How to Hire Employees in Malaysia

Hiring an employee in Malaysia means complying with the country’s legal employment framework. As an employer, it is your responsibility to register your employees with statutory bodies and adhere to the Employment Act of 1955. If you hire foreigners, you need to sponsor a proper work pass through the Immigration Employment Pass system. 

This guide covers how to hire and onboard employees in Malaysia. We will cover legal pathways to hire staff, meeting statutory requirements, and setting up your payroll for employees. 

Step 1: Determine the Legal Hiring Structure

Before you make a job posting, you need to determine the structure that will allow you to hire employees. This is determined by whether you have an established presence in Malaysia or not. 

Through Your Own Local Entity

As a business in Malaysia, you can hire employees directly. To do so, you need to register your own legal entity with the Companies Commission of Malaysia (SSM) and complete statutory registrations (e.g. tax, EPF, SOCSO, EIS). You are also required to open a corporate bank account to manage your business finances. 

Establishing your own legal entity allows you full control of the hiring process. This includes scouting for talent, interviewing, onboarding, and the like. However, the incorporation process can take weeks, or even months if you’re in a regulated sector. This route is more suitable for companies who plan a long-term and sizable presence in Malaysia.

Hire Independent Contractors

If you don’t have your own legal presence in Malaysia, you can hire independent contractors or freelancers for short and clear-scoped projects. Freelancers manage their own tax and statutory contributions you normally would shoulder when you hire a full-time employee. They operate within their own time according to the requirements of your projects.

However, there is a misclassification risk if your working relationship goes beyond the contract to bypass statutory obligations. For example, if you hire an independent contractor but they essentially function as a full-time employee, you could face liabilities. This includes backdated EPF, SOCSO, and EIS contributions plus penalties. Malaysian courts examine the actual working relationship instead of what’s written on the contract. 

Partner with an Employer of Record (EOR)

An EOR is a locally registered company that becomes the legal employer of your Malaysia-based staff. You retain full control over their day-to-day work, targets, and reporting lines. The EOR signs the employment contract, registers the employee with EPF, SOCSO, and EIS, handles PCB tax withholding, and maintains compliance with the Employment Act. This is a legally recognised model in Malaysia and the fastest way to employ staff, often within a week. 

Companies testing the Malaysian market, hiring a small team, or filling a role quickly typically use an EOR first and incorporate later once headcount justifies it.

Speak to our consultants about how our Employer of Record service in Malaysia can help you expand your team in the country. 

Step 2: Understanding the Employment Act 1955

The Employment Act 1955 governs Malaysian labour law. Since the 2022 amendments (effective January 2023), its core protections apply to all employees regardless of salary level.

• Minimum wage: RM1,700 per month, applied uniformly across Peninsular Malaysia, Sabah, Sarawak, and Labuan. This applies to basic salary only. Allowances, commissions, and bonuses cannot make up a shortfall against that floor. Domestic workers and registered apprentices are exempt.
• Working hours: 8 hours a day, 45 hours a week. Overtime beyond that is 1.5 times the hourly rate on normal working days, double on rest days, and triple on public holidays.
• Leave entitlements, scaled by tenure:
  • Annual leave: 8 days under 2 years of service, 12 days for 2 to 5 years, 16 days for more than 5 years
  • Sick leave: 14, 18, or 22 days depending on tenure, plus up to 60 days of hospitalisation leave
  • Maternity leave: 98 consecutive days
  • Paternity leave: 7 days
  • Public holidays: at least 11 gazetted days a year
• Employment contracts: Required in writing for any employment lasting more than one month. Contracts must cover job scope, salary, working hours, leave, and termination terms. Keep signed contracts on file for at least seven years after they expire.
• Probation: Runs 3 to 6 months. Probationers get the same statutory leave, minimum wage protection, and benefits as confirmed staff. Malaysian law does not create a lesser tier of rights for them.
• Flexible work arrangements: Any employee has the right to submit a written application for Flexible Working Arrangements (FWA). Employers must respond within 60 days.

Step 3: Register With EPF, SOCSO, EIS, and LHDN

Every employer in Malaysia with at least one employee must register their business with each of the four statutory bodies that govern taxation and social insurance. 

• EPF (KWSP): Mandatory retirement savings scheme.
• SOCSO (PERKESO): Provides workplace injury and invalidity protection
• EIS: Provides a safety net for retrenched workers administered alongside with SOCSO. 
• PCB (Potongan Cukai Bulanan): Monthly tax deduction system run by the Inland Revenue Board (LHDN). Employers withhold income tax from salary each month at progressive rates and remit it directly.
• HRDF: Applies to employers with 10 or more Malaysian employees in covered sectors and funds employee training.

Here is a summary of contributions: 

Late or incorrect statutory contributions are one of the most common triggers for Ministry of Human Resources audits, and they carry fines and back-payment demands.

Step 4: Secure Employment Passes for Foreign Hires

To hire foreigners in Malaysia, you need to sponsor an Employment Pass (EP) from the Immigration Department. As a pre-requisite to the EP, you must be registered with  Expatriate Services Division (ESD) and obtain approval for the position itself (an Expatriate Post). You must be able to demonstrate that the role cannot be reasonably filled by a local. 

Foreigners also have salary thresholds in order to qualify for the EP. These thresholds have been increased in June 2026. Any renewal or new application submitted from that date must meet the revised figures:

Category II and III applications also require Section 60K approval from the Labour Department (JTKSM). Once the application is submitted with a complete document set, ESD's standard processing time is 5 working days. Realistically, this process can take up to 1.5 - 2 months. 

Step 5: Starting the Onboarding Process

Aside from introducing your new employee to the work culture of your company, onboarding is also administrative. When an employee is hired, they go through a probation process for 3 to 6 months. At the end of this period, they will go through a review where they will either be confirmed or terminated based on their performance. 

Within this period, you are also required to perform administrative tasks such as:

• Collecting personal information such as identification, proof of address, academic certificates, and previous employment records. 
• Provide onboarding materials in English and Bahasa Malaysia if your workforce isn't fully English-fluent.
• Walk new hires through their benefits, EPF and SOCSO contributions, and payslip structure. Many employees don't automatically understand what these deductions mean for take-home pay.
• Put working hours, overtime approval, and leave request processes in writing.
• Assign a single point of contact for the first 90 days. Malaysian workplace culture favours clear hierarchy and a defined go-to person during onboarding.

Step 6: Understand the Rules for Termination and Notice Periods

Termination rules take effect from the first day of employment. A probationer who fails their review is still dismissed under Malaysian law, and you carry the same burden of proof as you would for confirmed staff. Employment contracts must also set out termination terms and notice periods before the employee signs. 

Malaysian law does not allow termination by notice alone. Under Section 20 of the Industrial Relations Act 1967, every dismissal needs "just cause or excuse". The burden of proving that falls on you as the employer. The three lawful termination grounds in Malaysia include:

• Misconduct: Requires a due inquiry (domestic inquiry) under Section 14 of the Employment Act, where the employee is notified of the allegations and given a chance to respond before any decision is made.
• Poor performance: Requires documented warnings and a genuine opportunity to improve before dismissal.
• Redundancy or retrenchment: Requires following the Last In, First Out principle within each job category, attempting redeployment first, and notifying the nearest Labour Office at least 30 days before the retrenchment takes effect.

As part of the termination process, you are also required to observe notice period based on the length of service under Section 12 of the Employment Act. Furthermore, you are also required to also pay severance for terminating employees without just cause. 

Read our guide for more information about terminating employees legally in Malaysia.