Hiring guide in Malaysia

What should I know about hiring in Malaysia?

Legal framework

Types of employment contracts

Employment contracts define the working relationship between employers and employees. The main types include:

Permanent contracts are ongoing with no fixed end date and offer full benefits like paid leave, overtime, and job security. Fixed-term contracts are for temporary roles, such as project-based or seasonal work, with a clear end date but fewer benefits. Part-time contracts involve fewer hours and pro-rated benefits, while casual contracts are more flexible and short-term with limited protections. Probationary contracts are used to assess new employees before offering permanent roles.

All contracts in Malaysia must comply with labour laws, covering wages, working hours, leave, and termination terms. They should also detail wages, notice periods, and leave entitlements to protect employees’ rights.

Content of an employment contract

Every employment contract should clearly specify essential details, including the type of employment (e.g., permanent, part-time, or fixed-term), job duties, working hours, salary, and payment intervals.

Additionally, the contract should cover employee benefits, such as leave entitlements (annual, sick, and public holidays), overtime pay, termination conditions, and any probationary period applicable.

It is also important to include provisions for safety at the workplace, confidentiality clauses, and compliance with the Employees Provident Fund (EPF) and Social Security Organisation (SOCSO) registration, which are mandatory in Malaysia.

Download a free employment contract for Malaysia through Native Teams.

Oral, written or electronic employment contracts

In Malaysia, employment contracts can be oral, written, or electronic, and all are legally valid as long as they follow the rules set by the Employment Act 1955 and other relevant laws. 

Oral agreements are legally binding, but they can lead to disputes due to the lack of written proof. While these contracts are valid, it can be hard to prove their terms in court if there is disagreement. In such cases, the Employment Act’s minimum standards for wages, working hours, and leave would apply. Written contracts are the most common and preferred, as they clearly outline the terms, including salary, hours, leave, and termination conditions. 

Regardless of the contract type, all agreements must comply with the law on wages, working hours, leave, and employee rights. Employers must also contribute to statutory funds like the Employees Provident Fund (EPF) and Social Security Organisation (SOCSO) for their employees.

Working hours

The Employment Act sets a maximum of 45 working hours per week to help employees maintain a healthy work-life balance. Since September 2023, the standard workweek has been capped at 45 hours. Employers are encouraged to offer flexible working arrangements, especially during religious observances.

The Act limits daily working hours to 8, with the total spread across six days. Employers must follow these limits to avoid exploiting workers and create a sustainable work environment. Although employers can design work schedules to suit their operational needs, they must still comply with these rules to protect employee rights.

Night work

The Malaysian Employment Act and its amendments set out clear rules for night work, which is defined as work done between 10:00 PM and 5:00 AM.

Previously, women were restricted from working night shifts in industrial or agricultural sectors unless they had prior approval from the Director-General of Labour. However, the Employment (Amendment) Act 2022 has updated these restrictions to better meet current employment practices and international standards. Employers are now required to ensure safety during night shifts, particularly in high-risk industries. 

Similarly, workers under 18 are generally not allowed to work between 10:00 PM and 6:00 AM unless they meet certain criteria and have received the necessary permissions.

Breaks and types of leaves

The Employment Act of 1955 states that employees should not work more than five hours in a row without a 30-minute break. Employers must also provide one full rest day each week, with the option for shift workers to average this rest day over three weeks for flexibility. 

Additionally, employers must ensure employees have at least 11 consecutive hours of rest between shifts, in line with international labour standards, to prevent overworking and support recovery.

Annual leave

​​Employees are entitled to paid annual leave depending on how long they’ve worked for their employer. The minimum leave is as follows: 8 days for those with less than two years of service, 12 days for those with between two and five years, and 16 days for those with over five years. Employers may offer more leave than the legal minimum based on company policies or agreements.

Public holidays

Under the Employment Act, employees are entitled to at least 11 public holidays each year, which include both national and state holidays.

Some of the public holidays are New Year’s Day (January 1), Chinese New Year (two days, dates vary), Federal Territory Day (February 1, for Kuala Lumpur, Labuan, and Putrajaya), Thaipusam (dates vary), Labour Day (May 1), Wesak Day (dates vary, typically in May), Hari Raya Aidilfitri (two days, dates vary), Hari Raya Haji (dates vary), the King’s Birthday (first Saturday in June), Merdeka Day (August 31), Malaysia Day (September 16), Prophet Muhammad’s Birthday (dates vary), Deepavali (dates vary, usually October or November), and Christmas Day (December 25). 

