Employer of Record (EOR) Malaysia
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As the premier Employer of Record in Malaysia, Mercans proudly assumes the role of the legal employer for workers in this dynamic nation. Recognized as a leading Global Professional Employer Organization (Global PEO), our comprehensive services encompass the meticulous management of various employment aspects. Upholding strict adherence to local labor laws and regulations, our responsibilities span crucial tasks such as:
- Payroll administration
- Tax compliance
- Statutory benefits oversight
- Formulation of meticulous employment agreements
Key responsibilities integral to Mercans as the Employer of Record (EOR) Malaysia include ensuring seamless alignment of the worker’s employment with Malaysia’s legal requirements, adept management of local payroll procedures, meticulous handling of employment-related tax filing, and the provision of accurate payslips. Prompt and reliable disbursement of workers’ salary payments is an additional commitment that defines our commitment to excellence.
Simplify your global expansion endeavors with Mercans’ unrivaled Global PEO services, providing a streamlined solution that eliminates the need for complex entity setup. Serving as your trusted Employer of Record (EOR) in Malaysia, we guarantee unwavering legal compliance and Intellectual Property protection, allowing your business to focus on its core functions. With expertise in facilitating global mobility, handling work visas, and establishing a diverse and efficient global workforce, partnering with Mercans ensures a compliant and efficient employment experience in Malaysia.
EOR Solutions in Malaysia
- EOR for Prospective Employees: Mercans offers seamless Employer of Record (EOR) solutions for businesses that have already identified their ideal candidates in Malaysia. Our services encompass every aspect of the employee lifecycle, ensuring compliance with Malaysia labor laws and regulations.
- EOR + Recruitment: For those seeking assistance in talent acquisition, our EOR and recruitment services provide a holistic solution. We tap into our extensive network and expertise to help you find, onboard, and retain top talent, streamlining your expansion into the Malaysia market.
- Visa Sponsorship and Global Mobility: Navigating the intricacies of expatriate employment is simplified through our visa sponsorship and global mobility services. We facilitate the relocation of your international workforce, ensuring compliance with Malaysia immigration and employment laws.
- AOR for Contractor Payments: Businesses grappling with contractor payments can leverage our Assistance on Record (AOR) services. We handle the complexities of contractor payments, guaranteeing accuracy and compliance.
- Converting Freelancers to Employees: Mercans supports the transition from independent contractors to permanent employees in Malaysia. Our expertise ensures smooth conversions while adhering to legal requirements.
- HCM Integration: Integrate Mercans’ EOR services seamlessly with your HCM system in Malaysia for real-time data exchange, enhanced compliance, and cost-efficiency. Trust our expertise for a unified, compliant, and efficient approach, elevating your workforce management and payroll operations.
Employment Contracts in Malaysia
Malaysia remains a compelling destination for foreign direct investment in Southeast Asia, providing overseas employers access to a skilled workforce at competitive rates.
However, the country’s historical concern over exploitative labor practices and the subsequent legal ramifications necessitates caution among foreign investors. There is a need to navigate carefully to avoid running afoul of local employment laws or triggering costly labor disputes.
In response to these challenges, Malaysia, along with fellow members of the Association of Southeast Asian Nations (ASEAN) like Indonesia and Vietnam, has taken proactive measures. They now mandate the necessity of a formal, written employment contract signed by all relevant parties. When crafted with a thorough understanding of Malaysia’s regulatory landscape and labor laws, these formal contracts can establish a robust foundation for effective HR management in the country.
It is crucial to note that any employment arrangement lasting more than one month in Malaysia must be formalized through a written contract. This approach ensures clarity, compliance, and a structured framework for employer-employee relationships in the dynamic business environment of Malaysia.
Probation Period
The length of the probationary period is subject to variation among different companies and relies on the terms outlined in the employment contract. As there is no legal stipulation regarding the duration of probation, it typically spans from three (3) to six (6) months in Malaysia, as indicated in the employment agreement.
In today’s dynamic work landscape, there is a growing trend towards greater flexibility in the duration of probationary periods. Organizations are acknowledging the importance of customizing probation lengths to align with the complexity of roles and the adaptability demanded by various job functions.
Notice Period
The termination notice period should be equal for both the employer and employee, and its duration can be specified in the contract. In cases where the contract is silent on this matter, the statutory termination notice periods come into effect:
Alternatively, either party can opt for a payment in lieu of notice. Termination notice is not obligatory in instances of serious misconduct or a “wilful breach” of the employment contract.
