Employer of Record in Malaysia: Your Gateway to Success

Using an EOR saves time and resources when hiring, managing, and paying your employees. With expertise in local laws and regulations, EOR can handle all of these administrative tasks for you, allowing you to focus on the growth and success of your business.

So, to ensure a smooth and compliant expansion into Malaysia, read on to learn more about the benefits of an Employer of Record.

What is an Employer of Record?

An Employer of Record (EOR) is a third-party service provider that is the official employer for your company's employees in a specific country. This means that the EOR takes care of all aspects of employment, including payroll, benefits, taxes, and compliance with local laws.

As an EOR is already established in the country where you wish to expand, they thoroughly understand the local labour market and regulations. This expertise can be invaluable for businesses navigating unfamiliar territory and avoiding costly mistakes.

Understanding Employer of Record in Malaysia

Malaysia is a thriving business hub in Southeast Asia, attracting foreign investment and multinational companies worldwide. However, the country has unique laws and regulations regarding employment, making it essential for businesses to have a firm grasp of these requirements.

An EOR in Malaysia can be your local partner, helping you navigate any potential challenges or roadblocks. They will ensure your business complies with all local laws and regulations, including labour laws, tax obligations, and employment contracts.

When hiring employees from Malaysia, an EOR can simplify the process and ensure compliance every step of the way. They handle all necessary paperwork and legal requirements, making it easier for you to hire international talent without worrying about potential mistakes or delays.

An EOR can also provide support with issues such as work permits and visas for foreign employees. This can be especially beneficial for businesses that may not have experience with navigating these processes.

The Process of Hiring in Malaysia

The Malaysian workforce is known for its hardworking and dedicated employees, making it an attractive business market. The standard working hours in Malaysia are 8 hours per day or 48 hours per week, with employees entitled to one rest day per week.

Malaysia also has a diverse culture, with Malay, Chinese, Indian, and indigenous communities living together. The official language is Bahasa Malaysia, but English is widely spoken and used in business settings. An EOR can help bridge any language barriers with their understanding of the local culture and languages.

In terms of public holidays, Malaysia has several national holidays based on religious and cultural events. This may vary depending on the state or region where your employees are located. An EOR can coordinate these holiday schedules and ensure that your business remains compliant with any local requirements.

Hiring employees in Malaysia also requires adhering to the country's complex tax system. An EOR can handle all aspects of payroll and taxation, ensuring your business remains compliant and avoids any potential penalties.

Employment Laws and Compliance in Malaysia

The primary employment law in Malaysia is Employment Act 1955, which outlines employers' and employees' rights and responsibilities. This includes regulations on minimum wages, working hours, leave entitlements, termination procedures, and more.

Domestic servants are excluded from the coverage, and employees earning above RM4,000 per month are exempted from specific provisions of the Act. An EOR can ensure your business abides by these laws and avoid potential legal issues.

The Employment Act 1955 also covers gig workers, freelancers, and part-time employees. This may be particularly relevant for businesses in the gig economy or those looking to hire contract workers in Malaysia.

Malaysia also has specific regulations for foreign workers, including work permits, visas, and quotas. An EOR can guide you through this process and ensure your employees have the documentation to work in Malaysia legally.

It's important to note that the Employment Act does not apply to Sabah and Sarawak, as they have separate labour laws. Equally important is that the Employment (Amendment) Act 2022 came into effect on 1st Jan 2023, introducing several changes to the current legislation.

One of the main challenges for businesses hiring employees in Malaysia is navigating the complexities of labour laws, particularly for migrant workers. As mentioned earlier, Malaysia has specific regulations and requirements for foreign workers, including work permits, visas, and quotas.

For employers looking to hire foreign talent, it's crucial to understand these rules and regulations to ensure compliance and avoid potential legal issues. An EOR can assist with this process, making it easier for your business to hire international talent and expand into Malaysia.

Types of Visas for Foreign Workers in Malaysia

There are several types of visas available for foreign workers in Malaysia, including employment passes, work permits, and professional visit passes. The most common of these include:

• Employment Pass (EP): This is for highly skilled workers who earn a minimum of RM5,000 per month and have specialized knowledge or expertise.
• Professional Visit Pass (PVP): This is for foreign employees on short-term assignments or projects in Malaysia.
• Work Permit: This is for unskilled or semi-skilled workers in specific sectors such as manufacturing, agriculture, and construction.

