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The Malaysia Guide: Employment Laws, Taxes & Benefits

Skuad Desk

Nov 4, 2020

Introduction

After gaining independence in 1957, Malaysia worked towards diversifying its economy and became the fourth largest economy of South-East Asia. With technology taking center stage in Malaysia, global tech giants have started to see the potential there and are investing substantially in the Malaysian market.

It is undoubtedly a great time to expand your base in this Asian nation. So here's everything one must know about the Malaysian employment laws and how to set up a subsidiary in Malaysia.

General Information

Currency: Malaysian Ringgit (MYR) 1 RM = 0.24 USD

Economic Capital: Kuala Lumpur

Spoken Language: Malay, English, Mandarin, Tamil

GDP: 4.7% growth rate (2018)

Time Zone: UTC (+8:00)

Entitlements

Minimum Wage: 1,200 ringgits (US$283) per month (Source: ASEAN Briefing)

Payroll Cycle: Monthly

Pay Date: 7th of the following month

Working Hours: 45-48 hours per week, with a maximum of 8 working hours per day and six working days per week.

Overtime Compensation: Only EA employees are entitled by law to overtime pay. The amount must be equal to or more than 1.5 times the employee's hourly pay.

Leaves

Public Holidays: Here is a list of national and regional holidays in Malaysia.

Holiday

Region

Celebrated On

New Year’s Day

All regions except Johor

1 January

Birthday of the Sultan of Negeri Sembilan

Negeri Sembilan

14th January

Chinese New Year

National

Movable Date

Federal Territory Day

Kuala Lumpur, Labuan and Putrajaya

1st February

Thaipusam

Johor, Kuala Lumpur,Negeri Sembilan, Penang, Perak, Putrajaya and Selango

Movable Date

Installation of Sultan Terengganu

Terengganu

4th March

Israk and Mikraj

Kedah, Negeri Sembilan, Perlis and Terengganu

Movable Date

Birthday of Sultan of Joho

Johor

23rd March

Good Friday

Sabah and Sarawak

Movable Date

Declaration of Malacca as a Historical City

Malacca

15th April

Beginning of Ramadan

Johor, Kedah and Melacca

Movable Date

Birthday of the Sultan of Terengganu

Terengganu

26th April

Labour Day

National

1st May

Wesak Day

National

Movable Date

Nuzul Quran

All regions except Johor

Movable Date

Harvest Festival

Labuan and Sabah

30th or 31st May

Hari Gawai Day (Dayak Festival)

Sarawak

1st and 2nd June

Birthday of Agong

National

First Monday of June

Birthday of Sultan of Kedah

Kedah

Third Sunday of June

Georgetown Heritage Day

Penang

7th July

Birthday of the Raja of Perlis

Perlis

17th July

Sarawak Day

Sarawak

22nd July

Birthday of the Sultan of Pahang

Pahang

30th July

Hari Raya Haji

National

Movable Date

Awal Muharram

National

Movable Date

Merdeka Day

National

31st August

Malaysia Day

National

16th September

Hari Hol Almarhum Sultan Iskandar

Johor

Movable Date

Birthday of the Governor of Sabah

Sabah

First Saturday of October

Birthday of the Governor of Melaka

Melaka

Movable Date

Birthday of the Governor of Sarawak

Sarawak

Movable Date

Prophet Mohamad’s Birthday

National

Movable Date

Birthday of the Governor of Perak

Perak

First Friday of November

Birthday of the Governor of Kelantan

Kelantan

11th November

Deepavali

All regions except Sarawak

Movable Date

Birthday of Sultan of Selangor

Selangor

11th December

Christmas

National

25th December

Annual Leaves: Full-time employees are entitled to 11 gazetted public holidays in one calendar year. Apart from that, employers usually follow the below tenure criteria to provide paid leaves:

Years of service

Number of leaves

less than 2 years of service

14 days

more than 2 but less than 5 years of service

18 days

more than 5 years of service

22 days

Sick Leaves: On provision of a medical certificate, employees are entitled to the following number of paid sick leaves:

Years of service

Number of leaves

less than 2 years of service

8 days

less than 2 but more than 5 years of service

12 days

more than 5 years of service

16 days

Maternity Leave: 60 days to a full-time female employee if she has worked with the employer for at least four months. Of late, companies are granting 90 days of maternity leave.

Paternity Leave: No statutory law dictates employers to provide paternity leave. The government sector usually provides 3 to 14 days off (paid or unpaid).

Marriage Leave: 3 days for self

Adoption Leave: 1-2 days

Childcare: 1-5 days

Death: 3 days

Taxes

Personal Income Tax: For resident full-time, contract, or freelance employees, the net taxable income after the tax exemptions and tax reliefs is subjected to the progressive tax rate starting from 1-30% on income > RM 5,000. For non-resident employees, a flat tax rate of 30% applies to the total taxable income.

