Hiring Employees in Malaysia: A Comprehensive Guide for Businesses

Malaysia, a dynamic and economically growing Southeast Asian country, is becoming an increasingly interesting source of talent for businesses looking to expand their worldwide reach. Due to its good location, skilled workforce, and business friendliness, Malaysia is a great place for companies to find remote workers.

However, employers need to be knowledgeable about Malaysia's labor laws, rules, and cultural differences when hiring remote employees. This complete guide is meant to give companies around the world the ideas and information they need to make the hiring process easier and successfully hire Malaysian remote workers.

Why Hiring Employees in Malaysia?

Before we get into the details of this complete hiring guide, let's look at some of the best reasons why hiring remote employees from Malaysia can be a great idea for business:

1. Skilled Workforce

Malaysia has a very educated and skilled workforce in various industries, such as digital marketers, software developers, data analysts, business development professionals, graphic designers, and others. The country's dedication to education and training assures that it has a pool of skilled employees in any industry.

2. Multilingualism

Many Malaysians speak and understand English, which makes it easier for foreign companies to work and communicate with local employees. The fact that many Malaysians can speak more than one language, including Malay, Mandarin, and Tamil, is also a big plus for businesses that want to reach a wider range of customers.

3. Cost Effective

When it comes to labor costs and other operational costs, Malaysia has a cost-competitive advantage. Therefore, companies can make the most of their budgets while still operating their business at a high standard.

4. Strategic Location

Malaysia is located in the middle of Southeast Asia, and its well-developed facilities and connectivity make it easy to get to the region's biggest markets.

Labor Laws in Malaysia

The Employment Act of 1955 is the main law that governs workplace relationships in Malaysia. This law sets the minimum standards for job terms and conditions. Some important parts of the Employment Act are:

1. Minimum Wage: The minimum wage across the country is set at RM1,500 per month.
2. Working Hours: The Employment Act of 1955 limits employees to working eight hours a day or 45 hours a week.
3. Overtime: Employees working beyond regular hours are entitled to 1.5 times their hourly rate for overtime work.
4. Rest Days: Every employee is guaranteed at least one day off each week.
5. Annual Leave: The number of paid annual leave days varies based on the employee's length of service, ranging from 8 to 16 days.
6. Sick Leave: Paid sick leave also depends on years of service, with employees receiving between 14 and 18 days annually.
7. Maternity Leave: Eligible mothers are granted 98 days of paid maternity leave.
8. Types of Employment Termination: Employment termination can occur in various ways, including voluntary resignation, involuntary termination, termination for cause, termination without cause, constructive dismissal, redundancy, and probationary termination.

Also Read: Hiring Employees in Indonesia: A Complete Guide

Type of Employment Contract in Malaysia

In Malaysia, there are different kinds of job contracts, and each one has its own rules about how employers and employees work together. Most jobs in Malaysia are covered by one of these types of contracts:

1. Permanent Employment Contract

The most common contract type in Malaysia is a permanent work contract, meaning the job will last for a long time and has no set end date. Permanent employees are eligible for perks like paid time off and health insurance. Under this contract, either side must give notice before employee termination unless terminated for cause.

2. Fixed-Term Employment Contract

With a fixed-term contract, the end date is already set upon the contract, usually for a specific project or duration. When the contract time ends, employment terminates automatically unless both parties agree to renew the contract. During their time on the job, fixed-term employees are eligible for the same benefits as permanent employees.

3. Part-Time Employment Contract

People with part-time contracts work fewer hours than full-time employees and often have more flexibility with their schedules. Employees who work part-time may be able to get benefits like prorated leave and medical benefits based on the terms of their contract and the laws in their area.

4. Freelance/Independent Contractor Agreement

Freelancers and independent contractors are self-employed people who are hired to do particular jobs or projects. They don't work for the company and usually work under a service deal or contract for services. As a freelancer, an employee is in charge of their taxes, insurance, and other duties.

Working Hours and Overtime

Eight hours of work per day, or forty-five hours per week (including nights), is the usual limit in Malaysia. Extended business hours may be required in certain exceptional cases, though the government can approve exceptions in such cases. The daily restriction is 8 hours, and the weekly limit is 45 hours. Flexible working arrangements are also an option so that you can work longer on some days and shorter on others.

