems

• Salary Payment
  • The salary is paid monthly. The salary must be paid within 7 days after the last day of the pay period. In practice, it is recommended to pay on the 30th/31st of each month.
• Monthly Minimum Wage
  • Since February 1, 2025, the minimum wage has been raised to RM 1,700.
• Probation Period
  • Malaysian law does not require a probation period. The probation period is determined by the employer. It is recommended that the probation period last for three months and then be extended for another three months.
• Employer Costs
  • Employer costs account for 13% – 14% of the employee’s salary, including the Employees’ Provident Fund for local employees, Social Security Organization contributions, Employment Insurance System contributions, Human Resources Development Fund contributions, etc.
  • The optional cost is the 13th – month salary, which the employer can decide whether to pay.
  • Since October 2025, both the employer and foreign employees are responsible for 2% of the provident fund.

3. Salary Payment and Statutory Holiday Responsibilities

• Personal Income Tax
  • Personal income tax rates range from 0% to 30%, calculated on a progressive basis. Family status and the number of children may affect the final tax rate.
  • Non – resident individuals are subject to a flat tax rate of 30% on Malaysian – sourced income, with no tax – free threshold or progressive tax brackets.
• Overtime Pay and Maximum Working Hours
  • Overtime pay calculation standards: 150% of the employee’s hourly wage on weekdays, 200% on rest days, and 300% on public holidays.
  • For employees with a monthly income of less than RM 4,000, overtime pay is mandatory. For those with a monthly income of more than RM 4,000, overtime pay is not required.
  • Employees can work a maximum of 104 hours of overtime per month. The standard working hours are no more than 8 hours a day and 45 hours a week.
  • The local working hours are usually from 9 am – 6 pm / 8 am – 5 pm / 8.30 am – 5.30 pm.
• Annual Leave
  • The number of annual leave days depends on the length of service, ranging from 8 to 16 days per year. Employees will receive 100% of their average salary.
  • If an employee fails to complete 12 consecutive months of service in a year, the annual leave will be prorated according to the actual months of service.
  • In practice, it is recommended to provide employees with more than 10 days of annual leave.
• Treatment or Calculation Logic of Unused Annual Leave at the End of the Year
  • Use of annual leave: If an employee fails to use annual leave within the specified period, the annual leave may expire. If an employee is absent from work without reason for more than 10% of the working days in a year, they will lose the right to annual leave for that year.
  • Payment of annual leave: If the employer requires an employee to work during annual leave or does not approve annual leave, the employee is entitled to compensation at the daily wage rate. If annual leave cannot be taken due to sick leave, etc., the employer needs to pay compensation.
• Statutory Holidays
  • Malaysia celebrates 5 national statutory holidays. Each employee is entitled to 11 announced holidays and other public holidays.
  • The 11 days include 5 mandatory holidays and 6 optional holidays. The employer can also grant regional and non – official holidays.
  • In addition to statutory holidays, the government may announce other additional public holidays.
• Other Leaves
  • Maternity Leave: Pregnant women who have worked for at least 90 days are entitled to 98 days of paid leave, which can start 30 days before the expected due date. Employees will receive 100% of their salary during this period.
  • Paternity Leave: Employees who have completed 12 months of employment are entitled to 7 days of paternity leave.
  • Sick Leave: Employees are entitled to paid sick leave. The number of sick leave days depends on the length of service, ranging from 14 to 22 days per year. Employees will receive 100% of their average salary. In addition to sick leave, employees are also eligible for two months of hospital leave per year, and an MC/hospital certificate is required.
• Calculation Logic of Incomplete – attendance Salary (including absence or unpaid leave)
  • Monthly salary / total days in the month * (number of absent days).
  • If an employee takes leave before or after a statutory holiday without a reasonable reason, the employer may choose not to pay the salary for that statutory holiday.
• Expatriate Employees
  • Local Minimum Wage Required for Work Permits: The minimum monthly salary for EP1 is RM 10,000, for EP2 is RM 5,000, and for EP3 is RM 3,000. In practice, for EP1 applications, a monthly salary of more than RM 15,000 has a higher chance of approval.
  • Withdrawal of Local Social Welfare: Foreign employees can withdraw their provident fund in full when terminating their employment relationship and about to leave Malaysia. They can claim compensation from the Social Security Organization in case of work – related injuries.

