The Legal Requirements of Hiring in Malaysia

If there’s one thing we know, it’s that people are at the core of every business.

Your team believes in your mission and works tirelessly to help bring your vision to life. They’re the ones who continually show up for you and are always willing to go the extra mile.

Let’s face it – without them, you wouldn’t be where you are today. You love your team, but the fact remains; legal and compliant employment can be a confusing process.

According to a report by TMF Group, Malaysia has?the world’s second most complex HR and payroll practices. And true enough, we’ve seen employers get it wrong time and time again. Coupled with frequent legislative changes and uncertainty surrounding the interpretation of laws, it’s a huge struggle for many SMEs and HR or payroll professionals.

That’s exactly why we created?the Malaysia SME BizHub, an all-in-one resource centre designed to help SMEs navigate Malaysia’s complicated employment landscape with ease. We want to help you gain better clarity over Malaysia’s employment practices and regulations, which can often be confusing and overwhelming.

It’s also why we’ve created this guide on legal requirements of hiring — we hope to empower you with the valuable knowledge you need to make informed decisions, maintain compliance, and create better workplaces for employees.

In this guide, we cover;

• Introduction to hiring in Malaysia
• Malaysia’s employment legislation
• Types of employment in Malaysia
• Employment contracts
• Workplace policies
• Hiring local employees in Malaysia
• Hiring foreign employees in Malaysia

Through Employment Hero, we’ve helped thousands of businesses feel more confident that they’re doing the right thing when it comes to hiring. If you can learn to compliantly and efficiently employ your staff, your business will thank you.

The information in this guide is current as at 17th May 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this guide are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this guide. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this guide.

What are some relevant workplace legislations in Malaysia?

The most important workplace legislation in Malaysia is none other than the?Employment Act (updated 2023 version).

As an employer or business owner in Malaysia, you’ll want to understand the Employment

Act (EA) clearly to ensure compliance. It outlines the rights of employees and employers, and their obligations under the law. It is also the main legislation on employment matters in Malaysia, and you can find out more about the EA?via our guide here.

If you weren’t aware already, a number of changes were made to the EA at the start of this year — with all changes applying to employees covered under the?Employment (Amendment) Act 2022.

It includes changes to maternity protections and paternity leave, weekly limits on working hours, rules around flexible working arrangements, and more. There were also changes made to the?Minimum Wage Order, which were implemented from 1st January 2023. You can find more information on the recent changes in our?Employment Law Updates factsheet here.

If your business is located in Sabah or Sarawak however, it’s important to note that the Employment Act is not applicable there, as they have their own?Sabah Labour Ordinance?and?Sarawak Labour Ordinance?respectively.

Apart from the Employment Act, there’s an extensive list of legislation related to different areas of employment in Malaysia, from public holidays to termination and layoff benefits. You can find the full list of employment-related legislation in Malaysia and direct links to them?here on the Malaysia SME BizHub.

What can employers do as part of the hiring process?

It can be difficult navigating the hiring process all on your own, especially if you’re a small business. You know that bringing the right people into your team can take your business to new heights — but it can seem like a very daunting process and you don’t know where to start. Well, fret not, because we’re here to help! Here are 6 key steps to get you started:

Check out our?ultimate recruitment and onboarding guide?for more information.

As for background checks in Malaysia, there are currently no legal restrictions or regulations pertaining to them. The extent of such checks are usually industry or employer-specific.

Nevertheless, employers should obtain the individual’s consent for the processing of any personal data, and ensure compliance with the?Personal Data Protection Act 2010.

Malaysia is a multicultural society and comprises various ethnic groups, so it’s crucial that you establish a fair and transparent recruitment process. Assess candidates objectively, and ensure that your job advertisements do not contain discriminatory language or requirements based on race, religion, gender, or other protected characteristics.

What must Malaysian employers provide when hiring employees?

Congratulations on finding a successful candidate! Here’s a quick rundown of what you need to provide to your new hires:

A written employment contract

This is a legal employment contract between the employee and your organisation, and needs to be signed by both parties. It should clearly state the terms and conditions of employment, such as the employee’s designation, salary, benefits notice period and more, as well as employer obligations.

It should also be in line with the Employment Act. We cover more on what should be included in an employment contract in our guide.

