Employer of Record in Malaysia: Guide for 2026

Introduction

An Employer of Record (EOR) in Malaysia is a locally registered company that becomes your team's legal employer, handling the employment contract, payroll, statutory contributions, and compliance. At the same time, you direct the employee's day-to-day work.

Malaysia's Employment Act 1955 otherwise requires you to register your own local entity, enroll with the Employees Provident Fund (EPF) and Social Security Organisation (SOCSO), and draft contracts that meet statutory notice, leave, and termination rules before you can legally hire anyone there.

This guide covers employment law and contracts, leave and statutory benefits, payroll and taxes, work permits, and termination rules for 2026, along with how an EOR like Skuad supports the whole process.

Malaysia at a glance

• Population: 36.3 million
• Currency: Ringgit (RM) (MYR)
• Capital city: Kuala Lumpur
• GDP: USD 422.33 billion
• Languages: English, Malay
  

Why choose an EOR to hire in Malaysia?

Companies choose an Employer of Record (EOR) to hire in Malaysia because it removes the need to register a local entity, set up statutory contributions, and manage compliance before making a single hire.

Skuad acts as the legal employer in Malaysia, taking on contracts, payroll, statutory contributions, and compliance from day one, so you can test the market or run a small team without committing to entity setup. Without an EOR, companies expanding into Malaysia run into the same recurring obstacles:

• Setting up an Sdn Bhd before making a single hire, which can take weeks to months
• Getting EPF, SOCSO, and EIS registration and contributions right from day one
• Drafting contracts that hold up under the Employment Act 1955 without exposing the company to unfair dismissal claims
• Sponsoring Employment Passes for foreign talent
• Keeping up with Malaysia's minimum wage, tax, and Sales and Service Tax (SST) changes without dedicated local counsel

What are the employment laws in Malaysia?

Employment law in Malaysia runs on the Employment Act 1955, which sets minimum standards for employment contracts, working conditions, notice, and leave. The Employees Provident Fund Act 1991 adds a second mandatory layer, requiring both employers and employees to contribute to the EPF retirement fund.

The Minimum Wages Order 2024 sets a national minimum wage of RM 1,700 per month, mandatory for every employer since 1 August 2025, per the Ministry of Human Resources, and it applies to Malaysian citizens, permanent residents, and foreign workers alike.

These protections extend to any employee working in Malaysia, including non-residents, regardless of where the employing company is based.

The table below breaks down the leave, retirement, and social security requirements each of these statutes sets.

Employee entitlement‍ in Malaysia

Malaysian employment law sets minimum entitlements for annual leave, maternity leave, sick leave, health coverage, pension, and workers' compensation, detailed by tenure and contribution rate in the table below.

Public holidays in Malaysia

Employees in Malaysia are entitled to a minimum of 11 gazetted paid public holidays under Section 60D(1) of the Employment Act 1955. Five of these holidays are compulsory. The employer selects the remaining six. The number observed varies by state, since state governments declare additional holidays under the Holidays Act 1951.

If a public holiday falls on a rest day, the following working day is treated as a paid holiday. Where an employee works on a paid public holiday, the employer pays the holiday pay plus two days' wages at the ordinary rate of pay for monthly-rated employees earning RM4,000 and below.

Below is a list of public national holidays in Malaysia -

Below is a list of public state holidays in Malaysia -

Dates of these holidays and observances may change based on religious calendars.

What are the types of employment in Malaysia?

Malaysia recognizes five types of employment, each with different statutory coverage:

• Permanent employees
• Definite-term contract employees
• Part-time employees
• Probationary employees
• Independent contractors

These employee categories differ in terms of their contractual arrangements and the protections available to them. The following sections provide further details on each category and its applicable employment requirements.

