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Introduction
Over the recent years, Southeast Asia has witnessed remarkable developments. In 2022, the GDP of Malaysia was estimated at $407.03 billion.
Its solid infrastructure and political and economic stability position Malaysia as a key player in global business expansion.
Companies are also getting attracted to Malaysia’s skilled workforce. However, to hire in Malaysia, you must consider the stringent labor laws that guide the employee-employer relationship.
Before getting started, here are some important points you should remember when hiring in Malaysia.
Malay is the official language of Malaysia. However, English is a growing language due to its increasing importance.
The standard working hours in Malaysia consist of 45 hours per week.
The national minimum wage, previously set at 1,200 RM, was increased by 25% in 2022 to 1,500 RM per month.
The official currency of Malaysia is the Malaysian Ringgit (MYR, RM).
Now, let’s open up the aspects of ‘how to hire employees’ in Malaysia.
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Calculating hiring costs in Malaysia might differ depending on the method you choose. Below is a breakdown and comparison of the different types of costs involved.
Types of costs
Setting up a local entity
Partnering EOR/AOR
Early setup costs
Significantly high since it involves setup fees, office foundation costs, and other legal expenses
Typically low since they already have an established presence in Malaysia.
Operational overhead
Involves high ongoing costs, including HR and taxes
Minimal overhead costs, since the service provider assumes all responsibilities related to HR and compliance
Operating expenses
Typically high since you will be in charge of payroll, tax compliance, and HR
Optimal costs, as the EOR/AOR manages all HR, payroll, and compliance
Types of costs
Partnering EOR/AOR
Setting up a local entity
Early setup costs
Typically low since they already have an established presence in Malaysia.
Significantly high since it involves setup fees, office foundation costs, and other legal expenses
Operational overhead
Minimal overhead costs, since the service provider assumes all responsibilities related to HR and compliance
Involves high ongoing costs, including HR and taxes
Operating expenses
Optimal costs, as the EOR/AOR manages all HR, payroll, and compliance
Typically high since you will be in charge of payroll, tax compliance, and HR
In addition to this, several other costs are related to hiring in Malaysia. These include salary and wages, employee benefits, onboarding and training, and talent discovery and acquisition.
The Employment Act (1955) is a great starting point, but there are a few other important Malaysian laws to be aware of:
Industrial Relations Act (1967): It outlines the rights and responsibilities of employers, employees, and unions. Think of it as a rulebook for things like negotiating contracts, resolving disagreements, and handling terminations.
Occupational Safety and Health Act (1994): This act ensures that workplaces are hazard-free. It sets clear guidelines for safety measures, identifies risks, and reports accidents.
Employees Provident Fund Act (1991) & Employees Social Security Act (1969): These acts are like building a safety net for your employees. The first sets up a mandatory retirement savings plan (EPF) with contributions from both employers and employees. The second provides social security coverage for things like injuries, disabilities, and even if a family member passes away. Contributions go towards the Social Security Organization (SOCSO).
Minimum Retirement Age Act (2012): This act ensures people can work until they're 60. It sets the minimum retirement age, but if you and your employee agree otherwise, that's perfectly fine.
You must familiarize yourself with all these provisions to avoid legal issues and penalties.
Challenges of Hiring in Malaysia
To answer your question about how to hire employees in Malaysia, let’s examine some of the many challenges that businesses face in this country.
1) Employment Laws
The Employment Act of 1955 is the primary legislation that takes care of the roles and obligations you have to follow in Indonesia. However, quite a few other laws and provisions are also in place. Navigating and ensuring compliance with them can prove to be extremely difficult.
Nonetheless, for your convenience, we have broken down the labor laws into a few key points, as highlighted below.
Overtime work is allowed; however, employees must be compensated for it.
The rate of overtime work in Malaysia differs based on the day. For example, overtime compensation equals 1.5 times the basic wage on a weekday.
In addition, under the Employment Act, every employee is entitled to four to 16 days of paid annual leave, depending on the duration of service.
You are legally obligated to provide a notice period of four to eight weeks in the event of termination.
2) Payroll
An extensive labor law environment brings along an intricate payroll system as well. The same holds for Malaysia. When disbursing salaries in the country, you need to take care of the following aspects as well:
Wages need to be disbursed on the 28th of every month.
Both employees and employers are required to contribute to the social security system in Malaysia.
It mainly comprises the Employee’s Provident Fund (12% for employers and 11% for employees) and the Employment Insurance System (0.2%).
Without proper guidance or a powerful payroll solution, ensuring compliance with payroll policies can be extremely difficult for you as an employer.
3) Lengthy and expensive hiring process
Reports suggest that it takes about 41 days, on average, to hire leaders in Malaysia. This amounts to almost over 50 hours of dedicated time per week for various hiring activities, ranging from candidate interviewing to screening.
In addition to this, there has been a prevalent challenge, especially among SMEs (small and medium enterprises), to compete with MNCs (multinational companies) in attracting and retaining talent.
One of the main reasons for this is the excessively high costs of accessing job boards in Malaysia.
4) Competitive talent landscape
When evaluating the talent landscape in Malaysia, we can witness some key challenges that are prevalent in this country. They include the following.
Underemployment has been a persistent issue in Malaysia due to a mismatch between individuals' skills and qualifications and their job positions.
There has been a consistently low rate of women’s participation in the employment landscape of Malaysia.
Hire in Malaysia with Skuad
With expertise in over 160 countries, Skuad has been one of the most sought-after EOR solutions Malaysia businesses ever experienced for international hiring. It is a one-stop destination that enables enterprises to hire employees in new countries within minutes.
From automating onboarding to managing cross-border payroll and compliance, Skuad, your employment solution in Malaysia, is here to meet all your businesses’ needs.
And do you know what the best part is?
We have a dedicated team of employee and employer success managers available round-the-clock to help you hire staff in Malaysia. From resolving all your queries to ensuring an optimal experience, our support team guarantees successful hiring every step of the way.
Join us today to experience the future of global workforce management with Skuad - a remote workforce management service provider Malaysia.
One platform to grow your global team
Hire and pay talent globally, the hassle-free way with Skuad
Ans: Employer costs in Malaysia usually involve various expenses related to hiring and maintaining a workforce in this region. They generally vary depending on the type of employment and industry.
Q2: What are the employment practices in Malaysia?
Ans: Employment relationships are governed by Malaysian labor laws and regulations. These laws and regulations cover various aspects, from daily working hours and wage requirements to annual leave policies and social benefits.
Q3: What is the difference between contractors and employees in Malaysia?
Ans: Under the labor laws of Malaysia, an employee is defined as an individual who has a formal relationship with an employer and enjoys various protections and benefits. On the other hand, an independent contractor is a self-employed person with a separate business entity.
Q4: How do I employ someone in Malaysia?
Ans: One of the most effective ways of employing someone in Malaysia is to use the services of an EOR such as Skuad. It is a comprehensive platform that handles various aspects of employment, ranging from HR and administrative tasks to ensuring compliance with local labor laws.
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