Recruitment and Employment in Malaysia

I. National and Economic Background: Southeast Asia’s Diversified Hub

Malaysia, located in the heart of Southeast Asia, is a multicultural nation composed of three major ethnic groups: Malays, Chinese, and Indians. Its total population is approximately 35.97 million, with Chinese accounting for about 22.7%. This makes Mandarin widely spoken in business environments, with about 30% of the population fluent, significantly reducing language and cultural communication barriers for Chinese enterprises.

As an important member of ASEAN, Malaysia boasts developed infrastructure, including modern ports, airports, and communication networks. Its economy is robust, with the latest policy in 2025 raising the minimum monthly wage to 1700 Ringgit, aiming to boost purchasing power and move towards its goal of becoming a high-income nation by 2030. The World Bank ranks it as the 12th easiest place to do business globally, attracting significant foreign investment, especially from China, primarily in manufacturing, the digital economy, services, and tourism.

II. Core Advantages for Companies Expanding to Malaysia

Strategic Location and Market Access

Located at the heart of ASEAN, it can serve as a springboard to radiate across the entire Southeast Asian market. It has signed free trade agreements (e.g., AFTA, CPTPP) with multiple countries and regions, enjoying tariff reductions and high trade facilitation.

Policies and Incentives

• Strong government support: The Malaysian Investment Development Authority (MIDA) offers attractive tax incentives, subsidies, and funding matching for high-tech, high-value-added manufacturing companies.
• Alignment with the “Belt and Road” initiative: Project cooperation has brought infrastructure development and investment opportunities.
• Driving digital transformation: The government encourages technological innovation, creating conditions for companies to collaborate with local tech companies and research institutions.

Human Resources Advantages

• Diverse cultural workforce: Employees generally possess multilingual abilities (Malay, English, Chinese), making it easy to integrate into international teams.
• Relative cost advantage: Compared to developed countries like Singapore, labor costs are more competitive, while labor quality is high.

III. Employment Compliance Details: Costs, Risks, and Obligations

When employing staff in Malaysia, companies must bear a series of mandatory taxes and benefit contributions, which are key to calculating labor costs.

1. Mandatory Employer Contributions (as a percentage of monthly salary)

This expenditure is an additional cost that employers must bear in addition to employee wages, totaling approximately 14.9% - 16.9% of the employee’s monthly salary.

• Employees Provident Fund (EPF): 12% or 13%. This is Malaysia’s mandatory retirement savings scheme. Employers contribute 12% for employees earning 5000 Ringgit or less per month, and 13% for amounts exceeding 5000 Ringgit. Important change: From Q4 2025, foreign employees will also be mandated to contribute to EPF, with employer and employee ratios provisionally set at 2% each.
• Social Security (SOCSO): 1.75%. This is a national insurance scheme providing coverage for work-related injuries, occupational diseases, disability, or death. Effective July 1, 2024, it is mandatory for all foreign employees.
• Employment Insurance System (EIS): 0.2%. Provides temporary financial assistance and re-employment training for involuntarily unemployed individuals. Contribution wage ceiling is 6000 Ringgit.

2. Mandatory Employee Deductions

• Employees Provident Fund (EPF): 11% (2% for foreign employees from 2025).
• Social Security (SOCSO): 0.5%.
• Employment Insurance System (EIS): 0.2%.
• Monthly Tax Deduction (MTD): 0% - 30% progressive tax system, withheld monthly from wages by the employer. Resident taxpayers are only taxed on income derived within Malaysia.

3. Employment Contracts and Working Hour Regulations

• Contracts: Must be in writing, clearly stating position, salary, working hours, benefits, and termination clauses. Malay and English are recommended.
• Working Hours: Standard is 40 hours per week (typically 8 hours per day).
• Overtime Pay: Employees earning less than 4000 Ringgit per month are protected by the Employment Act, with overtime pay as follows:
  • Weekdays: 1.5 times hourly rate.
  • Rest days: 2 times hourly rate.
  • Public holidays: 2 times or 3 times hourly rate.

4. Dismissal and Notice Period

• Notice Period: Depending on years of service, 4 weeks (within 2 years), 6 weeks (2-5 years), or 8 weeks (over 5 years) advance notice is required, or payment in lieu of notice.
• Severance Pay: In cases of dismissal not due to misconduct, severance pay is required, calculated at 10-20 days’ wages per year of service.

IV. Work Visas and Immigration: Key Steps and Challenges

Malaysia’s work visa (known as “Employment Pass”) approval is strict, managed by the Immigration Department and the Expatriate Services Division (ESD), among other agencies.

1. Main Visa Types

• Employment Pass (EP): For management, professionals, and highly skilled foreign employees. Requires a minimum monthly salary of 6000 Ringgit, valid for 1-5 years. New regulation in 2025: Companies must adhere to the “1:3 Internship Policy,” meaning for every 1 EP employee hired, 3 internship opportunities must be provided to locals.
• Temporary Employment Pass (TEP): For blue-collar workers and domestic helpers, typically valid for 2 years.
• Professional Visit Pass (PVP): For short-term projects, consultations, and technical support, maximum 12 months.

2. Application Process and Challenges

• Process: Company first applies for job approval from ESD → upon approval, employee applies for visa approval letter → uses letter to apply for Visa with Reference (VDR) → upon entry, goes to Immigration Department for endorsement.
• Core Challenges:
  • Quota restrictions: The government sets annual quotas for foreign employees, prioritizing key industries.
  • Localization test: Employers must prove that the position cannot be filled by a suitable Malaysian national.
  • Time-consuming process: The complete process typically takes 2-3 months, requiring advance planning.
  • Cumbersome documentation: Requires a large number of documents such as criminal record checks, academic notarization, and medical examination reports.

V. Solution: Employer of Record (EOR) – An Efficient and Compliant Path to Overseas Expansion

For companies looking to quickly enter the Malaysian market and avoid complex legal entities, Employer of Record (EOR) services are the optimal choice.

What is EOR

An EOR acts as the legal employer for your employees, handling all employment-related matters on your behalf, while you retain day-to-day management control over the employees’ work.

Core Value of EOR

• Speed and Agility: No need to register a local company, allowing you to hire employees within weeks and quickly commence operations.
• Full Compliance: EOR experts ensure complete compliance with the latest Malaysian laws and regulations in all aspects of payroll, tax, social security, and visas, significantly reducing legal risks.
• Cost-Effectiveness: Avoids the high costs and ongoing maintenance efforts of establishing a local entity; you only pay a service fee, allowing you to concentrate resources on core business.
• Risk Management: The EOR assumes legal responsibility as the employer, shielding you from potential labor disputes.

Malaysia, with its strategic location, diverse culture, favorable policies, and growth potential, is an ideal choice for Chinese enterprises expanding overseas. However, its complex labor laws, tax system, and visa regulations pose significant challenges. For companies to succeed, they must find a balance between “speed,” “compliance,” and “cost.” For most businesses, partnering with a professional Employer of Record (EOR) is the optimal solution to mitigate risks and achieve efficient, compliant expansion.