Cost of Hiring Employees in Malaysia Through an Employer of Record

For many global companies, hiring in Malaysia will always be a more economical option than hiring in the west. For example, a senior software developer in Kuala Lumpur costs USD $18,000–$30,000 per year here, versus $100,000–$150,000 in the United States. Factors like cost of living and foreign exchange rates lowers down the overhead cost. 

To hire remote employees, many companies often engage with an Employer of Record (EOR) within the locale. The EOR service provider such as RecruitGo acts as the legal employer of your remote staff in Malaysia and takes care of all the HR and administrative side of your team. This enables you to hire remotely without the added expense of starting your own business in Malaysia. 

This guide breaks down what you actually pay when hiring through an EOR in Malaysia, including employee costs, service fees, and other charges you should budget for.

Why Do Companies Use an EOR Instead of Setting Up a Local Entity?

To hire employees directly in Malaysia, you need a registered local entity. This means you need to register your business with the Companies Commission of Malaysia (SSM), set up a bank account, register and file taxes, and adhere to the Employment Act of 1955. That process can take weeks and would cost thousands of dollars before you can even onboard your first employee. 

An EOR lets you skip that process. With RecruitGo as your EOR, you can onboard employees in 3–5 business days with no entity registration, no local legal fees, and no risk of missing EPF, SOCSO, or EIS contribution deadlines.

The EOR model works well in Malaysia when you're:

• Hiring quickly for a project or client commitment
• Testing the Malaysian market before committing to a local entity
• Building a small or distributed team (fewer than 10–15 employees)
• Hiring for remote or project-based roles where flexibility matters
• Lacking local HR and legal expertise

Total Cost to Hire Through an EOR in Malaysia

When you hire through an EOR, your costs fall into two main categories: employee compensation and EOR service fee. Let’s take a look at both in detail.

1. Employee compensation and statutory contributions

This is what it costs to employ someone in Malaysia: their gross salary plus the mandatory employer contributions (EPF, SOCSO, EIS). These contributions add roughly 13–14% on top of gross salary. This cost exists whether you hire through an EOR or through your own entity.

2. EOR service fee

This is what you pay the EOR for handling payroll, compliance, contracts, and legal employer responsibilities. RecruitGo charges 10% of gross monthly payroll, capped at USD 250 per employee. This structure keeps costs proportional for lower salaries and predictable for higher salaries.

Beyond these two components, there are two other items to understand:

FX adjustment

If you're paying in USD or another foreign currency, the EOR converts to Malaysian Ringgit for salary disbursement and statutory remittances. Exchange rates fluctuate, so most EORs apply a small FX margin (typically 1–3%) or lock in a rate at the start of each pay cycle.

You can clarify this with your EOR partner when signing any contract.

Security deposit (One time, Refundable)

Most EORs require a refundable security deposit. This is often equivalent to 1-2 month's total employee cost (salary plus contributions plus fees). This deposit protects the EOR if a client disengages suddenly or becomes unresponsive. It ensures the EOR can cover final salary payments, statutory contributions, and any severance obligations required under Malaysian law. The deposit is returned when the employment relationship ends and all obligations are settled.

Example: Cost of Hiring a Data Analyst in Kuala Lumpur using EOR Service

Take a mid-level Data Analyst in Kuala Lumpur at a gross monthly salary of RM 6,000 (~USD 1,290). Here's what the total cost looks like including the EOR fee.

Exchange rate: ~RM 4.65 = USD 1.00.

The total comes to roughly 25% above gross salary. That covers full statutory compliance, payroll processing, employment contracts, and ongoing HR administration. Income tax is the employee's obligation; you withhold and remit it but it doesn't increase your cost.

For the security deposit, budget approximately one month's total cost (around USD 1,600 in this example), refundable at the end of the engagement.

Salary Benchmarks in Malaysia by Role Level

According to the Department of Statistics Malaysia (DOSM), the average monthly salary in formal employment is approximately RM 3,441, with a median of RM 3,000 (Q1 2025). The national minimum wage is RM 1,700/month as of February 2025.

