Employment Law

Types of Employment Contracts in Malaysia

When hiring employees in Malaysia, employers should draft concise written contracts detailing the terms and conditions of employment. Contract terms should always be written in English and Malay.

An employment contract in Malaysia should include the following clauses:

• Job Description and Responsibilities
• Salary and benefits
• Termination request
• Severance pay

Offer letters and employment contracts must detail wages and remuneration in local Malaysian Ringgit (MYR).

When you do business with Remoly's Malaysia PEO, our in-country experts will assist you in drafting employment letters and employment contracts that comply with local employment regulations.

Fixed Term

Indefinite

Malaysian Working Hours

The standard working week in Malaysia is 40 hours, with employees typically working 8 hours per working day. Opening hours are usually Monday to Friday from 9am to 5pm. Employees must have one day off for every six days they work. Employees are not allowed to work during their rest days.

Employees in Malaysia are not allowed to work more than 48 hours per week. Any requested time in excess of 48 hours will be paid at 1.5 times the employee's base salary.

Taxation in Malaysia

Malaysian residents pay income tax at rates ranging from 0% to 28%. Income exceeding MYR 1,000,000 is subject to a tax rate of 28%. In the event of an unexpected death, disability or illness of a Malaysian employee, the Malaysian Social Security System (SOCSO) will provide monetary assistance to the employee and his or her family.

SOCSO is made up of contributions from employers and employees. The amount depends on the monthly salary and is calculated as 0.5% of monthly income. Employers pay an additional 1.75%.

In addition, the Employment Provident Fund also covers pensions and provides employees with the ability to withdraw funds for certain reasons. These reasons may include purchasing a home or undergoing treatment for a serious illness.

Both employers and employees contribute to the Employment Provident Fund. When an employee earns more than RM5,000 per month, the employee contribution rate is 11% and the employer contribution rate is 12%. When the employee's monthly income is less than RM5,000, the employer contributes 13%.

If the employee is a foreign citizen, these contributions are optional. However, for Malaysian citizens and permanent residents, donation is mandatory.

Health Insurance

In Malaysia, there is mandatory universal health care, which is funded by payroll taxes and the general budget. In addition, private healthcare is provided.

Malaysia's public healthcare system is considered to provide very good patient care. However, long waiting times result in many paying high prices for private healthcare.

Holiday Policy

Take a Vacation

Employees in Malaysia are entitled to paid leave every year. Total vacation time depends on the length of time the employee has been with the company. Depending on the time an employee has worked for the company, leave is as follows:

• Employees who have worked for the company for less than two years are entitled to eight days of vacation per year
• Employees who have worked for the company for more than two years but less than five years are entitled to 12 days of leave per year.
• Employees who have worked for the company for more than five years are entitled to 16 days of vacation per year

If an employee is not working for the employer for 12 consecutive months, they will receive leave commensurate with their time with the company.

In Malaysia, male employees who have worked for a company for three years are entitled to paid religious leave. This operation cannot be older than 30 days and is a one-time operation.

Sick Leave

Malaysia’s employment laws provide for sick leave for most employers. To be protected by local employment laws, employees must sign a contract, receive less than MYR 2,000 per month, and be involved in a specific job – such as vehicle operation.

For employees who meet these requirements, sick leave will be determined as follows:

• Employees who have worked for the company for less than two years are eligible for 14 days of sick leave per year
• Employees who have worked for the company for more than two years but less than five years are eligible for 18 days of sick leave per year.
• Employees who have worked for the company for more than five years are eligible for 22 days of sick leave per year

Employees can receive 60 days of paid sick leave per year if they have an illness or condition that requires hospitalization. In order to be eligible for this leave, the employee needs to provide the employer with appropriate documentation from a certified physician.

Any employee not covered by Malaysian employment laws will need to refer to their employment contract when determining their sick leave entitlement.

Maternity and Paternity Leave

In Malaysia, expectant mothers can enjoy up to 60 consecutive days of leave . During pregnancy, female employees also receive maternity leave benefits towards the payment of their leave entitlements. The expectant father can take leave up to 30 days before the date of birth. However, they cannot begin this form of leave after the birth of their child.

Women who have given birth to fewer than five children are eligible for maternity benefits. They also need to be with their employer for no less than 60 days before the birth. Standard wages apply with daily allowance or MYR 6 (whichever is higher at the time). If no policy stipulates otherwise, the father can take at least 1 day off and up to 14 days off.

Termination and Severance

Employees covered by Malaysian employment laws are eligible for severance pay. The minimum severance pay amount is determined by the employee's notice period.

Payment terms are based on an employee's years of service within their industry. If a worker is not an Employment Act (EA) employee, the amount of severance pay will be determined based on the criteria set out in his or her employment contract.

Employers are not allowed to fire employees who are on maternity leave – unless the company is about to collapse. People with disabilities are also protected from discriminatory dismissal by trade union groups.

For companies expanding overseas for the first time, dealing with employee layoffs and dealing with severance packages can be complicated. Remoly’s Malaysia PEOs can reduce risks for foreign companies and provide guidance during the process.  

Salary and Benefits

Malaysian Compensation Law

The standard minimum wage in Malaysia is MYR 1,050 per month, or MYR 5.05 per hour. Employers are advised to include compensation amounts in all employment contracts. The contract should be signed by both parties to avoid any future litigation.

Overtime pay is also regulated under the Malaysian Compensation Act. Employees who work more than 48 hours per week must be paid for the additional hours worked at 1.5 times the employee's regular wage.

Malaysia’s Welfare Guarantee

For employers who administer their own benefits, it is crucial that all employees have access to benefits guaranteed by Malaysian law. Benefits must include paid annual leave that reflects the employee's length of employment with the company. For example, employees who have been with the company for less than two years are entitled to eight days of vacation per year. Employees who have worked for the company for five years or more are entitled to 16 days of leave for each year of service.

Malaysia's universal healthcare system is funded by employee and employer taxes and covers all employees.

Female employees shall enjoy no less than 60 consecutive days of maternity leave. Female employees are also entitled to maternity benefits during pregnancy. A female employee may begin maternity leave at any time within 30 days of the expected date of delivery .

Malaysian Welfare Administration

To successfully oversee benefits administration, employers should identify not only guaranteed benefits but also supplemental benefits that employees may expect. For example, although there is no mandatory 13th-month bonus in Malaysia, most employers offer bonuses. Many employees also expect to receive performance-based bonuses (such as sales commissions), but this is not mandatory.

Malaysia's public health system often has long waiting times, causing many to pay higher premiums for private health insurance. To motivate employees, some employers offer group private health insurance, group life insurance and group accident insurance. This is usually paid as a monthly stipend to the employee.

Benefits and Compensation Limitations

The employment laws in Malaysia fall under the Employment Act 1955. The Act documents restrictions related to compensation and benefits. It is crucial for employers to understand employment laws before setting up a business in Malaysia and paying wages to employees.

When you partner with Remoly, we help you determine the benefits that are best for your employees. We also ensure that your employees are paid accurately and on time in compliance with Malaysian employment regulations.