An EOR can assist with obtaining the necessary visas and permits for your foreign employees and ensure they comply with any regulations during their stay in Malaysia.

Employment Terms and Conditions

Under the Employment Act 1955, employers must provide employees with a written service contract within six months. This contract must include the employee's salary, working hours, leave entitlements, and other relevant terms and conditions. An EOR can ensure all employment contracts comply with local laws and regulations.

Some of the most important terms and conditions to consider when hiring employees in Malaysia include:

• Minimum wage: The current minimum wage is RM1,200 per month for Peninsular Malaysia and RM1,100 for Sabah, Sarawak, and Labuan.
• Working hours: As mentioned earlier, the standard working hours in Malaysia are 8 hours per day or 48 hours per week and no more than six days per week.
• Overtime: Any work exceeding the standard working hours is considered overtime and is compensated at 1.5 times more than their regular salary if an employee works for more than 48 hours per week
• Probation: There is no mandatory probation period in Malaysia, but it's common for employers to offer a three-month probation period.

Ensuring your business complies with all these terms and conditions can be daunting, especially for those unfamiliar with the Malaysian employment landscape. An EOR can provide guidance and support in ensuring your business remains compliant with local laws.

Employee Benefits and Entitlements

Employee entitlements in Malaysia include annual leave, sick leave, maternity leave, and public holidays.

Maternity Leave

The mandatory maternity leave in Malaysia is 14 weeks, with a minimum of 60 days' paid leave. For public sector employees, the government offers maternity leave of 90 days.

Employers must also provide two breastfeeding breaks daily for up to six months after childbirth. Employees are also entitled to maternity allowance, which is 100% of their salary.

Annual Leave

Under the Employment Act 1955, employees are entitled to a minimum of 13 days' annual leave per year for the first two years of service. This increases to 22 days after 15 years.

However, these entitlements may vary depending on the employee's job grade, industry, and type of employment contract. An EOR can help your business navigate these variations and ensure compliance.

Sick Leave

Employees are entitled to 14 days of paid sick leave per year for the first two years of service and 18 days after two years. After five years, employees are entitled to 22 days of paid sick leave.

In order to qualify for sick leave, employees must have a medical certificate from a registered medical practitioner. An EOR can assist in managing and tracking employee sick leave and ensuring compliance with local laws.

If the employee needs to be hospitalised, their sick leave entitlement increases to 60 days per year. They are also entitled to hospitalisation benefits under the Employment (Amendment) Act 2012.

Public Holidays

Malaysia has 14 public holidays per year, including religious and cultural events. However, some states may have additional public holidays specific to their region.

As an employer, it's essential to provide employees with the correct number of paid public holidays and ensure compliance with local laws. An EOR can assist in managing employee entitlements and ensuring your business remains compliant.

Medical Benefits

Employers in Malaysia are required to contribute towards an employee's social security under the Employment Social Security Act 1969. This includes medical benefits, which can cover hospitalization, maternity expenses, and disability benefits.

An EOR can help your business understand the medical benefit requirements and assist in managing contributions for your employees.

Paternity Leave

While there is no mandatory paternity leave in Malaysia, some companies may offer it as part of their benefits package. Employers are also encouraged to provide flexible working arrangements for expectant fathers.

An EOR can assist in implementing and managing paternity leave policies for your business.

Pension Schemes

Under the Employees Provident Fund (EPF) Act 1991, employers must contribute to their employees' pension schemes. This includes a monthly contribution of a minimum of 12% of the employee's salary.

An EOR can help your business understand and manage your obligations under the EPF Act and ensure compliance with local laws.

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Navigating Business Culture in Malaysia

Business etiquette in Malaysia is heavily influenced by its diverse culture and religion. Understanding and respecting these cultural differences is essential when doing business in Malaysia.

Meeting Etiquette

Meetings in Malaysia usually start with a brief greeting, followed by small talk before discussing business matters. Dressing professionally and being punctual for meetings is essential, as delay is disrespectful.

During meetings, it's crucial to pay attention and show respect towards the more senior members of the team. Avoid interrupting or contradicting others while they speak, as this can be seen as aggressive.

Importance of Personal Relationships

Personal relationships play a significant role in Malaysian business culture. Building trust and establishing personal connections is crucial for successful business partnerships.