Salaries in Kuala Lumpur and Selangor trend above national averages due to MNC concentration and higher demand for skilled talent. High-demand sectors (e.g. technology, financial services, and oil & gas) consistently pay above the ranges below.

What Does Your EOR Handle?

Malaysian payroll compliance involves four mandatory schemes. This is what your EOR manages on your behalf:

1. Employees Provident Fund (EPF / KWSP)

The Employees Provident Fund (EPF), known locally as KWSP, is Malaysia's mandatory retirement savings scheme administered by the government. Both you and your employees are required to contribute to EPF each month.

For Malaysian citizens and permanent residents below 60 years old, the contribution rates are:

As of October 1, 2025, EPF contributions became mandatory for non-Malaysian citizen employees as well, under the Employees Provident Fund (Amendment) Bill 2025. Both the employer and foreign employee are now required to contribute 2% each of the employee's monthly wages.

EPF contributions must be remitted to KWSP by the 15th of the following month.

2. Social Security Organisation (SOCSO / PERKESO)

SOCSO / PERKESO (Pertubuhan Keselamatan Sosial), provides social protection for employees against workplace injuries, occupational diseases, and invalidity. Contributions are mandatory for all eligible Malaysian and permanent resident employees.

As of October 1, 2024, SOCSO raised the wage ceiling for contributions from RM 5,000 to RM 6,000 per month. Employees earning above RM 6,000 will have their contributions calculated based on the RM 6,000 ceiling:

• Employee contribution: Approximately 0.5% of salary
• Employer contribution: Approximately 1.75% of salary

For example, an employee earning RM 5,000 per month would have an employee contribution of approximately RM 27.25 and an employer contribution of approximately RM 95.35 per month. For salaries at or above RM 6,000, contributions are capped at RM 29.75 (employee) and RM 104.15 (employer) per month.

Since June 2019, foreign workers are also covered under SOCSO's Employment Injury Scheme. Foreigners are also included in the Invalidity Scheme from July 1, 2024. 

3. Employment Insurance System (EIS / SIP)

The Employment Insurance System (EIS) is administered by SOCSO under the Employment Insurance System Act 2017 (Act 800). It provides short-term financial support for workers who lose their jobs due to retrenchment or company closure.

The EIS contribution rate is 0.2% each from the employer and employee, based on monthly wages. Like SOCSO, contributions are capped at the RM 6,000 wage ceiling.

For an employee earning RM 5,000 per month, both the employer and employee contribute approximately RM 10.90 each monthly.

4. Monthly Tax Deduction (PCB / MTD)

As the employer, you are the withholding agent for employee income tax. Although Income tax is the employee’s responsibility, you remain a withholding agent meaning you must calculate, deduct, and remit the correct amount on their behalf.

Malaysia uses a progressive tax system based on your chargeable income:

5. Statutory Leave, Working Hours, and Overtime

These entitlements are protected under the Employment Act 1955 and represent real indirect costs when planning headcount. Your EOR will ensure contracts reflect these correctly.

• Working Hours
• Overtime Pay
• Annual Leave
• Sick Leave
• Maternity and Paternity Leave

To get a better understanding of the total cost of employment in Malaysia, check our Salary Calculator for a full breakdown. 

Hiring Made Easy with RecruitGo

Setting up a legal entity in Malaysia to hire local employees involves time, capital, and ongoing compliance effort. Instead of going through the process, RecruitGo handles all your HR needs from employment contracts, payroll processing, EPF/SOCSO/EIS contributions, tax withholding, and full compliance with Malaysian labour law. 

With this setup, you can onboard a new employee in Malaysia in as little as 3–5 days with no entity setup, no local legal fees, and no risk of missing compliance deadlines.

Simplify your HR process and get personalized information on the cost of hiring employees in Malaysia. Fill out our form and our consultant will contact you shortly.