Severance Payments
In Malaysia, there is no equivalent to ARD/TUPE, which means there is no automatic transfer of employment in asset or business sales. In such transactions, employees will typically continue their employment with the seller by default. Any employee “transfer” is executed through termination by the seller and subsequent rehiring by the buyer. The seller is exempt from statutory severance payment obligations if the buyer’s offer matches or surpasses the terms and conditions of the original employment. An employee forfeits the right to statutory severance payment if they unreasonably reject the new offer.
Working Hours
Overtime Pay
Overtime is any work beyond the standard 8 hours per day or 45 hours per week. Employees may be asked to work overtime in cases of accidents, continuous operations, community well-being, or urgent tasks.
If work extends beyond a 10-hour spread over period, the time from the end of the spread over period until the employee stops working is considered overtime.
The maximum monthly overtime hours for an employee should not exceed 104 hours. Work on rest days, public holidays, or substituted paid holidays is not counted towards the 104-hour limit.
No employee should be required to work more than 12 hours in a day, inclusive of overtime.
For overtime work, employees are entitled to a premium payment at a rate not less than 1.5 times their hourly pay, as per the Employment Act, 1955 §60A(2), 60A(4)(a), and Employment (Limitations on overtime work) Regulations, Art. 2.
Employees vs Independent Contractors in Malaysia
| Factors | Employee | Independent Contractor |
|---|---|---|
| Legal Definition | Engaged under a "contract of service" | Engaged under a "contract for service" |
| Defined as any agreement where one person agrees to employ another | Agrees to carry out services as specified in the contract | |
| Courts consider intention and conduct of contracting parties | Relationship not solely determined by specific services in the contract | |
| Considerations | Analyzing the employer's control during the contract term | Key powers include enforcing authority, determining matters like salary, terminating services, and giving instructions |
| Extent of Control | Considerations beyond control, such as: | - Whether hired person works elsewhere |
| Other Factors | - Work premises | - Ability to hire helpers |
| - Business risks borne | - Responsibility for investment and management | |
| - Employer's payment for statutory contributions | - Direct benefits from employer's success | |
| - Use of expertise for remuneration | - Contract tailored for hired person's expertise |
Payroll in Malaysia
Minimum Wages
Starting from July 1, 2023, the minimum wage for micro-enterprises in Malaysia, which was previously delayed since 2022, has now come into effect. In May 2022, Malaysia raised the national minimum wage by 25% to 1,500 ringgit (US$331) from 1,200 ringgit (US$265). Micro-enterprises, with five employees or fewer, were initially granted an extension until January 2023, further extended to July 2023 for better preparation. In city or municipal council areas, the new minimum wage is:
Micro-enterprises, contributing 40% to Malaysia’s GDP and employing two-thirds of the workforce, play a crucial role in the country’s economy.
Payroll Cycle
In Malaysia, payroll operates on a monthly schedule, with salaries required to be deposited by the 7th of each month through methods such as cash, cheque, or bank credit. Companies manage payroll internally or opt for outsourcing to a third party, especially when faced with constraints in time and resources.
