Hiring Employees in Malaysia: A Complete Guide

When your business is ready to grow, hiring employees is often the next step. This guide covers everything you need to know about hiring and managing employees in Malaysia.

Legal Requirements

Before hiring employees, you need to:

1. Register as an employer with relevant authorities
2. Understand employment law requirements
3. Set up payroll systems for statutory contributions
4. Prepare employment contracts and policies

Employment Act 1955

The Employment Act 1955 governs employment relationships in Malaysia. Key provisions include:

• Working hours: Maximum 48 hours per week
• Overtime: Must be paid at 1.5x normal rate
• Annual leave: Minimum 8 days per year (increases with service)
• Sick leave: Minimum 14 days per year
• Public holidays: 11 paid public holidays

Statutory Contributions

Employees Provident Fund (EPF)

• Employee contribution: 11% of salary (can be reduced to 9%)
• Employer contribution: 12% of salary (13% for employees earning RM 5,000 or less)
• Must be remitted by the 15th of each month

Social Security Organization (SOCSO)

• Mandatory for employees earning RM 5,000 or less
• Provides protection for work-related injuries and disabilities
• Contribution rates vary by salary bracket

Employment Insurance Scheme (EIS)

• Mandatory for all employees
• Provides financial assistance during unemployment
• Both employee and employer contribute 0.2% of salary

Employment Contracts

Every employee should have a written employment contract that includes:

• Job title and description
• Salary and benefits
• Working hours
• Leave entitlements
• Notice period
• Termination conditions

Payroll Management

Setting up payroll involves:

1. Calculating gross salary
2. Deducting EPF, SOCSO, and EIS
3. Calculating PCB (Pay As You Earn tax)
4. Generating payslips
5. Remitting contributions to relevant authorities

Work Permits for Foreign Employees

If hiring foreign employees, you need:

• Employment Pass (for managers and executives)
• Professional Visit Pass (for short-term assignments)
• Approval from the Ministry of Human Resources

The process typically takes 2-4 weeks and requires:

• Valid job offer
• Educational qualifications
• Relevant experience
• Medical examination

Common HR Compliance Issues

1. Late EPF contributions: Penalties apply
2. Incorrect PCB calculations: Can result in tax issues
3. Missing employment contracts: Legal risk
4. Non-compliance with labor laws: Can lead to disputes

Best Practices

1. Maintain proper records: Keep employee files organized
2. Stay updated: Employment laws change regularly
3. Use professional services: Consider HR and payroll outsourcing
4. Clear policies: Establish clear HR policies and procedures

Outsourcing HR and Payroll

Many companies choose to outsource HR and payroll to:

• Save time: Focus on core business activities
• Ensure compliance: Professional handling of all requirements
• Reduce errors: Expert calculations and filings
• Access expertise: Professional advice when needed

Conclusion

Hiring employees in Malaysia involves various legal and compliance requirements. By understanding the obligations, setting up proper systems, and potentially working with professional service providers, you can ensure smooth employee management while staying compliant.

Learn more about our HR & Payroll services or contact us to discuss your hiring needs.