1. Permanent employees: hired under a contract of service with no fixed end date. Covered by the full range of Employment Act protections, including annual leave, sick leave, maternity leave, statutory notice, and unfair dismissal protection under the Industrial Relations Act 1967.
2. Definite-term contract employees: hired for a defined period or project. Still under a contract of service, so most Employment Act entitlements apply, but the contract ends naturally at the term's expiry rather than triggering standard termination notice, provided it isn't repeatedly renewed in a way that looks like a disguised permanent role.
3. Part-time employees: covered by the Employment (Part-Time Employees) Regulations 2010, with entitlements prorated to hours worked against a full-time schedule.
4. Probationary employees: not a separate legal category. Malaysian law doesn't distinguish probationers from confirmed staff for statutory entitlements, though company policy may. Standard probation runs 3 to 6 months.
5. Independent contractors: engaged under a contract for service rather than a contract of service. Outside the Employment Act, receiving no EPF, SOCSO, or EIS from the engaging company, and carrying misclassification risk if the actual relationship looks like employment.

What is the difference between contractors and full-time employees in Malaysia?

The difference between contractors and full-time employees in Malaysia comes down to the contract type.

• Full-time employees in Malaysia work under a contract of service and receive Employment Act 1955 protections, including EPF, SOCSO, and EIS contributions
• Contractors work under a contract for service and receive none of these.

This distinction also determines who can claim unfair dismissal under Section 20(1) of the Industrial Relations Act 1967: any employee under a contract of service, whether permanent or fixed-term, can bring a claim, but a genuine independent contractor cannot.

Misclassification exposure runs the other way: a contractor whose actual working relationship resembles employment can expose the engaging company to back-dated EPF and SOCSO contributions and unfair dismissal claims, regardless of what the contract is titled.

Skuad supports both hiring models from a single platform:

EOR for full-time employees

• Acts as the legal employer across 160+ countries, so you can hire without setting up a local entity
• Supports employment contract generation aligned with local labor laws across supported markets
• Facilitates statutory contribution workflows covering applicable social insurance and pension obligations
• Supports payroll processing in 70+ currencies with automated tax withholding and year-end reconciliation
• Helps administer statutory benefits, paid leave, and parental entitlements in line with local requirements
• Assists with termination and offboarding, including notice periods and severance calculations as required locally

Contractor management

• Helps onboard contractors with locally compliant agreements that reduce misclassification exposure
• Supports invoice generation, approval workflows, and payment processing across 70+ currencies
• Helps flag classification risk early with built-in worker classification checks
• Facilitates multi-currency payouts with no manual reconciliation
• Helps manage contractor records, contracts, and payment history from one dashboard alongside full-time employees

Full-time or contractor, Skuad supports both. See pricing

How do you hire employees in Malaysia?

Employers in Malaysia hire by sourcing candidates through online job portals and professional networks, then running recruiter-led interviews to shortlist the best fit. The most commonly used platforms are:

• Jobstreet
• Foundit (formerly Monster)
• Maukerja
• LinkedIn

Running this process directly requires close knowledge of local labor law and takes considerable time to manage without dedicated recruiting support.

Skuad supports the recruitment process end-to-end, including onboarding, e-signing of documents, compliance, and tax filing, so you can focus on growing the business instead of managing recruitment logistics.

Book a demo with Skuad to get EOR services for your company

How do probation and termination work in Malaysia?

Malaysian law sets a standard probation period of three to six months and does not treat probationers differently from confirmed employees for statutory entitlements.

Termination requires statutory notice of four to eight weeks depending on length of service, or a domestic inquiry under Section 14 of the Employment Act 1955 for misconduct dismissals, and a full-time employee can challenge unfair dismissal under the Industrial Relations Act 1967.

Probation period

Some companies set probation as short as one month. After that first month, the employee is treated as a regular employee and receives the same statutory benefits as confirmed staff. An employee still on probation remains entitled to at least the minimum service terms set out in the employment agreement.

Termination of services

An employer must establish the grounds for termination early, ideally in the employment contract itself, and give the statutory notice period before ending the contract:

• If the employee has worked for less than two years, the notice period is four weeks.
• If the employee has worked for between two and five years, the notice is six weeks.
• If the employee has worked with the company for more than five years, the notice period is eight weeks.

Employees remain entitled to full pay throughout the notice period, since they're still actively employed. In cases of misconduct, the employer must hold a due inquiry (domestic inquiry) under Section 14 of the Employment Act 1955 before dismissing the employee or imposing a major penalty such as demotion or suspension.

Skuad helps with this through local Employer of Record infrastructure, so your team stays aligned with notice, severance, and documentation requirements without tracking every regulatory change independently.