Mercans’ Payroll Capabilities in Malaysia
Payroll Frequencies
Mercans provides adaptable payroll frequencies, offering options such as monthly, bi-weekly, or weekly, to meet the diverse requirements of businesses operating in Malaysia.Timely Disbursements
Our payroll services ensure punctual and accurate salary payments, aligning with the regulatory stipulation of at least once a month.Compliance Assurance
Mercans guarantees strict compliance with Malaysian payroll regulations, managing tasks such as tax calculations, benefit administration, and adherence to labor laws.Experienced Team
With a team of seasoned professionals, Mercans delivers customized payroll solutions, addressing the specific needs of businesses in Malaysia.Error-Free Processing
Our streamlined payroll processes are designed to minimize errors, providing a dependable and efficient system for managing payroll operations.Multi-Currency Payments
Mercans facilitates multi-currency payments, enabling businesses to operate seamlessly in a global environment, ensuring flexibility in handling diverse currencies as required.Focus on Core Business
Partnering with Mercans allows businesses to concentrate on their core activities, assured that their payroll operations are managed with precision and efficiency in Malaysia.Social Security in Malaysia
Social security in Malaysia encompasses various programs and initiatives designed to provide financial protection and support to the country’s citizens. The key components of social security in Malaysia include:
Employees Provident Fund (EPF)
The EPF is a mandatory savings scheme for employees in Malaysia. Both employers and employees contribute a percentage of the employee’s salary to the EPF, which serves as a retirement savings fund. Members can also withdraw funds for specific purposes such as education, medical expenses, and home ownership.Social Insurance Programs
Malaysia has implemented various social insurance programs to provide financial assistance to individuals facing specific life events. For instance, the Employment Insurance System (EIS) provides temporary financial relief to employees who lose their jobs.SOCSO (Social Security Organization)
SOCSO, also known as PERKESO, is responsible for implementing and managing the country’s social security schemes. It provides protection to employees against occupational injuries and diseases and offers financial assistance and medical benefits.Medical Coverage
Malaysia has both public and private healthcare systems. Citizens can access public healthcare services through the national health insurance scheme, while those who can afford it often opt for private health insurance for additional coverage.Pension Schemes
In addition to EPF, there are various pension schemes in place for specific groups, such as government employees and members of the armed forces. These schemes provide retirement benefits to eligible individuals.Financial Aid for Vulnerable Groups
The government also offers financial aid and assistance to vulnerable groups, including the elderly, disabled, and low-income families. These programs aim to alleviate poverty and improve the overall well-being of these individuals.Housing Assistance
The government provides housing assistance programs, including subsidies and affordable housing schemes, to support citizens in acquiring suitable accommodation.Employee Hiring Cost in Malaysia
Total Annual Employer Costs
- Employees Provident Fund (EPF) Contribution: MYR [X] (this is typically a percentage of the gross salary, e.g., 11%)
- Social Security Organization (SOCSO) Contribution: MYR [Y] (another percentage, e.g., 1.75%)
- Other Statutory Contributions or Insurances: MYR [Z] (additional costs, if any)
Total Annual Cost
Here’s a hypothetical breakdown of the costs to hire an employee in Malaysia based on the provided figures:
Gross Annual Salary + Total Annual Employer Costs
Using hypothetical figures for EPF (11%), SOCSO (1.75%), and other contributions (0.25%):
Total Annual Employer Costs
- EPF Contribution: MYR 1,099.99 (11% of MYR 9,999.96)
- SOCSO Contribution: MYR 174.99 (1.75% of MYR 9,999.96)
- Other Contributions: MYR 441.26 (0.25% of MYR 9,999.96)
Total Annual Employer Costs (Sum of the above)
- MYR 1,716.24
- Total Annual Cost:
- MYR 9,999.96 (Gross Annual Salary) + MYR 1,716.24 (Total Annual Employer Costs) = MYR 11,716.20
Gross Annual Salary
MYR 9,999.96Therefore, the total annual cost to hire an employee with a gross annual salary of MYR 9,999.96 would be MYR 11,716.20, taking into account various employer contributions and statutory costs in Malaysia. Please note that the actual percentages for EPF, SOCSO, and other contributions may vary, and it’s recommended to consult local authorities or employment experts for precise calculations.
Personal Income Tax
| Taxable Income (MYR) | Tax on Column 1 (MYR) | Tax on Excess (%) |
|---|---|---|
| Over | Not Over | |
| 5,000 | 20,000 | 0 |
| 20,000 | 35,000 | 150 |
| 35,000 | 50,000 | 600 |
| 50,000 | 70,000 | 1,500 |
| 70,000 | 100,000 | 3,700 |
| 100,000 | 400,000 | 9,400 |
| 400,000 | 600,000 | 84,400 |
| 600,000 | 2,000,000 | 136,400 |
| 2,000,000 | 528,400 |
Non-resident individuals are subject to a flat tax rate of 30% on total taxable income.
Knowledge workers residing in Iskandar Malaysia, defined as qualified persons, are taxed at a rate of 15% on income from employment with designated companies engaged in qualified activities in the specified region.
Approved resident individuals under the Returning Expert Programme, having or exercising employment in Malaysia, enjoy a 15% tax rate for five years on income from employment.
Qualified individuals holding key positions (C-Suite) are taxed at a rate of 15% on income from employment with companies granted relocation tax incentives under the PENJANA initiative.
