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Global Payroll Team
Written by Global Payroll Team
Last updated May 7, 2026
Expert Reviewed
Payroll in Malaysia
Tax in Malaysia
Immigration in Malaysia

Malaysia map

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Employer of Record/PEO and Payroll Services in Malaysia

Malaysia offers multiple opportunities thanks to its dynamic and diversified economy. Key sectors include manufacturing, electronics, services, digital business, logistics, healthcare and high technology. The country remains attractive for regional expansion due to its infrastructure, investment support framework and strategic location in Southeast Asia.

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Doing Business in Malaysia

It is generally straightforward to do business in Malaysia, and MIDA provides resources and information for companies planning to establish operations there. The government continues to encourage investment and selected activities may qualify for tax incentives, depending on sector and approval. Employers should also factor in local licensing, payroll, labor and immigration compliance requirements.

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 vary by institution, but many branches operate Monday to Friday during standard business hours.

Working Week

The standard working week is generally Monday to Friday, although practices differ by employer and sector.

Labor Law

The primary law on employment is the Employment Act 1955. Following the 2022 amendments, the Act applies more broadly to employees, while certain benefits such as overtime and termination or lay-off benefits remain subject to specific eligibility rules.

Main Industries

Electronics, electrical products, palm oil processing, petroleum and gas, medical technology, services, logistics, digital business, manufacturing

GDP Growth

5.2%

Dates & Numbers

dd/mm/yyyy

Official State Name

Malaysia

Population

34.3 million

Capital

Kuala Lumpur

Major Languages

Malay, English

Currency

Malaysian Ringgit (MYR)

Internet Domain

.my

International Dialing Code

+60

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Malaysia
Kuala Lumpur, MY
6:20 pm, May 19, 2026
30°C
few clouds
46 %
Wind Gust: 0 mph
Clouds: 20%
Sunrise: 7:01 am
Sunset: 7:17 pm

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Payroll

The Employment Act stipulates that wages must generally be paid no later than the seventh day after the end of the wage period. The wage period is typically one month unless otherwise provided in the employment contract.

It is acceptable to provide employees with online payslips

Payslip

Payroll reports and supporting employment records should generally be kept for 7 years

Reports

The employee is entitled to 8 days of annual leave if employed for less than 2 years, 12 days after 2 years and 16 days after 5 years

Annual Leave

If the employee has worked for less than 2 years, paid sick leave entitlement is 14 days, rising to 18 and 22 days based on service, plus separate hospitalisation leave up to 60 days

Sick Leave

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

Maternity & Paternity Leave

Notice depends on the contract or statute, with 4, 6 or 8 weeks commonly applying based on length of service

Employee Termination

Only if provided under the employment contract or company practice, as there is no statutory 13th month salary requirement

13th month salary

1,700 MYR per month

Minimum Wage

Overtime is generally paid at 150% of the hourly rate on normal working days, with higher rates for rest days and public holidays where applicable

Overtime

Termination benefits are generally 10, 15 or 20 days’ wages for each year of service completed, depending on length of service, where the employee qualifies

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 income accruing in or derived from Malaysia. Malaysia does not impose VAT. Instead, it operates a Sales and Service Tax system. Statutory payroll contributions typically include EPF, SOCSO and EIS, subject to eligibility and applicable rates.

Tax

Non-resident individuals are generally charged at a flat rate of 30% on taxable employment income, while resident individuals are taxed at progressive rates. Corporate income tax is generally 24%, subject to preferential rates for qualifying small and medium companies.

24%

Corporate Income Tax

30%

Personal Income Tax

10%

Sales Tax

8%

Service Tax

Social Security

Employers are legally obligated to make statutory contributions to the Employees Provident Fund (EPF), the Social Security Organisation (SOCSO) and the Employment Insurance System (EIS). For Malaysian employees below age 60, EPF contributions are typically 12% or 13% by the employer and 11% by the employee, while SOCSO and EIS apply at separate statutory rates.

