Strategic Talent Hub with Multilingual Capabilities and Competitive Edge

Malaysia offers a strategic gateway to Southeast Asia, boasting a cost-efficient business environment and a skilled, multilingual workforce. However, navigating its employment landscape requires careful attention to statutory obligations—from EPF and SOCSO contributions to work pass regulations and culturally respectful practices. This guide highlights the key HR considerations for companies planning to hire or operate in Malaysia, ensuring you stay compliant while focusing on growth.

Employees’ Provident Fund (EPF / KWSP)

The Employees’ Provident Fund (EPF), also known as Kumpulan Wang Simpanan Pekerja (KWSP), is Malaysia’s mandatory retirement and social security savings scheme for employees.

Contributions are compulsory for Malaysian citizens and residents in the private and non-pensionable public sectors, but voluntary for non-Malaysian citizens—until October 2025.

Below age 60, standard contribution rates are:

1. Employee: 11% of monthly wages
2. Employer: 13% (for wages up to RM 5,000) or 12% (for wages above RM 5,000)

Age 60 and above, rates drop to 4% (employer) with 0% (employee)

From 1 October 2025, Malaysia will require mandatory EPF contributions of 2% from both employer and non-Malaysian employees holding valid employment passes (excluding domestic workers). Employers must register and comply ahead of this change.

Social Security Protection (SOCSO / PERKESO)

The Social Security Organisation (SOCSO / PERKESO) administers social protection schemes, including:

• Employment Injury Scheme
• Invalidity Scheme
• Employment Insurance System (EIS)

Contribution rates:

SOCSO: Employer – 1.75%; Employee – 0.5% of wages
EIS: Both employer and employee contribute 0.2%, capped at RM 11.90 and RM 29.75 respectively

These contributions provide workplace injury cover, medical benefits, and reemployment assistance.

Work Passes for Foreign Workers

Malaysia issues three main work pass categories:

• Employment Pass (EP) – for professionals and executives
• Temporary Employment Pass – for short-term assignments
• Professional Visit Pass – for foreign experts

Pass type depends on applicant skill level, sector, and quota availability. Employers must first file an expatriate position with relevant agencies before applying to Immigration Malaysia. You can leave the administrative complexities to us—we’ll ensure your foreign hires are fully compliant.

Prayer Hours (Solat)

Malaysia’s official labour departments and JAKIM guide employers on accommodating five daily Muslim prayers, around 20 minutes per prayer and 1.5 hours for Friday congregational prayers. Time off should be scheduled within normal breaks. Our local knowledge ensures culturally sensitive workforce planning.

Cost of Doing Business

Malaysia remains a cost-effective business hub, offering significantly lower setup and operating costs compared to APAC peers:

• Lower office rental and hourly wages
• Competitive corporate tax rates
• Ranked among the most cost-competitive in the region

With strategic support from our team, your expansion into Malaysia becomes both safe and economical.

1. Work Hours and Overtime Compensation

• Standard full-time work hours must not exceed 45 hours per week.
• Most companies operate on a 40-hour workweek (8 hours/day, 5 days/week).
• Industries such as healthcare and transport may require shift work or weekend schedules.

Overtime Pay Eligibility

• Employees earning below RM 4,000 per month must receive overtime pay.
• Specific sectors such as banking, finance, insurance, hospitality, and transportationhave industry-specific overtime requirements.
• Domestic workers and gardeners are also entitled to overtime pay at the same rate as other employees.

Overtime Pay Calculation

Note: Employers must comply with overtime regulations, as failure to do so could lead to legal disputes.

2. Employment Contracts in Malaysia

Types of Employment Contracts:

• Permanent Employment Contracts– Indefinite contracts that continue until resignation, termination, or retirement.
• Fixed-Term Contracts– Usually 1-3 years; however, continuous renewals may classify the employee as a permanent staff.
• Part-Time Contracts– Employees work fewer hours, and benefits are calculated proportionally.

Key Considerations: There is no legal requirement for a probation period, but most companies set 3 to 6 months as standard.

• Fixed-term contracts and permanent contracts carry the same legal weightin terms of termination rights.
• Employers cannot misuse fixed-term contractsto avoid providing employee benefits.

3. Probation Period in Malaysia

Employment Relationship and Probation
All employment relationships in Malaysia, including the probation period, are governed by the Employment Act 1955. The rights and obligations of both employers and employees remain the same, regardless of whether the employee is in the probationary period or has been confirmed.

Employers and employees may agree on a probation period in the employment contract. However, termination during probation must still be based on valid reasons.

Termination During Probation
If an employer decides to terminate an employee during the probation period, there must be justifiable reasons, such as:
1. Misconduct– Serious violations of company policies or ethical standards.
2. Poor Performance– Failure to meet expected job performance levels.

If the termination is due to poor performance, the employer must:

• Provide a formal warning in advance.
• Allow sufficient time and opportunities for improvement.
• If the employee fails to improve, the employer may proceed with termination.

