Hire employees in Malaysia
Everything a foreign company needs to know before employing people in Malaysia: whether you need an entity, what an employee really costs, how payroll and the four statutory funds work, what leave and protections are mandatory, and why "just cause or excuse" makes termination the part that catches people out. Written for CHROs, CFOs, General Counsel and founders.
Quick answers
The questions leadership teams ask first, answered directly. Detail follows further down the page.
Do I need a local Malaysian entity to hire?
No. Foreign companies can engage talent in Malaysia through three routes:
- Employer of Record. Dryft Global employs the person through our compliant Malaysian entity and handles onboarding, Monthly Tax Deductions (PCB), EPF, SOCSO, EIS and the HRD Corp levy. You direct the day to day work.
- Direct local entity (Sendirian Berhad, or Sdn. Bhd., or a registered branch). You incorporate through the Companies Commission of Malaysia (SSM), appoint a resident director and company secretary, and register with LHDN, EPF, SOCSO, EIS and HRD Corp yourself.
- Independent contractor (B2B agreement). Lawful only for genuinely self-employed specialists. Section 13A of the Employment Act presumes employment whenever you control the work. See the contractor section below.
When should I use an EOR instead of setting up a Sdn. Bhd.?
An EOR makes commercial sense when you are:
- Onboarding people in days rather than the 6 to 10 weeks a Sdn. Bhd. takes for incorporation and banking.
- Employing a team of 1 to 20 without setup costs, secretarial and audit fees, or the RM500,000 to RM1,000,000 paid-up capital a foreign-owned entity needs to sponsor Employment Passes.
- Testing the market or building a remote engineering, shared services or BPO team before committing capital.
- Keeping permanent establishment exposure down for non-commercial or regional development roles.
A Sdn. Bhd. becomes the right answer when headcount passes 20 to 30 permanent people, when you need local trading licences, when you lease manufacturing or warehouse space, or when you sponsor expatriates through your own portal account.
What does an employee actually cost beyond salary?
For citizens and permanent residents, plan for roughly 14.5% to 16% on top of gross salary. Most of it is employer EPF at 12% (13% at wages of RM5,000 and below), which has no ceiling. SOCSO and EIS are capped at a RM6,000 monthly wage, and the HRD Corp levy adds 1% of payroll from 10 Malaysian staff. For Employment Pass holders the burden drops to about 1.5% to 2.5%, because EPF is optional for them. Full breakdown below.
How difficult is termination in Malaysia?
Harder than most foreign employers expect. There is no at-will employment, and probationers have the same protection as confirmed staff. Every dismissal needs "just cause or excuse" under Section 20 of the Industrial Relations Act 1967: proven misconduct, documented poor performance after an improvement plan, or genuine redundancy. Misconduct needs a show cause letter and a domestic inquiry; redundancy needs a Form PK filing 30 days ahead. Employees have 60 days to claim, and the Industrial Court can order reinstatement or up to 24 months of back wages.
Can Dryft Global legally employ my team in Malaysia?
Yes. Dryft employs your people through a compliant Malaysian entity. We issue the Section 10 contract, run monthly payroll within the 7-day deadline, withhold and remit PCB to LHDN, file EPF, SOCSO, EIS and HRD Corp contributions by the 15th, and administer leave and statutory filings, while you direct the work.
Hiring routes compared
Foreign companies have to weigh speed to market, paid-up capital, resident director requirements, work pass sponsorship and permanent establishment risk. Here is how the routes compare.
| Factor | Direct entity (Sdn. Bhd.) | Dryft Global EOR | Independent contractor |
|---|---|---|---|
| Speed to onboard | 6 to 10 weeks (SSM plus bank account) | 3 to 5 business days | 1 to 2 business days |
| Paid-up capital | RM1 nominally; RM500,000 to RM1,000,000 to sponsor foreign EPs | None | None |
| Resident director | At least one, plus a licensed company secretary | Handled by Dryft Global | Not applicable |
| Statutory registrations | You register with LHDN, EPF, SOCSO, EIS and HRD Corp | Fully managed by Dryft | None; the worker self-reports tax |
| Work pass sponsorship | Your own ESD or MDEC portal account | Available through established quotas | Worker must already hold the right to work |
| Permanent establishment risk | Direct corporate presence | Significantly mitigated | Medium to high if the contractor is dependent on you |
| Best fit | Large, long-term operations of 25+ staff | Rapid entry, GBS, tech and sales teams | Discrete, specialised project work |
What an employee costs in Malaysia
Malaysian payroll runs through four statutory funds, each with its own portal and coverage rules. EPF has no wage ceiling; SOCSO and EIS are capped at a monthly wage of RM6,000, so their effective rate falls as salaries rise. Figures below are for a citizen or PR.