Here is what Skuad helps with:

• Termination and offboarding support aligned with local labor requirements across supported markets
• Notice period and severance calculations as required under local law
• Documentation and final settlement workflows run on a single platform
• Compliance monitoring that flags regulatory changes affecting your employment obligations
• Records retention support aligned with local statutory requirements

Book a demo to see how Skuad supports compliant termination in Malaysia

How does an EOR work in Malaysia?

An Employer of Record (EOR) in Malaysia acts as the legal employer of your team, taking on hiring, contracts, payroll, and employee benefits, so you don't need to register a Malaysian entity.

Setting up your own entity instead means registering a Sendirian Berhad (Sdn Bhd) with the Companies Commission of Malaysia, opening local bank accounts, and enrolling staff with the Employees Provident Fund (EPF) and Social Security Organisation (SOCSO) before your first hire, a process that can take months and commits your legal and finance teams to ongoing entity maintenance.

Skuad helps remove that dependency. It acts as the legal employer in Malaysia, so your company can hire, onboard, and pay employees without entity setup, local counsel, or in-house payroll infrastructure.

Here is what Skuad helps with:

• Employment contract generation across 160+ countries, aligned with local labor laws and statutory requirements
• Statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Payroll processing in 70+ currencies with accurate tax withholding and statutory deductions
• Termination and offboarding support aligned with local labor requirements across supported markets
• Work permit and visa support for foreign nationals joining your team
• Background verification covering identity, employment history, and criminal records before onboarding

Book a demo to see how Skuad gets your first Malaysia hire onboarded in weeks, not months

What are the risks of hiring in Malaysia without an EOR?

Hiring in Malaysia without the right structure carries three main risks:

1. Misclassifying a contractor triggers back payment of EPF and SOCSO contributions plus claims under the Employment Act 1955
2. Terminating an employee without statutory notice or a Section 14 domestic inquiry exposes the company to unfair dismissal claims under the Industrial Relations Act 1967
3. Hiring without either a registered entity or an EOR has no legal basis under Malaysian employment law, since only a business registered with the Companies Commission of Malaysia can hold the employer accounts needed to register for and remit mandatory EPF and SOCSO contributions

What are the types of visa in Malaysia?

Malaysia offers four main visa categories for foreign nationals:

1. Single-entry visas for one-time tourism
2. Multiple-entry visas for repeated business or government visits
3. Transit visas for travelers passing through to another destination
4. Work visas for employment, sponsored by the employer through the Expatriate Services Division (ESD).

Work visas form a vital part of the EOR service. EOR companies can help you with all the formalities that are needed to onboard a foreign employee. They will also help you understand which work visa is applicable for your employees.

What are the work permit rules in Malaysia?

Malaysia's work permit for foreign employees is the Employment Pass, valid for up to 60 months, with duration tied to the employment contract and salary rather than the employee's nationality, and subject to Expatriate Committee approval.

It is employer-sponsored and requires an existing job offer, since the employer files the application through the Expatriate Services Division (ESD), and no routine in-country switch exists from a social or business visit visa to an Employment Pass. The full sequence typically takes two to six weeks from application to the employee starting work in Malaysia.

The Employment Pass itself is typically approved within five to ten working days at the first stage. Once approved through the ESD, a Visa with Reference (VDR) is issued for the employee to enter Malaysia.

After arrival, the employee submits their passport to the Immigration Department and collects the physical Employment Pass within 30 days.

Skuad supports the work permit process on your behalf, including:

• Supporting work permit applications for foreign employees joining your team
• Helping coordinate visa documentation with relevant local immigration authorities
• Assisting with residence or work permit conversions as required by local immigration law
• Helping track documentation requirements and deadlines across the full permit lifecycle
• Helping keep your team aligned with compliance requirements as permit renewals come due

Book a demo to see how Skuad supports Malaysia work permits end-to-end

What are the payroll & taxes rules in Malaysia?

Malaysia payroll runs through three models:

• Remote payroll from a foreign entity
• Local payroll administration through a registered Malaysian company
• Internal in-house team.

Corporate tax sits at 24% for standard companies, with SMEs paying 15% to 17% on lower income bands under RM 600,000. Individual income tax is progressive, from 0% up to 30% for income above RM 2 million, with non-residents taxed at a flat 30%.