Probation Terms in Employment Contracts

• Employers typically specify the probation period duration, performance evaluation criteria, and confirmation conditionsin the contract.
• Employees are regularly assessed on key performance indicators (KPIs)during probation and given feedback to help them improve.
• At the end of the probation period, the employer decides whether to confirm, extend, or terminatethe employment based on the employee’s performance.

Legal Considerations

• There is no mandatory probation periodunder Malaysian law. However, if included in the contract, it must be fair and reasonable.
• The notice period during probationmust be agreed upon by both parties in the contract. If there is a dispute, the minimum notice period as per Malaysian employment law will apply.

Key Takeaway: While probation is commonly used in Malaysia, employers must follow fair practices to reduce the risk of employment disputes.

4. Regulations on Employment Termination in Malaysia

Termination with Notice
An employer may terminate an employment contract through written notice for the following reasons:

• Company Closure – The business is permanently shutting down.
• Closure of Workplace – The company is closing the specific location where the employee is employed.
• Reduction or Cessation of Business Needs – The employee’s role is no longer required due to operational changes.
• Workplace-Specific Redundancy – The employee’s role at a particular location is no longer needed.
• Refusal to Accept Work Transfer – If the employee declines a work transfer, unless the contract specifies that relocation is mandatory.
• Change in Business Ownership – If a company ownership change affects employment relationships.
• Performance Issues – If an employee fails to meet performance expectations, the employer should communicate with the employee and initiate a Performance Improvement Plan (PIP). If the employee does not meet the required standards within the given timeframe, termination may proceed with notice.

Immediate Termination (Without Notice)
Either party may terminate the contract without notice if there is a serious breach of contract, provided proper investigation is conducted.

• Employer’s Breach– If the employer fails to pay wages, it is considered a violation of the contract.
• Employee’s Breach– If the employee is absent for two consecutive days without prior leave approval or a valid reason provided in a timely manner, it is deemed a breach of contract.

Suspension of Employment
If an employer needs to suspend an employee pending a disciplinary investigation, the following rules apply:

• The suspension period must not exceed two weeks.
• The employee must receive at least half of their salary during the suspension.

If the employee is found not guilty after the investigation, the employer must pay the full salary owed for the suspension period.

Notice Period Guidelines

Employers must provide notice or compensate employees accordingly.

5. Termination Benefits (Severance Pay)

Employees who have worked at least 12 months are entitled to severance pay, except in cases of:

• Retirement (if contractually agreed).
• Termination due to misconduct.
• Voluntary resignation.

Severance is calculated based on an employee’s length of service.

6. Updated Wage Regulations Effective February 2025

• Minimum Wage – Effective February 1, 2025, the minimum wage is set at RM1,700 per month.
• Salary Payment – All wages must be paid to employees within 7 days after the end of the pay cycle, including any compensation.

Maternity Leave (98 Days)

All female employees under contract of service in Malaysia are entitled to 98 consecutive days of paid maternity leave, for their first five births, effective from 1 January 2023.

To qualify, the employee must have:

• Been employed by the employer for at least 90 days during the 9 months immediately before her confinement.
• Worked for the same employer at any time during the 4 months before confinement.

Female employees who resign before delivery may still be eligible for maternity allowance provided they notify the employer of their pregnancy within 60 days from their last working day; otherwise, they lose entitlement.

Paternity Leave (7 Days)

Since 1 January 2023, married male employees are entitled to 7 consecutive days of paid paternity leave per childbirth, up to five confinements, regardless of spouse count.

To be eligible, the male employee must:

• Have worked for the same employer for at least 12 months prior to the leave.
• Have notified the employer of his spouse’s pregnancy at least 30 days before expected confinement or as soon as practicable after the birth.

These statutory leave entitlements reflect Malaysia’s commitment to supporting working parents. Employers must ensure compliance to avoid penalties and foster a supportive workplace.

Take note of the following important updates that may affect your statutory obligations as an employer in Malaysia.

• SOCSO: As of July 2024, foreign employees are required to contribute to SOCSO.
• EIS: Not applicable to foreign employees.
• HRDF: Mandatory for companies with more than 5 employees.

Note:
In addition to federal public holidays, Malaysia also observes state holidays, which vary from one state to another. These state-specific holidays are determined by the respective state governments and may include local celebrations, rulers’ birthdays, or cultural events. Employers and employees should refer to their state’s gazetted holidays to ensure full compliance.

Please find our Malaysia office addresses below:

Kuala Lumpur:
SO-10-8, Strata Office, Menara 1,
KL Eco City, 59200 Kuala Lumpur,
Federal Territory of Kuala Lumpur

Johor:
35A, Jalan Indah 10/1,
Taman Bukit Indah,
79100 Iskandar Puteri, Johor

Email: info@linkcompliance.com