Income Tax Return (ITR): Employers must provide Form EA by the last day of February. The deadline for resident individuals to file their taxes is 30 April (for offline channels) and 15 May for e-Filing.

Corporate Income Tax (CIT): For both resident and non-resident companies, the current CIT rates are:

Service Tax: 6% on any taxable service provided by a registered business in Malaysia.

Employee Statutory Benefits

Social Security Organisation (SOCSO): Divided into two schemes – Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS). Employer and employee contribute RM 69.05 and RM19.75 towards EIIS and IPS, respectively.

Employment Insurance System (EIS): It protects workers who have lost their employment. It helps individuals upskill and train to enhance their employability. Both the employer and employee make monthly contributions of 0.2% of the employee’s wage up to RM 7.90. EIS covers only Malaysian citizens and permanent residents.

Retirals

Retirement Age: 60 years minimum. Organizations have the liberty to decide any feasible number > 60 for their employees.

Employees’ Provident Fund (EPF): Retirement saving scheme mandatory for all Malaysians and permanent residents employed in Malaysia. It is optional for expatriates and non-Malayasian residents. The contributions are as follows:

Contributed by Malaysian citizen & permanent resident (mandatory) Foreign nationals (voluntary)

Age

Income

Employer

Employee

Employer

Employee

Below 60 years of age

Income > RM 5,000

12.0%

11.0%

RM 5

11.0%

Income < RM 5,000

13.0%

11.0%

60 years and above

Income > RM 5,000

Malaysian:4% Permanent resident: 6%

Malaysian:0% Permanent resident: 5.5%

RM 5

5.5%

Income > RM 5,000

Malaysian:4% Permanent resident: 6.5%

Malaysian:0% Permanent resident: 5.5%

This scheme provides old-age, survival, and disability benefits. EPF members may withdraw funds at age 55. A voluntary social insurance system for low earners provides disability and work injury benefits.

Retirals

Retirement Age: 60 years minimum. Organizations have the liberty to decide any feasible number > 60 for their employees.

Employees’ Provident Fund (EPF): Retirement saving scheme mandatory for all Malaysians and permanent residents employed in Malaysia. It is optional for expatriates and non-Malayasian residents. The contributions are as follows:

Contributed by Malaysian citizen & permanent resident (mandatory) Foreign nationals (voluntary)

Age

Income

Employer

Employee

Employer

Employee

Below 60 years of age

Income > RM 5,000

12.0%

11.0%

RM 5

11.0%

Income < RM 5,000

13.0%

11.0%

60 years and above

Income > RM 5,000

Malaysian:4% Permanent resident: 6%

Malaysian:0% Permanent resident: 5.5%

RM 5

5.5%

Income > RM 5,000

Malaysian:4% Permanent resident: 6.5%

Malaysian:0% Permanent resident: 5.5%

This scheme provides old-age, survival, and disability benefits. EPF members may withdraw funds at age 55. A voluntary social insurance system for low earners provides disability and work injury benefits.

Termination

Probation Period: Organizations usually follow a 3-6 months probationary period.

Termination Procedure: Both the employee and the employer have the right to terminate the contract. It is recommended that both sides follow the prescribed protocol. An employee must lawfully resign, serving the minimum notice period as mentioned in the agreement. The employer cannot terminate the contract without "just cause and excuse" which means only reasons such as poor performance, misconduct, or redundancy shall be accepted.

Notice Period: As mentioned in the contract

Separation Payment: Severance pay for employees terminated for reasons not connected to their conduct are as follows:

  • 10 days wage for every year if employed up to 2 years
  • 15 days wage for every year if employed 2 to 5 years
  • 20 days wage for every year if employed for more than five years

Office Setup in Malaysia

Types of Business: Limited Liability Partnership (LLP), Private Limited Company (Sendirian Berhad), Public Limited Company (Berhad), Sole Proprietorship, Partnership.

Coworking Cost: Major coworking spaces are located in the Klang Valley. Low-cost coworking space like a hot desk costs around RM 400 per month. A fixed desk coworking space costs around RM 600 per month. Private offices are an excellent choice for teams for their flexibility in optimizing the workstations. They cost around RM 1000 per month.

Visa: For employers planning to set up business in Malaysia, a multiple entry visa is the most viable option. Foreign employees can get an employment pass with a maximum of 5 years validity. Organizations with vetted interests should note that employment passes are offered to foreign employees when qualifications brought in by them cannot be fulfilled by Malaysian citizens.

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