4. Dismissal Rules and Compensation Arrangements

• Dismissal (Legal Requirements and Best Practices)
  • Notice Period: The minimum notice period is four weeks, which increases according to the length of employment. For employment of less than two years, the notice period is four weeks; for two to five years, it is six weeks; for five years or more, it is eight weeks. The notice period can be shortened but not extended.
  • Voluntary Resignation: Employees can resign at any time, and they need to submit a written resignation application. The statutory notice period is usually 1 – 2 months. There is no legal requirement for severance pay, unless specified in the employment agreement.
  • Dismissal during Probation: The employer is allowed to terminate the employment relationship during the probation period. Performance or behavioral issues need to be recorded, and internal procedures should be followed. The statutory notice period is as stipulated in the employment agreement, usually 7 days to 4 weeks in advance.
  • Negotiated Dismissal: Both parties can agree to terminate the employment relationship for any reason. Severance pay is usually paid in cases such as lay – offs. The payment standard depends on the employee’s income and length of employment. Severance pay does not apply to some situations.
  • Dismissal without Notice: If one party breaches the contract, the other party can terminate the employment contract immediately.
  • Dismissal with Just Cause: The employer can immediately dismiss an employee due to serious misconduct, with sufficient records and written evidence, and following a fair procedure.
  • Lay – offs and Redundancies: When a company lays off employees due to economic reasons, etc., it needs to have a legal reason and give priority to dismissing foreign employees.
• Calculation of Annual Leave for Departing Employees
  • If an employee has remaining annual leave before leaving, with the employer’s consent, the remaining days of the notice period can be filled with annual leave; otherwise, the employer needs to pay the employee for the unused annual leave.
• Official Website of Labor Law
  • https://jtksm.mohr.gov.my/en/home

5. Analysis of Incentive Measures and Policies of Local Governments for Opening Companies and Hiring Local Employees

• Incentive Policies
  • Local Employment Protection Policy: Employers must provide statutory employee benefits. Social insurance provides economic security, and the employment insurance plan provides assistance to unemployed employees. When laying off employees, foreign employees should be dismissed first. The revised labor law protects all employees.
  • Quota Ratio of Work Permits for Foreign Employees: There is no requirement, but a ratio of 1 foreign employee to 3 local employees is recommended.
  • Funding Policies: It includes investment incentives, green investment tax incentives, Malaysia Digital certification, etc., aiming to reduce the operating costs of enterprises and improve their competitiveness. Non – funding policies such as the Malaysia Technology Entrepreneur Program attract technology entrepreneurs.

6. Human Resources Analysis and Employment Suggestions

• Number of Employed People
  • In July 2024, the number of employed people continued to rise, increasing by 0.2% (+26,300 people), reaching a total of 16.63 million.
  • Data source: https://www.dosm.gov.my/portal-main/release-content/labour-force-statistics-july-2024
• Unemployment Rate
  • The unemployment rate in the second quarter of 2024 was 3.3%.
• Average Salary Trend
  • As of March 2024, the median monthly salary of formal employees in Malaysia was RM 2,844, showing an upward trend, with a year – on – year increase of 9.4% in that month.
  • Formal employees in the service industry had a median monthly salary of RM 2,882, an increase of 9.7%. The financial and insurance, and information and communication industries had relatively high median monthly salaries.
• Employment Suggestions
  • Use local recruitment websites, social media and internal referral programs for recruitment.
  • Ensure employees have statutory benefits and provide additional benefit plans.
  • For recruiting foreign employees, use international recruitment websites, etc. Foreign employees can apply for EP work permits or 1 – year PVP/PLS visas for inspection.
  • The recommended working hours are from 9 am – 6 pm, Monday to Friday, with a 1 – hour lunch break.
  • Follow the holidays of the national bank and inform employees in advance.
  • Set the paid leave to at least 10 days.
  • Organize a large – scale team – building event once a year and a small – scale one once a month.
  • Provide additional bereavement leave, marriage leave or birthday leave.
  • Keep employee records for at least 6 years.
  • When hiring Muslims, allow them to pray in the prayer room during working hours.

7. Cultural Adaptation

• Language
  • Malay (Bahasa Malaysia) is the official language, and English is widely used. Most Malaysian Chinese can speak Mandarin and English. Some Chinese can speak dialects. The Indian community usually speaks Tamil.
• Religious Customs
  • Islam is the state religion. There are also Buddhism, Taoism, Hinduism, Christianity, Sikhism, etc. Malays believe in Islam, Chinese believe in Buddhism and Taoism, and Indians believe in Hinduism, etc.
  • Malay customs are different from those in China. For example, Malays like sweet and spicy food, avoid eating pork, consider the left hand dirty, and avoid pointing at people with the index finger. Women need to wear long robes and headscarves in mosques. Do not eat in front of Muslims during the fasting month.
• Business Culture
  • Respect local religious beliefs and do not make jokes about religious customs.
  • Respect the national pride of Malays and pay attention to language expression.
  • Respect local customs and dress neatly.
  • Employers need to cooperate with employees’ prayer needs and allow Muslim employees to pray during working hours.

Note: This employment guide is for reference only. Laws and policies may change. It is recommended to consult to ensure compliance with the latest regulations and policies.