Some holidays may differ slightly between states, as certain regions observe additional holidays based on local or cultural celebrations.

Salary

Employers must pay employees according to the terms of their employment contract, which can be influenced by collective agreements, minimum wage laws, or sector-specific rules. 

For example, Malaysia’s Minimum Wages Order 2022 sets the minimum wage at RM1,500 per month for workers in urban areas, with some smaller areas having slightly lower minimums due to specific exemptions.

Wages should be paid in cash or by bank transfer, with the employee’s agreement. The Employment Act also outlines acceptable wage deductions, including statutory contributions like EPF, SOCSO, and income tax, as well as other agreed deductions such as loans or advances.

To calculate the salary and taxes in Malaysia, click here.

Sick leave

Under the Employment Act 1955, employees are entitled to paid sick leave based on their length of service. Those with less than two years of service can take 14 days of paid sick leave, while those with between two and five years can take 18 days. Employees with over five years of service are entitled to 22 days of paid sick leave.

If hospitalisation is needed, employees can receive an additional 60 days of paid sick leave, as long as it is certified by a registered doctor.

Employers must ensure they comply with the Employment Act and communicate clearly with employees about sick leave policies and how they affect employment status.

Paternity and maternity leave

Under the Employment Act 1955, female employees are entitled to 60 days of maternity leave with full pay as long as they have worked for at least 90 days before giving birth. This leave allows mothers to recover and care for their newborns.

New fathers are also entitled to seven days of paid paternity leave, provided they meet certain conditions: they must be legally married to the mother, have been employed for at least the last 12 months, and inform their employer at least 30 days before the baby’s due date.

Methods of employment termination

Resignation is when an employee voluntarily ends their employment. Usually, they must give notice as stated in their contract, which can vary depending on their role or length of service. If they don’t give enough notice, the employer may ask for compensation, often equal to the notice period not worked.

Mutual termination happens when both the employer and employee agree to end the employment. This often involves discussions about final pay, benefits, and sometimes a severance package. Since it’s a friendly agreement, both parties usually sign an agreement to prevent any future disagreements.

Ordinary dismissal by employer

Dismissal due to misconduct is a common reason for termination, and it includes actions like violating company policies or committing serious offences. Malaysian law requires employers to carry out a “due inquiry” to investigate the issue and give the employees a chance to defend themselves. Immediate dismissal is typically only for severe misconduct, while minor issues may lead to warnings before termination.

Poor performance can also lead to dismissal, but this process is slower than for misconduct. Employers must provide warnings and opportunities to improve with proper documentation. Without this evidence, the dismissal could be deemed unfair and challenged in court.

Notice period and challenging the dismissal

In Malaysia, employees are required to give or receive notice when ending an employment relationship. The standard notice periods are 4 weeks for those employed for less than 2 years, 6 weeks for 2 to 5 years, and 8 weeks for over 5 years. 

If an employee believes their dismissal is unfair, they can challenge it under the Industrial Relations Act 1967. Claims must be filed with the Industrial Relations Department within 60 days of the dismissal.

Rights and obligations of unemployed individuals

Individuals who are unemployed through no fault of their own may be eligible for benefits under the EIS, provided they have contributed to the system and meet certain conditions, such as actively seeking work. The EIS offers financial support for a limited time, along with job placement services, skills training, and other assistance to help individuals return to work.

Employers are required to contribute to the EIS for their employees, ensuring they are covered if they become unemployed. Failure to make these contributions can lead to penalties for employers.

Severance pay

Severance pay is determined by how long an employee has worked with the company. Employees with at least one year of continuous service are eligible for severance pay, which is calculated as follows:

For 1 to 2 years of service, employees receive 10 days of compensation for each year worked. For 2 to 5 years, the compensation increases to 15 days per year. After 5 years of service, employees are entitled to 20 days of compensation for each year worked, provided they have been with the same employer for at least five years.

Probationary period

The probationary period usually lasts three to six months, giving employers time to evaluate an employee’s performance, behaviour, and suitability for the company. This period allows employers to spot any issues or performance gaps before offering a permanent position.

For the probation to be successful, it’s important to set clear performance expectations from the start. Regular feedback and assessments help employees improve and meet company standards. Keeping records of the employee’s performance is crucial, as it supports decisions about confirming or ending their employment at the end of the probation.