Employee Benefits in Malaysia
Malaysia stands out as a business-friendly destination globally. Nevertheless, compliance with the Malaysian Employment Act is imperative for any company operating or hiring in the country. This legislation outlines the compulsory benefits that employers must provide to their workforce, encompassing:
Leave Entitlements
The duration of paid leave hinges on the tenure of the employment. The leave entitlements are structured as follows:
Up to 2 years of employment
8 days of annual paid leave2 to 5 years of employment
8 days of annual paid leave5 or more years of employment
16 days of annual paid leaveMaternity and Paternity Leave
Maternity leave requires a minimum of two months of paid leave, applicable to employees who have been with the same employer for at least three months in the nine months preceding childbirth. Paternity leave, though not mandatory, commonly involves a minimum of three working days off.
Pension Plans and Retirement Contributions
Retirement contributions, comprising the Employees’ Provident Fund (EPF) and the Social Security Organization (SOCSO), are automatically deducted from monthly salaries. EPF contributions, age, and income-dependent, range from 12% to 13%. Employees can access their EPF funds from the age of 55.
Minimum Wage
As of 2020, the monthly minimum wage for Malaysian employees is MYR 1,200 (city council and municipal workers) and MYR 1,100 (non-council and municipal workers). Working hours are capped at eight hours daily and 48 hours weekly, with a lower limit of 45 hours for office work each week.
Overtime
In situations requiring employees to exceed the standard working hours, overtime pay is mandated. Beyond the limits of 48 or 45 hours per week, employees are entitled to overtime wages at a rate of 1.5 times their regular pay.
Insurance
While not legally required, employers are expected to offer insurance coverage to safeguard employees. Common insurance benefits include medical, dental, optical, and personal accident coverage.
Sick Leave and Hospitalization
Employees in Malaysia are entitled to sick and hospitalization leave, subject to medical practitioner approval:
Less than two years of employment
14 days of annual sick leaveTwo to five years of employment
18 days of annual sick leaveOver five years of employment
22 days of annual sick leaveHospitalized employees are entitled to up to 60 days of sick leave at their regular pay rate. Employers should clearly communicate these benefits during the hiring process, emphasizing them in the letter of employment or offer letter. If employees are ineligible for retirement benefit schemes, employers are obligated to contribute to the Employment Insurance System.
Termination Policy in Malaysia
In Malaysia, the employment landscape operates without an “at-will employment” system. Employers cannot hire and fire employees at their discretion. However, termination is permissible if justified, carried out in good faith, and follows fair procedures.
Management Prerogatives
Section 13(3) of the Industrial Relations Act (IRA) establishes that dismissal and termination are considered management prerogatives, allowing employers to make decisions in the commercial interest of the business.Substantive Fairness
Acceptable reasons for termination fall under substantive fairness. The court typically permits employers to make decisions in running their business effectively, intervening only if the dismissal is deemed unfair. Dismissal must be for “just cause or excuse,” a term not precisely defined in the law but encompassing major misconduct, negligence, poor performance, redundancy, or business closure.Procedural Fairness
Besides having a fair reason, the termination process must adhere to procedural fairness. This involves issuing a termination notice, requesting an explanation from the employee, allowing time for a response, and conducting a fair domestic inquiry if necessary.Termination Notice
Under Malaysian labor law, employers must provide a termination notice that specifies the reason for termination. Even if an employment contract includes a termination clause, employers must still show just cause and excuse.Domestic Inquiry
A fair process may involve a domestic inquiry, especially for employees under the Employment Act. The inquiry, impartial and objective, investigates alleged misconduct or poor performance, ensuring the fairness of the dismissal process.Employee’s Recourse
If an employee perceives the dismissal as unfair, they can file a complaint with the Director-General of Industrial Relations within sixty days of termination. A conciliation meeting is arranged, and if no settlement is reached, the case may proceed to the Industrial Court.Industrial Court Proceedings
The Industrial Court operates with a focus on equity, good conscience, and the substantial merits of the case. While reinstatement is rare, remedies may include back wages, compensation, and the employee’s right to file a civil claim for damages against the employer.Constructive Dismissal
Constructive dismissal arises when an employee resigns due to a breach of the employment contract, such as an unsafe working environment. To succeed in a constructive dismissal claim, the breach must be substantial, and the employee must file a complaint within sixty days.Unfair Dismissal Defenses
Employers can successfully defend against unfair dismissal claims by demonstrating proper justification, adhering to a fair procedure, and showing that there was just cause and excuse for termination.In essence, Malaysian labor law aims to balance the rights of both employers and employees, recognizing the prerogatives of employers while safeguarding employees against unfair dismissals. It provides a structured framework to resolve disputes and ensures fairness in the employment termination process.
