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Employer of Record/PEO and Payroll Services in Malaysia

There are multiple opportunities in Malaysia thanks to its dynamic and robust economy. These opportunities are present across a number of sectors such as manufacturing, which is the main engine of Malaysia’s economic growth. It is also an enabler of Industry 4.0. Further, the services sector is expanding with increased focus on high technology.

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Doing Business in Malaysia

It is easy to do business in Malaysia and MIDA (Malaysian Investment Development Authority) provides resources and information that companies may need to know prior to setting up in Malaysia. The government encourages joint ventures/partnerships between Malaysian and foreign investors. Certain activities and products are also eligible for consideration of tax incentives.

Entity Registration and Incorporation Requirements

Setting up a new business or expanding an existing one in Malaysia is straightforward. Choose how your company operates from a range of entity types which suit your individual circumstance.

Banking

Banking Hours: Monday - Friday from 9:30 am - 4:00 pm

Working Week

The standard working week is from Monday to Friday from 9:00 am - 5:00 pm

Labor Law

The primary law on employment is the Employment Act (EA) 1955. Companies that operate multi-country payroll should take note that the EA only applies to certain categories of employee, that is, any individual who has entered into a contract of service with an employer under which the individual’s wages do not exceed RM2,000 a month. It also covers any individual whose wages exceed RM2,000 per month where the individual is engaged in manual labor, engaged in the operation or maintenance of a mechanically propelled vehicle operated, supervises or oversees other employees who are engaged in manual labor, engaged in any capacity in any vessel registered in Malaysia or is engaged as a domestic servant.

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Main Industries

Electronics, rubber and palm oil processing, pharmaceuticals, medical technology, smelting, logging, timber processing, petroleum production

GDP Growth

4.50%

Dates & Numbers

dd/mm/yyyy

Official State Name

Malaysia

Population

32.37 Million

Capital

Kuala Lumpur

Major Languages

Malay

Currency

Malaysian Ringgit (MYR)

Internet Domain

.my

International Dialing Code

+60

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Malaysia
Kuala Lumpur, MY
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Payroll

The EA stipulates that every employer shall pay employees no later than the seventh day after the last day of any wage period. The wage period is typically a month, and if there is no wage period mentioned in the employment contract, then the wage period is deemed to be one month.

It is acceptable to provide employees with online payslips

Payslip

Payroll report must be kept for 7 years

Reports

The employee is entitled to 8 days from the first 2 years of employment

Annual Leave

If the employee has worked for less than two years, then the entitlement is 14 days

Sick Leave

90 days of paid maternity leave and 7 days of paid paternity leave

Maternity & Paternity Leave

30 days’ notice is typically provided

Employee Termination

As stipulated in the employment contract, a 13th month salary is customarily provided at the end of the year

13th month salary

1,200 MYR per month in urban areas and 1,100 MYR per month in rural areas

Minimum Wage

150% of the regular salary rate and overtime hours worked on rest days and weekends are paid at 200% of the regular salary rate

Overtime

10 days of severance pay at the regular salary pay rate for every year of service completed for employees within the first two years of employment

Severance Pay

PEO Malaysia

Mercans PEO (Professional Employer Organization) services in Malaysia provide a comprehensive HR outsourcing solution for foreign companies to establish a local presence, compliantly hire and manage employees, handle HR, payroll, benefits, tax compliance, and other administrative tasks, while reducing costs and administrative burden.

Through our Malaysia PEO, we provide services that are flexible and cost-effective for companies seeking to outsource their HR and payroll processes. As a Professional Employer Organization, Mercans offers a range of services including employee benefits, payroll administration, and compliance with Malaysia employment laws. By entrusting their HR and payroll needs to Mercans, companies can focus on their core business activities and ensure a smooth and efficient HR operation.

Partnering with our Malaysia PEO presents the fastest and most efficient way to enter the Malaysia market.

Contact us to explore how PEO Malaysia solutions from Mercans can support your seamless expansion!

Benefits of Hiring an Employee through a PEO in Malaysia

Looking to expand into one of Southeast Asia’s fastest-growing markets? Partnering with a PEO in Malaysia can help you streamline the hiring process, ensure full compliance with local regulations, and scale your business operations without the complexities of setting up a local entity. Here’s how a Malaysia PEO can support your business goals:

Fast and Efficient Market Entry

By leveraging a PEO Malaysia, your business can hire employees and begin operations quickly—often within a matter of days. This eliminates the need for a lengthy registration process, enabling you to enter the Malaysian market and focus on growth immediately.

Full Compliance with Local Employment Laws

Malaysia has specific labor laws, covering everything from employment contracts to salary requirements and social security contributions. A Malaysia PEO ensures that your hiring practices and employee management comply with the latest local regulations, helping you avoid costly legal issues and penalties.