| Component | Employer share | Notes |
|---|---|---|
| Employees Provident Fund (EPF / KWSP) | 12% above RM5,000, 13% at or below | Employee pays 11%. No ceiling. Optional for foreign nationals |
| SOCSO (PERKESO), Category 1 | ~1.75%, max RM104.15 a month | Injury and invalidity cover for citizens and PRs under 60. Ceiling RM6,000 |
| Employment Insurance System (EIS) | 0.20%, max RM11.90 a month | Retrenchment protection. Employee matches 0.20%. Same ceiling |
| HRD Corp levy (PSMB) | 1.00% of gross payroll | Mandatory from 10 Malaysian employees; optional at 0.5% with 5 to 9 |
| Statutory subtotal | ~14.5% to 16% | Of gross pay, before optional benefits |
| Group medical and hospitalisation cover | RM1,200 to RM3,600 a year | Market standard for professional and tech staff |
| Total employer on-cost | ~15% to 18% | Above base salary for a citizen or PR |
For a foreign Employment Pass holder, SOCSO drops to the Employment Injury Scheme at 1.25%, EIS still applies, and EPF is optional, defaulting to a flat RM5.00 a month unless both sides opt in. Statutory on-cost lands around 1.5% to 2.5% before medical cover.
For a Malaysian senior engineer on RM144,000 gross, budget roughly RM166,500 all-in; the same salary for an expatriate costs roughly RM150,000. Ask us for a cost model with current caps applied.
Payroll and tax
Malaysian payroll is monthly. Under Section 19 of the Employment Act, wages must reach the employee's bank account within 7 days of the wage period ending. By the 15th of the following month you remit PCB through e-PCB, EPF through i-Akaun, SOCSO and EIS through PERKESO ASSIST and the HRD Corp levy through its own portal. An itemised payslip is mandatory with every payment under the Employment Regulations 1957. By 31 March you issue Form EA to employees and file Form E with LHDN.
Income tax and Monthly Tax Deduction (PCB)
The employer is the withholding agent, calculating PCB monthly on LHDN's formula and adjusting for marital status, dependents and reliefs claimed on Form TP1. Tax residency turns on physical presence, generally 182 days in a calendar year. Resident rates are progressive, from 0% on the first RM5,000 to a top rate of 30% above RM2,000,000. Non-residents pay a flat 30% with no reliefs. LHDN's e-invoicing rollout also reaches employment and contractor payments through MyInvois.
Statutory minimum wage
Malaysia sets a national monthly minimum wage by Minimum Wages Order, covering every private-sector employee, local or foreign, other than domestic workers. Professional hires sit well above it, but the RM4,000 line matters more: employees above it fall outside the statutory overtime, rest day pay and termination benefit provisions, which contract then governs.
Leave and mandatory benefits
- Paid annual leave. Scales with service under Section 60E: 8 working days under 2 years, 12 days from 2 to 5 years, 16 days at 5 years and above. Market standard in tech and multinational roles is 15 to 22.
- Public holidays. Minimum 11 gazetted paid holidays a year, five compulsory and the rest chosen by the employer. Work on a holiday earns 2 days' wages.
- Sick leave. Paid outpatient sick leave of 14 days (under 2 years), 18 days (2 to 5 years) or 22 days (5 years and above), plus 60 days of paid hospitalisation leave.
- Maternity. 98 consecutive days, fully paid by the employer, for a female employee with 90 days of service in the prior 9 months. Dismissal during pregnancy or maternity leave is prohibited except for gross misconduct.
- Paternity. 7 consecutive paid days for married male employees with 12 months of service.
- 13th month. Not mandatory. A 13th-month bonus is customary in traditional firms; tech and multinational employers use variable pay instead.
- Working time. Maximum 45 hours a week and 8 hours a day, with one full rest day. Overtime for employees earning up to RM4,000 is 1.5x on a normal day, 2x on a rest day and 3x on a public holiday. Employees can request flexible working in writing and you must answer within 60 days.
- Retirement. Minimum retirement age is 60 under the Minimum Retirement Age Act 2012. Clauses forcing earlier retirement are void.
Termination and notice periods
Malaysia has no at-will employment. Every dismissal must rest on just cause or excuse, and the Industrial Court judges the reason and the process. A probationer has the same Section 20 protection as a confirmed employee, so terminating during probation needs documented grounds. Where the contract is silent, the Section 12 notice periods apply. Either side can end the contract immediately by paying wages in lieu.
| Completed service | Statutory default notice (Section 12 EA) |
|---|---|
| Under 2 years | 4 weeks' written notice |
| 2 to under 5 years | 6 weeks' written notice |
| 5 years and above | 8 weeks' written notice |
- Misconduct needs a domestic inquiry. Issue a show cause letter with the allegations and evidence, give the employee 3 to 7 working days to reply, and if the answer is unsatisfactory convene a domestic inquiry before independent managers where the employee can call witnesses. You may suspend on half pay for up to 14 days. Skip the inquiry and the dismissal is procedurally unfair.