Intellectual property rights

In Malaysia, employers usually own the intellectual property (IP) created by employees during their employment, especially if the work relates to the employer’s business or uses their resources. 

The main laws governing IP in Malaysia are the Patents Act 1983, Copyright Act 1987, and Trade Marks Act 1976. These laws protect inventions, artistic works, and trade secrets. Employment contracts often include clauses that specify the employer owns any IP created by the employee during their work. 

Additionally, many contracts feature confidentiality and non-disclosure agreements (NDAs) to safeguard sensitive business information. Employees are required to keep this information private both during and after their employment, and breaking these rules can lead to legal action for damages or injunctions.

Employee data privacy

Employers must get employees’ consent before collecting, using, or sharing their personal data throughout their employment, from recruitment to termination. The data must be handled fairly and legally, only for valid reasons, and kept no longer than necessary.

Employers are also required to explain why they are collecting the data and allow employees to access their information if they ask. The law also requires employers to take steps to protect the data and prevent any unauthorised access or breaches.

Prohibition of competition

In Malaysia, non-compete clauses, or “restraint of trade” clauses, are regulated by Section 28 of the Contracts Act 1950. This section generally makes such clauses invalid, as they prevent individuals from pursuing their profession or business. However, non-compete clauses may be valid in certain situations, like when a business’s goodwill is sold or in agreements made before ending employment.

Although these clauses are usually unenforceable, Malaysian courts may uphold them if they are deemed reasonable and meet specific legal exceptions. This approach is stricter than in places like the UK, where a reasonableness test is commonly applied.

Remote working policy

In Malaysia, the legal framework for remote working has improved, particularly with changes to the Employment Act 1955, which now formally acknowledges flexible working arrangements (FWAs) like remote work. The new Sections 60P and 60Q allow employees to request changes to their work hours, days, and location.

As remote work becomes more common, employers are encouraged to create detailed policies covering all aspects of remote work. These should clarify the process for requesting changes, set expectations for employees, and address risk management and confidentiality concerns.

Responsibilities within a remote work arrangement

Employers must provide the necessary tools and equipment for remote work, such as computers and communication software, to help employees work effectively from home. They should also offer training on remote work, including technical support, time management, and work-life balance. 

Furthermore, employers need to ensure workplace safety by providing ergonomic guidelines and keeping open communication with remote workers through regular check-ins and updates.

Health and safety at home

Under the law, employers are required to provide a safe working environment for their employees, whether they work on-site or remotely. This includes assessing and reducing any risks in the employee’s home office. Employers must take reasonable steps to ensure that remote working arrangements meet health and safety standards.

Other laws, like the Employment Act 1955, may impose further responsibilities on employers to ensure safety during remote work.

As remote working becomes more common, there could be future legal changes that set clearer safety requirements for remote employment in Malaysia.

What are the advantages of hiring employees from Malaysia vs other countries?

Hiring employees from Malaysia offers many benefits, such as the country’s highly skilled workforce. Malaysia has a strong education system, producing graduates in technology, engineering, and business fields. Additionally, many Malaysians are proficient in English, which makes it perfect for international businesses.

The cost of labour in Malaysia is also relatively lower than in many Western countries, making it an attractive option for companies looking to reduce operational expenses. 

In addition, Malaysia has a business-friendly environment with relatively simple regulations for foreign companies looking to hire employees. The government offers various incentives for businesses to invest in Malaysia, such as tax reliefs and grants. 

Lastly, Malaysia’s strategic location in Southeast Asia provides access to a broader regional market. Hiring locally can help businesses tap into the growing ASEAN market, benefiting from Malaysia’s connections and trade agreements with other countries in the region.

Why use Native Teams for hiring in Malaysia?

Native Teams lets you employ team members ‘like a local’ meaning you get all the benefits of a global team, wherever you are based. Here are the reasons why you should use Native Teams for hiring:

• No paperwork: We will handle all the necessary paperwork for you.
• Save on taxes: We help you handle your taxes.
• No company set up: You can expand your business using our company entitles.
• Online onboarding: We’re here to ensure your onboarding process is trouble-free.
• No accounting: We will handle all of your accounting needs, including invoicing, payroll, and more.
• Increase your profit: We assist you in growing your business and maximising your profits.
• Compliance expertise: we can assist your company in navigating the regulatory environments and ensure you meet all relevant requirements.
• Local support: We can assist you in understanding and complying with the relevant local laws.