Guide to Employment Contracts in Malaysia (2026)

Drafting a legally compliant contract in accordance with current regulations is important for avoiding employment disputes. Most employers nowadays use templates that may have clauses that enforce outdated regulations or unclear company policies. 

This guide will help you draft a sound and compliant contract for your employees in Malaysia. We’ll cover different types of contracts, a checklist of clauses to include, and mandatory stamp duties that are required under Malaysian law. 

Contracts Under Employment Act in Malaysia in 2026

Under Malaysian law, the principal legal relationship is a contract of service. It is an agreement, whether oral or written, express or implied, under which a person works as an employee. 

For decades, the Employment Act 1955 only protected employees earning RM2,000 a month or less, plus a handful of other categories like manual labourers. Everyone else relied on whatever their individual contract dictates. This means certain employees don’t have core protections like written terms of employment, termination rules, and maternity leave.

The Amended Employment Act in 2022 extended this coverage to every employee in Peninsular Malaysia and Labuan, regardless of how much they earn. For example, a software engineer with RM12,000 a month now has the same protections as a factory worker earning minimum wage. 

Part XII of the Act (covering overtime pay including public holiday and rest day premiums), also applies to part-time employees as per the Employment (Part-time Employees) Regulations 2010. 

If you’re an employer, you need to provide clear written terms that meet the statutory floor for every employee in your company. 

The Main Types of Employment Contracts

There are five types of contracts recognized by the Employment Act in Malaysia. Each type depends on the nature of the role:

Mandatory Clauses for a Compliant Employment Contract

The Employment Act 1955 and Employment Regulations 1957 require certain clauses to be documented or provided to employees through the contract. Any term that’s less than favourable than the statutory minimums is considered void. This means, you need to have a complete and updated document that follows these minimums:

1. Employer and employee details: each party’s full legal names, IC or passport numbers, and the date employment begins. If applicable, work-pass or employment-permit information.
2. Job title and duties: including the employee’s job title, job description, core responsibilities. 
3. Commencement date and duration: The start date and, if applicable, the fixed-term duration or project period.
4. Wages and payment terms: this information includes basic wage (excluding allowances), frequency of payment, and payment method. In 2026, this figure needs to actually meet the RM 1,700 national minimum wage. 
5. Working hours: The agreed normal hours of work per day, including relevant shift arrangements where applicable. In Malaysia, the standard cap is 45 hours a week, down from 48 following the 2022 amendment. Any contract still referencing 48 hours is out of date and should be corrected.
6. Rest days and overtime: At least one rest day per week, with overtime pay for anyone earning RM4,000 or below governed by the Act's formulas.
7. Leave entitlements: The statutory or contractual entitlement to public holidays,
8. Statutory contributions: The statutory or contractual entitlement to public holidays, annual leave, maternity/paternity, and paid sick leave should be stated. The Employment Regulations specifically require the employer to record the number of days of holiday and annual leave with pay instead of a vague reference to "as per the Employment Act”.
9. Probation terms (if applicable): including duration and the process for confirmation.
10. Notice period for termination or resignation: explains how either party may terminate it. The notice period must be the same for both employer and employee. Without this clause, the contract will follow the statutory minimums of 4-8 weeks depending on the length of service (see above).
11. Confidentiality and restrictive covenants: these are clauses relevant to the role such as divulging intellectual property or business secrets. Malaysian courts scrutinise post-employment restraints closely so if you have processes or information that’s crucial to your company, this should be clearly stated and agreed upon. 
12. Governing law and dispute resolution: confirms Malaysian law applies and outlining how disagreements get handled.

(New) Mandatory Stamp Duties

Under Item 4 of the First Schedule of the Stamp Act 1949, employment contracts had always incurred a RM10 stamp duty per original copy, however, enforcement was minimal. 

However, the Inland Revenue Board (LHDN) rolled out the Stamp Duty Self-Assessment System and started auditing employers directly. As of 6 August 2026, employment contracts in Malaysia are generally subject to mandatory stamp-duty compliance. However, low-wage workers with salaries not exceeding RM3,000 are exempted with the proper endorsement. 

It covers permanent, fixed-term, part-time, temporary, short-term and foreign-worker employment contracts.

Here are important timelines you should follow:

• Contracts signed before 1 January 2025 are exempt entirely.
• Contracts signed between 1 January and 31 December 2025 needed to be stamped, but late-stamping penalties were waived if stamped by 31 December 2025.
• From 1 January 2026 onward, every new employment contract must be stamped within 30 days of signing. Late stamping now triggers real penalties, starting at RM50 or 10% of the duty owed (whichever is higher) and climbing to RM100 or 20% for delays beyond three months.

Stamping is done through the MyTax portal under LHDN's e-Duti Setem service. Only the employer's copy strictly needs to be stamped and retained for audit purposes. Although, giving the employee a stamped copy too is good practice. This applies to renewals and binding amendments as well, not just the original signing.

Hiring in Malaysia Without a Legal Entity

RecruitGo's Employer of Record service legally employs your Malaysian team under our own local entity. We can draft legally-compliant contracts, manage statutory registrations, payroll, and termination. If you’re working with talent directly, our contractor management service covers compliant contracts, misclassification checks, and conversion to employee status if needed. 

Contact our local experts for a demo of our EOR services or for more information about hiring in Malaysia.