Workplace policies

Workplace policies are written statements that outline an organisation’s practices and procedures concerning facets of its business – everything from day-to-day operational matters to compliance with employment legislation.

They are a critical aspect of your employment toolkit — they help you articulate your organisation’s mission and values, and set the standard for both employer obligations as well as expected employee behaviour and performance. They also help to provide a decision-making framework, so you can ensure integrity and fairness when issues arise, as well as minimise legal, financial, and safety risks for you and your business.

If you’re wondering whether you need clearly defined workplace policies in your business, the answer is a definite ‘yes’. Every business needs to have clear and easy to understand workplace policies and procedures in place.

It’s also much easier for employees to digest all this important company information in clear, bite-sized formats of workplace policies, rather than being thrown a thick employee handbook which often gets neglected and ends up collecting dust in a corner.

Make sure your new employees sign off on all workplace policies, acknowledging that they are aware of the policy and understand it completely. With?Employment Hero, you can easily add all relevant workplace policies to an employee’s profile via the platform during the onboarding process. They can then view it and acknowledge it in their own free time. It’s so fuss-free!

Flexible work arrangements

With flexible work arrangements now covered under the Employment Act, it’s vital for employers to also ensure that their employees are empowered to work effectively from home. Do they have all the necessary equipment they need to ensure productivity?

Statutory contributions and deductions

Employers are required to deduct and remit employee contributions for statutory funds such as the Employees Provident Fund (EPF) and the Social Security Organization (SOCSO). You can find out more about the contribution rates and employer obligations?on the Malaysia SME BizHub.

Income tax obligations

As per the Income Tax Act 1967, it is mandatory for employers to make a monthly tax deduction directly from an employee’s remuneration. This is also referred to as Potongan Cukai Bulanan (PCB). It is the employer’s responsibility to send this tax amount to the Inland Revenue Board of Malaysia (IRBM/LHDN) on their employee’s behalf, on or before the 15th of the following month.

Income tax rates vary depending on the employee’s remuneration and their resident status. Employers are also required to issue annual income tax statements (EA forms) to employees. For more information, check out our?guide to the basics of payroll in Malaysia.

Workplace safety and health

Employers must provide a?safe and healthy work environment?for their employees. Compliance with the Occupational Safety and Health Act 1994 is crucial, which includes conducting risk assessments, implementing safety measures, and providing appropriate training and protective equipment.

Are verbal agreements enough for an official employment relationship?

In Malaysia, an oral contract can also be accepted as employment, as provided by the Contracts Act 1950 and Employment Act. However, oral contracts can be difficult to prove and enforce, and hence written contracts are recommended to avoid future disputes over the existence of the contract, and terms agreed by both parties.

How long should employers keep employee records and documentation?

In Malaysia, employers are required to maintain employee records and documentation for?at least 7 years?to ensure compliance with legal and regulatory requirements. This covers:

• Employee records (employment contracts, resumes, performance appraisals, disciplinary records, and any other relevant information related to the employment relationship); and
• Payroll and income tax records (payslips, EPF contribution statements, SOCSO contribution statements, income tax statements, EA forms and more).

What types of work permits and employment passes are available in Malaysia?

There are different types of work permits and visas for foreigners who intend to work in Malaysia — the employment pass, professional visit pass, resident pass — talent, and temporary employment pass. You can find out more about each type of pass on?the Malaysia SME BizHub here.

Hire employees in compliance with Malaysian law

As you can see, there’s a lot involved when it comes to?HR and hiring compliance. It can be time-consuming and headache-inducing trying to stay on top of all the compliance regulations for your business. We’re here for Malaysian businesses and we’re ready to help.

Employment Hero?doesn’t just make hiring compliance easier, it covers every aspect of the employee lifecycle — from recruitment and onboarding to engagement, productivity, and success.

You can post job openings to different job boards and manage all applicants through each stage of the hiring process. You can send out employment contracts digitally and onboard new employees easier than ever. Access built-in contracts, policies and HR templates that are ready to go when you are.

What’s more, you can manage performance with 360 feedback loops, in-built goal management, custom performance reviews and one-on-one templates. Not to mention our platform is incredibly user-friendly and makes all HR tasks a breeze to get through.

We take the hard work out of managing employment so you can get back to growing your business.