It's common for colleagues to socialize outside of work, and it's seen as a way to strengthen relationships. As an employer, showing interest in your employees' personal lives can help build trust and loyalty.

Workplace Hierarchy

Malaysia has a hierarchical society, and this is reflected in the workplace. Respect for authority and seniority is expected, and decisions are often made by the most senior person in the room.

As an employer, it's essential to establish clear roles and responsibilities within your team while also showing respect towards more senior employees.

Gift Giving

Gift-giving is common in Malaysia, especially during festive occasions. Giving gifts is essential; presenting them with both hands shows respect. It's also considered polite to refuse a gift before accepting it.

Gifts should be given with good intentions and not seen as an attempt to influence business decisions. An EOR can assist in understanding and navigating cultural customs such as gift-giving in the workplace.

Types of Employment and Foreign Workers in Malaysia

Describe different employment types, focusing on indigenous and foreign employees​.

Malaysia offers various types of employment, including permanent, temporary, and contract work. Permanent employees are entitled to annual and sick leave benefits, while temporary and contract workers may not receive the same entitlements.

Employers in Malaysia also have the option to hire indigenous or foreign workers. Indigenous workers refer to Malaysian citizens or permanent residents, while foreign workers come from other countries to work in Malaysia.

The terms of employment for indigenous workers are either fixed-term or permanent contracts, depending on the employer's discretion. Foreign workers are typically hired on a fixed-term contract and are subject to certain restrictions and regulations set by the Malaysian government and the terms of their work permit.

Economic Landscape and Business Opportunities in Malaysia

Malaysia has a thriving and diverse economy, making it an attractive location for businesses looking to expand or enter the Southeast Asian market.

The country's economic growth is supported by its strong manufacturing sector, which contributes significantly to its $430 Billion GDP. Malaysia also offers various incentives and policies to attract foreign investment.

With its strategic location, stable political environment, and skilled workforce, Malaysia presents many opportunities for businesses to thrive and succeed. With the help of an employer of record for Malaysia, businesses can navigate the local business landscape and take advantage of these opportunities.

However, Malaysia faces its fair share of economic challenges, like any country. One major challenge is the regional disparities between the urban and rural areas.

While the urban areas experience rapid growth and development, the rural areas struggle with poverty and limited access to resources. This can create difficulties for businesses looking to expand into these regions or hire indigenous workers from these areas.

Additionally, companies may face challenges in accessing financing and dealing with bureaucratic red tape, which can slow down business operations.

Selecting the Right EOR Service in Malaysia

Partnering with the right EOR service in Malaysia can make all the difference for your business. When choosing an EOR, consider the following factors:

Experience and expertise in the local market

Choosing an EOR with a strong understanding of the Malaysian market and its laws and regulations is essential. This will ensure compliance and smooth operations for your business.

Range of services offered

Different EORs may offer additional services, so assessing your business needs and selecting an EOR that can meet them is crucial. For example, if you want to expand into rural areas, choose an EOR with experience in hiring indigenous workers from those regions.

Reputation and track record

Do your research and select an EOR with a good reputation and proven track record of success. This will give you confidence that your business is in capable hands.

Understanding of local laws and regulations

A reputable employer of record Malaysia will thoroughly understand Malaysian labour laws and regulations. This is crucial in ensuring compliance and avoiding legal issues for your business.

Ability to provide customized solutions for your business needs

Every business is unique, and your chosen EOR should be able to provide customized solutions to meet your specific needs. This will ensure that the services provided are tailored to your business's requirements.

Transparent pricing and services offered

It's essential to clearly understand the pricing structure and services included in your EOR package. This will help avoid any surprises or hidden fees down the line.

The Wrap Up

At Knit, we have a team of experienced professionals with extensive knowledge of the Malaysian market. We understand the complexities of business in Malaysia and can provide tailored solutions to meet your business goals.

Our EOR services can help your business navigate local laws and regulations, manage payroll and benefits for both indigenous and foreign employees, and handle administrative tasks so you can focus on growing your business.

Don't let the challenges of employing workers in Malaysia hinder your business's growth. With Knit as your trusted EOR partner, you can confidently expand into this vibrant market and take advantage of its many opportunities.

Contact us today to learn more about our services and how we can support your business in Malaysia.