On top of gross salary, employers add roughly 15% to 20% for EPF, SOCSO, and EIS contributions combined.

Payroll setup in Malaysia

Several guidelines govern the payroll and taxes in Malaysia. Some companies process the payroll internally for all employees, while others opt for payroll outsourcing in Malaysia. For a foreign company that wishes to expand in Malaysia, several laws are in place:  

• Remote Payroll: In this situation, the employee is on the payroll of a foreign company in Malaysia. Here, the company outsources the entire HR system.
• Local Payroll Administration: In this case, the company registers itself in Malaysia but assigns another company to handle payroll for all its employees. Here, the Malaysian employer payroll taxes are also managed by the local payroll administrator in some cases.
• Internal Payroll: Some companies enter Malaysia with the vision of staying and expanding their business. These companies are large enough to hire a dedicated team and run the payroll internally. Several HR professionals will have to be onboarded to run the payroll function in this case.

Skuad can help your company set up any of these payroll systems. Talk to us to learn more about our Malaysian EOR solutions.

What are the employment taxes in Malaysia?

The standard corporate tax rate for Malaysian companies is 24% for resident companies with paid-up capital above RM2.5 million.

The rate is lower for small and medium enterprises. A resident SME with paid-up capital of RM2.5 million or less and gross income up to RM50 million pays 15% on the first RM150,000 of chargeable income, 17% on the next RM450,000, and 24% on anything above RM600,000.

Different rates apply to businesses dealing with banking, insurance, oil, and petroleum.

Malaysia abolished the Goods and Services Tax (GST) in September 2018 and replaced it with the Sales and Service Tax (SST). Sales tax is charged at 5% or 10%, and service tax is 8% for most services since 1 March 2024, with some categories remaining at 6%.

Further, no withholding taxes apply to dividends paid by the company to non-residents of Malaysia. However, a 15% tax is applied to the interest paid to non-residents of Malaysia.

Malaysia does not impose a general capital tax. It levies Real Property Gains Tax (RPGT) on gains from property disposals, and from 2024, a capital gains tax on disposals of unlisted shares. These apply to residents and non-residents alike, not only to non-residents.

Malaysia payroll tax rates

The rate of tax changes with the level of income. The following table indicates the income slabs along with the tax rates applicable.

Employer taxation in Malaysia

Employee taxation in Malaysia

Employer costs in Malaysia stack up beyond gross salary. Contributions to the Employees Provident Fund (EPF), Social Security Organisation (SOCSO), and Employment Insurance System (EIS) add roughly 15 to 20 percent on top of pay, and the exact figure shifts with the employee's age and income band.

Before you budget a Malaysia hire, it helps to model the fully loaded cost. Skuad's employee cost calculator estimates gross salary, statutory employer contributions, and platform fees for a hire in Malaysia, so you can compare the real monthly cost against an entity setup.

Calculate the true cost of a Malaysian hire 

How to incorporate a company in Malaysia?

Incorporating a company in Malaysia means registering a Sendirian Berhad (Sdn Bhd) through the Companies Commission of Malaysia's (SSM) MyCoID portal, under Section 14 of the Companies Act 2016.

The SSM incorporation fee is RM1,000 (RM1,010 including tax and the name search fee), and approval typically takes 1 to 3 working days once documents are complete.

The requirements are:

• At least 1 director, 18 or older, ordinarily resident in Malaysia
• At least 1 shareholder (can be the same person as the director)
• Minimum paid-up capital as low as RM1
• A registered office address in Malaysia
• A licensed company secretary appointed within 30 days of incorporation, under Section 236 of the Companies Act 2016

Steps to incorporate

1. Search and reserve the company name through MyCoID under Section 27 of the Companies Act 2016 (optional, RM50, holds the name for 30 days)
2. Submit the incorporation application with director, shareholder, and share capital details, and pay the RM1,000 SSM fee under Section 14 of the Companies Act 2016
3. Appoint a licensed company secretary within 30 days of incorporation, under Section 236 of the Companies Act 2016

Skuad also supports incorporating a holding company in Malaysia, assisting with the formalities involved.