≤ 24%+

Social Security Rate

≤ 13%+

Social Security Rate for Employers

11%+

Social Security Rate for Employees

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Employment Law

The most common employment relationship is in the private sector between an employer and employee. The terms of the employment contract determine many of the parties’ rights and obligations, but Malaysian law also grants mandatory statutory protections relating to working hours, minimum wages, leave, dismissal benefits, social security and related matters.

Employment Agreement

Although an oral employment agreement can be legally recognised, it is advisable to document the employment relationship in writing and have it signed by the parties. Many employers issue a standard employment contract together with a separate job description setting out duties and responsibilities.

Working condition

Every employee is generally entitled to one paid rest day each week. Standard working time under the Employment Act is 45 hours per week. Any hours worked beyond normal hours are treated as overtime, subject to eligibility and statutory rules.

Leaves

Under the law, employees are entitled to at least 11 gazetted public holidays in a calendar year, together with statutory annual leave, sick leave and family-related leave where applicable. Additional public holidays may also be declared from time to time.

Employment termination

Under the Employment Act, either the employer or employee may terminate the contract by giving notice or paying wages in lieu of notice. The required notice depends on the terms of the contract or the employee’s length of service. Employers must also have just cause and excuse to dismiss an employee under Malaysian industrial relations principles.

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4 weeks

Minimum notice period for terminating an employee

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11

Total number of public holidays

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45

Working Conditions

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Not mandated

Total number of days for Compassionate & Bereavement Leave

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Immigration

Employers hiring foreign nationals in Malaysia must comply with the applicable immigration and labor approval process. The route depends on the worker category, sector and pass type. For expatriates, the Employment Pass remains the main route for skilled foreign employees, subject to prior approval and current policy requirements.

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Residency permits

The Employment Pass (EP) enables an expatriate to take up employment with an organisation in Malaysia. The pass is linked to the contract of employment and may be issued for up to 60 months, subject to approval by the relevant authorities. The expatriate may work only for the employer stated on the pass.

Work Permit validity

Up to 60 months

Required Documents

A valid passport

Completed application form

Employment contract or appointment letter

Recent passport-sized photos

Employer support documents and company registration records

Relevant approval from the Expatriate Committee or other approving authority, where required

Academic or professional supporting documents, where applicable

Any additional immigration documents requested by the authorities

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!

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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    FAQs

    What is an Employer of Record (EOR) in Malaysia and how does it work for foreign companies?

    An Employer of Record in Malaysia, provided by Mercans, acts as the legal employer for your workforce in the country. Mercans manages employment contracts, payroll, statutory contributions, taxes, and ensures full compliance with Malaysian labor laws, allowing international businesses to hire employees without creating a local entity.

    Why should businesses use an EOR instead of establishing a legal entity in Malaysia?

    Partnering with Mercans as your EOR in Malaysia eliminates the time, cost, and complexity of setting up a local company. It ensures compliant hiring and payroll operations from the start, giving businesses faster access to local talent and enabling smooth market entry without administrative hurdles.

    How does payroll outsourcing in Malaysia ensure compliance with local tax and labor laws?

    Mercans ensures total payroll compliance by managing salary calculations, tax deductions, social security contributions, and statutory reporting in accordance with Malaysian law. With continuous monitoring of legal updates, Mercans guarantees accurate, timely, and compliant payroll administration.

    Can an Employer of Record in Malaysia hire employees and manage work permits for international companies?

    Yes. Mercans can hire employees on behalf of foreign companies and manage the entire process for work permits, visas, and employment documentation. This enables compliant employment of both local and expatriate workers in Malaysia without requiring a physical presence.

    What are the main benefits of using EOR and payroll services in Malaysia for global expansion?

    Key benefits include rapid market entry, full compliance with Malaysian employment and tax laws, reduced administrative workload, minimized legal risk, and access to Mercans’ local HR and payroll expertise. Businesses can scale their workforce easily while focusing on growth and strategy.

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