Work Permit in Malaysia
Foreign nationals aspiring to work in Malaysia need to obtain a Malaysian work visa, which encompasses the entire process of securing authorization to work. Before working, a foreign national must find employment with a Malaysian company willing to hire them. Subsequently, the employer applies for a Malaysia work permit on behalf of the employee, subject to approval by the relevant authorities.
Types of Malaysia Work Permits:
Employment Pass
Temporary Employment Pass
Professional Visit Pass
Conditions for Obtaining a Malaysian Work Visa
Employment Pass
Qualifications for the position, relevant work experience, minimum monthly salary requirements (varies by category).Temporary Employment Pass
Conditions vary based on nationality, age, and category of work.Professional Visit Pass
Temporary work with a foreign employer, specific categories of eligible work.Application Process
Expatriate Post or Quota Approval
- Employer applies for an Expatriate Post or quota approval from relevant authorities.
- Agencies like MIDA, MDeC, BNM, BiotechCorp, SC, or Expatriate Committee handle approvals.
Approval of Malaysia Work Permit
- The Immigration Department approves the work permit application.
- Visa approval letter issued for travel to Malaysia.
Applying for Malaysian Work Visa (Visa With Reference)
- Visa-required nationals apply for a Malaysia Visa With Reference from the nearest Malaysian Embassy/Consulate.
- Non-visa-required nationals travel to Malaysia with the Visa Approval Letter.
Issuance of Work Permit
- Upon arrival in Malaysia, the employee submits the passport to the Immigration Department.
- Work permit card issued, allowing commencement of work.
Family Members and Work Visa
Exemptions from Malaysian Work Visa
Understanding the intricacies of Malaysia’s work permit system is crucial for foreign nationals seeking employment in the country. The process involves employer-initiated applications, regulatory approvals, and adherence to specific conditions for different permit types. Additionally, considerations for family members and visa exemptions contribute to a comprehensive understanding of Malaysia’s work permit landscape.
Top Skills In demand in Malaysia
In this ever-evolving market, staying ahead requires a keen understanding of the top skills that are in high demand. From the art of selling to the intricacies of digital marketing, professionals in Malaysia are honing a range of capabilities to make a significant impact.
Here are the top skills currently making waves in Malaysia:
Sales
The ability to effectively sell products or services remains a cornerstone skill, with professionals constantly refining their approaches to meet the evolving needs of the market.Marketing Strategy
Crafting innovative and effective marketing strategies is crucial for businesses to stand out in the competitive Malaysian market.Digital Marketing
In the age of technology, proficiency in digital marketing is essential. From online advertising to social media campaigns, digital marketing skills are highly sought after.Business Development
Driving growth and creating opportunities is at the forefront of business development, a skill that continues to be in high demand across various industries.Social Media Marketing
Leveraging the power of social media is integral to reaching and engaging with a wider audience. Social media marketing skills are instrumental in building brand presence and driving customer engagement.Strategic Sales Plans
Developing and implementing strategic sales plans ensures a focused and effective approach to meeting sales targets and business objectives.C#
In the realm of programming, C# remains a valuable skill. Proficiency in this versatile programming language is sought after in various software development projects.MySQL
Database management is a critical aspect of many businesses, and expertise in MySQL, a popular relational database management system, is highly valued in the Malaysian job market.As professionals navigate the competitive landscape of Malaysia, mastering these skills can open doors to exciting opportunities and contribute to the continued success of businesses across the nation.
Conclusion
In conclusion, Mercans EOR in Malaysia provides a comprehensive and reliable solution for businesses seeking efficient and compliant expansion into the Malaysian market. With their Employer of Record services, Mercans simplifies the complexities of international employment, ensuring legal compliance, payroll management, and seamless operations. The company’s commitment to excellence is evident in its tailored services, addressing the unique needs of each client. By choosing Mercans EOR, businesses can confidently navigate the Malaysian employment landscape, focusing on their core operations while leaving the intricacies of human resource management in capable hands.