Customer Story: How Microsense Networks Scaled Across Southeast Asia with Skuad

Microsense Networks, a hospitality-focused High-Speed Internet Access provider with a pan-India base, set out to expand into Indonesia, Sri Lanka, Malaysia, and Thailand. Hiring and paying contractors across three Southeast Asian markets meant handling separate local regulations and cross-border payments without a local entity in any of them.

Skuad supported the effort with localized contractor agreements, country-specific documentation, and multi-currency payments from a single platform. Microsense onboarded 9 contractors across the three markets while staying aligned with local compliance.

Read the full case study

EOR vs. setting up your own entity in Malaysia

An EOR gets you to your first Malaysia hire in two weeks with no local registration required, while setting up your own entity (Sdn Bhd) takes weeks to months and requires registering with the Companies Commission of Malaysia (SSM). More of the difference between the two is listed below.

Is a PEO or an EOR better for hiring in Malaysia?

An EOR is the better fit for hiring in Malaysia, since Malaysia's Companies Commission (SSM) requires a registered local entity before a company can use a PEO's co-employment model.

A Professional Employer Organization (PEO) shares employment responsibilities with your company under this structure. An Employer of Record (EOR) is different: it acts as the sole legal employer of your team, so you don't need a Malaysian entity at all.

For a company hiring its first employee in Malaysia, an EOR is built for exactly this stage: hiring compliantly before you've set up an Sdn Bhd.

Why hire in Malaysia without setting up an entity?  

Hiring in Malaysia involves a lot of moving parts. The Employment Act 1955, EPF and SOCSO contributions, tenure-based notice periods, work permits for foreign nationals, and state-specific public holidays all shape how you employ people there.

Skuad supports the operational complexity of hiring in Malaysia, including employment contracts, statutory contributions, payroll in 70+ currencies, work permits, and compliance monitoring, so your team can focus on the work rather than the paperwork.

Companies across SaaS, technology, fintech, and professional services use Skuad to support their entry into Malaysia, stay aligned with regulations as they change, and scale a local team without building HR infrastructure from scratch.

Book a demo to see how Skuad gets your first Malaysia hire onboarded in weeks, not months

FAQs

1. What is an employer of record in Malaysia?

An Employer of Record (EOR) in Malaysia is a locally registered company that becomes the legal employer of staff on behalf of a foreign business. It takes on payroll, Employees Provident Fund (EPF) and Social Security Organisation (SOCSO) contributions, employment contracts, and Employment Act 1955 compliance, so you can hire, onboard, and pay staff in Malaysia without registering a local entity of your own.

2. How much does an EOR in Malaysia cost?

For a RM6,000 monthly salary, employer contributions add roughly RM720 for EPF (12%), RM105 for SOCSO, and RM12 for EIS, about RM837 total, or 14% above gross salary. EOR providers then add their own fee: typically a flat USD 199 to 800 per employee per month, or 10 to 15 percent of gross salary. Total monthly cost combines gross salary, statutory contributions, and the provider's fee.

3. Can a foreign company hire in Malaysia without a local entity?

A foreign company can hire in Malaysia by partnering with an EOR. The EOR acts as the legal employer, holds the local employment contract, and takes on EPF, SOCSO, and EIS filings on the company's behalf. You direct the employee's daily work and output while the EOR carries the compliance obligations and statutory paperwork.

4. What are the compliance risks of misclassifying workers in Malaysia?

Misclassifying a worker as a contractor when the actual working relationship resembles employment exposes you to back payment of EPF and SOCSO contributions, unpaid statutory benefits, and claims under the Employment Act 1955. Full-time staff can also file unfair dismissal claims under the Industrial Relations Act 1967, which can mean reinstatement or back wages.

5. Is it better to use an EOR or set up a local entity in Malaysia?

For lean teams or market testing, an EOR is usually faster and cheaper to set up. Registering a local entity with the Companies Commission of Malaysia means legal setup, bank accounts, and ongoing EPF and SOCSO administration, often taking months to complete. A local entity tends to make more sense once headcount grows past a handful of employees.

6. How long does it take to onboard an employee in Malaysia through an EOR?

Local hires can typically be onboarded within one to two weeks, once identity documents, the signed contract, and EPF and SOCSO details are ready. Hiring a foreign national takes longer, since the work permit and visa sequence, including the Employment Pass application, usually adds two to six weeks before the person can start.