Workers performing physical labor, supervisors of manual laborers, and those earning up to RM4,000 per month are required by law to be paid overtime. The overtime limit is 4 hours daily (for 5 regular working days), with the monthly overtime limit is set at 104 hours, with any extra hours requiring approval from the Director-General of Labour. Rates for extra work vary depending on the day it is done:

• Overtime on Normal Working Days: Paid at 1.5 times the Hourly Rate of Pay (HRP). HRP is calculated by dividing the Ordinary Rate Pay (ORP) by 8. ORP is calculated by dividing the monthly rate pay by 26 days.
• Overtime on Rest Days:some text
  • If less than half of normal working hours: Paid at 0.5 times the ORP.
  • If more than half but not exceeding normal working hours: Paid at 1.0 times the ORP.
  • If exceeding normal working hours: Paid at 2.0 times the HRP.
• Overtime on Public Holidays:some text
  • If under normal working hours: Paid at 2.0 times the ORP.
  • If exceeding normal working hours: Paid at 3.0 times the HRP.

Holidays and Time Off

People who work in Malaysia get paid time off for 11 official public holidays and any other holidays declared under the Holidays Act 1951. Employees are paid at their standard rate for these holidays. 

The Employment Act mandates five specific public holidays out of the 11: National Day, the Yang di-Pertuan Agong's Birthday, the birthday of the respective state's Ruler (or Federal Territory Day for those in the Federal Territory), Labor’s Day, and Malaysia Day. In cases where a public holiday falls on the same day as a rest day or another public holiday, the next working day is also considered a paid holiday.

Also Read: Malaysia Public Holiday List: National and State Holidays

Termination Procedure

In Malaysia, there are specific steps that both employers and workers must take when terminating employment. To fire someone properly, employers must have a valid reason, like poor performance, misconduct, redundancy, or company closure. However, all employees are protected from unfair dismissal.

In case of termination, employers must give the employee enough notice based on how long they have worked for the company, and another option is to make payment in lieu of notice. Below is when notice should be given based on employment duration:

• 4 weeks' notice for employees who have worked for less than 2 years
• 6 weeks’ notice for employees who have worked for 2 to 5 years
• 8 weeks’s notice for employees who have worked for 5 years or more

People who have worked for the company for at least 12 months and made up to RM4,000 a month are also eligible for severance pay. The calculations of severance pay are:

• 10 days of the wage for every year of employment if they have already worked for less than 2 years
• 15 days of the wage for every year of employment if they have already worked for 2 to 5 years
• 20 days of the wage for every year of employment if they have already worked for 5 years or more

When companies lay off workers or retrench them, they must tell the Department of Labor for 30 days and prove that it happened for valid reasons. Employers also need to follow fair selection criteria, such as Last In, First Out (LIFO).

In cases of poor performance, managers must be fair by clearly stating expectations, providing feedback, and giving employees chances to improve.

Understanding these key requirements is important to ensure that the termination process in Malaysia is both legal and fair. If you have particular concerns, it is recommended that you seek the advice of an employment law expert.

Employee Benefits

Besides the annual, sick, and maternity leaves, as well as public holidays, employees in Malaysia are eligible for statutory benefits:

• The Employees Provident Fund (EPF): EPF is a joint company and employee savings program that helps employees prepare for retirement and other potential unexpected expenses.
• Social Security Organization (SOCSO): As a safety net, SOCSO protects employees financially from work-related injury, disability, or death.
• Termination Protection: To protect employees from being unfairly dismissed, Malaysia's labor rules require specific procedures of termination and benefit procedures, like notice periods and severance pay.
• Workers' Compensation Insurance: If an employee suffers a work-related injury, they have the right to compensation insurance. This policy will help pay for their medical bills, rehabilitation, and lost income.

To attract and retain the best employees, companies can step up their game by offering additional benefits like:

• Comprehensive medical and dental insurance
• Expense for transportation
• Chances for professional growth
• Incentive programs based on performance
• Programs for Employee Assistance (EAPs)
• Gym and health clubs
• Help with childcare
• Employee savings

Attracting Top Talent in Malaysia

It takes more than just a competitive salary and benefits package to attract and retain top personnel in the current labor market. Companies need to build an appealing workplace brand and a positive work environment that makes people want to work for them. Some ways to get the best people to work in Malaysia are:

• Highlighting Company Culture: Talk about the company's values, purpose, and vision, as well as the unique things about the workplace that make it a good place to work.
• Offering Career Development Opportunities: Make it clear how employees can achieve their career goals and support employee growth through training and mentorship programs.
• Promoting Work-Life Balance: To meet the needs of employees and encourage a healthy work-life balance, offer flexible work arrangements, such as the chance to work from home or set flexible hours.
• Using Social Media and Other Online Platforms: Engage with potential candidates on social media and other online platforms, share news and information about the company, and advertise job openings.

Talentport: Simplifying the Hiring Process

Making your way through the maze of foreign hiring doesn't have to be an overwhelming effort. If you want to concentrate on building a strong team instead of worrying about payroll, compliance, and benefits administration, Talentport is the way to go.

Ready to tap into Malaysia's skilled workforce? Simplify your global hiring journey by joining Talentport today.

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