- Poor performance needs a PIP. Expect a structured 3 to 6 month improvement plan with documented reviews before a dismissal will hold.
- Redundancy needs Form PK. File Form PK with the Department of Labour at least 30 days before notifying affected staff, and select on objective criteria, generally last-in first-out within the category.
- Statutory retrenchment benefits. Employees earning RM4,000 a month or less are owed 10 days' wages per year of service under 2 years, 15 days from 2 to 5 years and 20 days at 5 years and above. Above RM4,000 the contract governs.
- 60-day claim window, reinstatement risk. A dismissed employee has 60 days to file at the Industrial Relations Department. If conciliation fails the Industrial Court can order reinstatement, or compensation of about 1 month per year of service plus back wages capped at 24 months (12 for probationers).
- Fixed-term contracts are not an exit route. Rolling fixed-term contracts for core roles count as permanent employment, so non-renewal needs the same due process as a dismissal.
Can I use independent contractors?
Only for genuinely independent specialists delivering discrete work. Section 13A of the Employment Act 1955 presumes employment, unless a written contract proves otherwise, whenever any one of five markers is present: you control the manner or hours of work, you supply the tools, the work is integral to your business, it is performed solely for your benefit, or your payments are the worker's main income. Most "contractors" working full time for a single foreign company fail that test. On reclassification you owe backdated EPF and SOCSO contributions from day one, fines of up to RM20,000 or imprisonment for failing to withhold PCB, accrued leave, holiday and overtime pay, and an unfair dismissal claim when you end the contract. An EOR is the compliant alternative for anyone who works like an employee.
The legal framework in brief
Malaysian employment law is federal statute layered with East Malaysian ordinances, fund legislation and Industrial Court case law. The statutes you will hear referenced most:
- Employment Act 1955 (Act 265). The foundation, substantially amended in 2023. Covers every employee under a contract of service, though overtime, rest day and termination benefit provisions stop at RM4,000 a month.
- Sabah Labour Ordinance (Cap. 67) and Sarawak Labour Ordinance (Cap. 76). Separate codes for East Malaysia, harmonised with the federal Act. Both states run their own immigration and work permits.
- Industrial Relations Act 1967 (Act 177). Trade unions, collective bargaining and the "just cause or excuse" standard under Section 20.
- Employees Provident Fund Act 1991 (Act 452). Compulsory retirement savings for citizens and permanent residents.
- Employees' Social Security Act 1969 (Act 4) and Employment Insurance System Act 2017 (Act 800). Injury, invalidity and retrenchment protection administered by PERKESO.
- Personal Data Protection Act 2010 (Act 709). Seven data protection principles, a mandatory bilingual privacy notice, consent for sensitive data and limits on cross-border transfers.
- Occupational Safety and Health Act 1994 (Act 514). Extended to all workplaces in 2022, including home offices. An OSH coordinator is required from 5 workers and harassment complaints investigated within 30 days.
Where the talent is
Malaysia is one of Southeast Asia's most mature digital economies and a primary global shared services hub. More than 600 multinationals run Global Business Services or IT shared services there, and Penang and Kulim account for roughly 13% of global semiconductor assembly, test and packaging capacity. The workforce is multilingual, and English is the working language of most corporate and technology employers.
| Region | Talent and industry concentration |
|---|---|
| Greater Kuala Lumpur and Klang Valley | Regional headquarters, financial services, Islamic finance, fintech, legal tech, BPO delivery |
| Cyberjaya | IT shared services, software engineering, cloud infrastructure, cyber security operations, AI |
| Penang (Bayan Lepas and Batu Kawan) | Semiconductor back-end, IC design, electronics manufacturing, GBS, medtech engineering |
| Johor and Iskandar | Logistics, data centre hubs, manufacturing, cross-border services with Singapore in the JS-SEZ |
| Sarawak and Sabah | Renewable energy, oil and gas services, petrochemicals, agritech, maritime logistics |
Malaysia Implementation Kit
This page tells you the rules. The kit tells you what to do, in what order, and what goes wrong when you skip a step. Built from Dryft's own onboarding checklist for Malaysia.
- Step-by-step implementation checklist, from hiring route selection to first payroll
- Nationality check: the right EPF, SOCSO and EIS schedule for citizens, PRs and pass holders
- The RM4,000 line: overtime and termination benefit clauses above and below it
- Mandatory Section 10 contract particulars and the 7-day wage payment rule
- e-PCB, i-Akaun, ASSIST and HRD Corp setup and the 15th-of-month remittance calendar
- Show cause, domestic inquiry, PIP and Form PK offboarding procedures
- Bilingual PDPA notice, OSH coordinator and 30-day harassment inquiry protocols
- Every official Malaysian authority with direct links
This guide is general information, not legal, tax or immigration advice. Malaysian employment, tax and immigration rules change regularly, and Sabah and Sarawak apply their own ordinances. Confirm current figures with a qualified adviser or with Dryft before acting. Last reviewed September 2026.
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