Cost-Effective Operations

Setting up a legal entity in Malaysia can be expensive, with costs related to company registration, accounting, and local legal fees. A PEO in Malaysia helps reduce these upfront costs by managing HR functions such as payroll, benefits, tax filings, and compliance, enabling you to run your operations more cost-effectively.

Minimized Risk of Non-Compliance

Malaysia’s labor laws are regularly updated, and non-compliance can lead to significant penalties. A Malaysia PEO stays informed about regulatory changes and ensures that your business adheres to local labor laws, mitigating the risk of fines or legal disputes.

Access to Skilled Talent

Malaysia is home to a highly educated, multilingual workforce, especially in sectors such as technology, engineering, and finance. Partnering with a PEO in Malaysia gives you access to top local talent with the expertise necessary to support your business in this dynamic market

Simplified HR and Payroll Administration

Managing HR and payroll remotely can be complex, especially when dealing with different tax structures and compliance requirements. A Malaysia PEO handles all HR and payroll functions on your behalf, ensuring accurate, timely salary payments and compliance with local laws.

Scalable Hiring Solutions

Whether you’re starting with one employee or planning to grow your team, a PEO Malaysia offers scalable solutions that allow you to adjust your workforce size easily. This flexibility ensures you can efficiently manage staffing levels as your business needs evolve.

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Tax and Social Security

An individual (whether tax resident or non-resident in Malaysia) is taxed on any income accruing in or derived from Malaysia. There are no local taxes on personal income in Malaysia. The Malaysian social security system is called SOCSO or PERKESO (Pertubuhan Keselamatan Sosial). SOCSO provides financial assistance to employees and their families in the event of an accident or occupational disease.

Tax

Non-resident individuals are charged at a flat rate of 30% on total taxable income.

24%

Corporate Income Tax

30%

Personal Income Tax

10%

Sales Tax

10%

VAT

Social Security

Employers are legally obligated to make statutory contributions to the Employees Provident Fund (EPF), the Social Security Organisation (SOCSO) and the Employee Injury Insurance System (EIIS) Scheme. EPF is a compulsory pension scheme for all Malaysians. SOCSO administers the EIIS and the Invalidity Pension Scheme (IPS).

21%

Social Security Rate

12%

Social Security Rate for Employers

9%

Social Security Rate for Employees

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Employment Law

The most common category of employment relationship is in the private sector between an employer and employee. The terms of the employment contract determine the contractual rights and obligations of the employer and employee. However, Malaysian law also recognises an employee’s implied rights and duties. Statutory law regulates many aspects of employment including working hours, minimum wages, dismissal benefits, social security insurance and more.

Employment Agreement

Although an agreement made orally between an employer and employee is legally recognised and enforceable, it is advisable to have an employment relationship captured in writing and signed between the parties. Some companies may issue a generic employment contract and provide a job description which outlines duties and responsibilities separately.

Working condition

Every employee shall be allowed in each week, a paid rest day, as may be determined from time to time by the employer. Any hours worked in excess of the normal hours of work shall be classified as overtime work. If required to work on a public holiday, the employee shall be paid not less than three times their daily rate of pay and the same applies if required to work overtime on a public holiday.

Leaves

Under law, every employee is entitled to 11 gazetted public holidays. All Malaysian employees are also entitled to any days which are appointed as a public holiday.

Employment termination

Under the EA, either the employer or employee may provide notice of payment in lieu of notice in order to terminate the contract of service. The length of the notice depends on the tenure of employment. That said, employers must provide ‘just cause and excuse’ in order to terminate an employee under industrial relations law.

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30 days

Minimum notice period for terminating an employee

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6

Total number of public holidays

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40

Working Conditions

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Up to 4 weeks

Total number of days for Compassionate & Bereavement Leave

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Immigration

All employers are required to ensure that foreign worker candidates have undergone ISC (Immigration Security Clearance) verification as part of the application process to work in Malaysia. Foreign workers are permitted to work only in designated areas: manufacturing, construction, plantation, agriculture and services.

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Residency permits

The Employment Pass (EP) is a work permit that enables an expatriate to take up employment with a company in Malaysia. The pass is subject to the contract of employment (up to 60 months). Prior to application, the company should check eligibility for the expatriate EP. The EP allows the individual to work only for the company named in the EP.

Work Permit validity

6 months – 5 years

Required Documents

A passport with at least 18 months until expiry

The applicant needs to be be 27 years old or older (except for those who are working  in the IT sector)

Completed application form attached to the original employment contract

Recent passport-sized photos

Letters from the employer confirming that the employer will pay salaries and tax revenue

Proof that the company complies with all industry regulations

Income tax receipts that provide proof of payment

Compliant, reliable, error-free and touchless payroll in Malaysia

Build the best team and hire top talent compliantly in Malaysia. Get in touch with Malaysia payroll outsourcing & PEO specialists for a free consultation!

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This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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