Malaysia

While there are generally four ways of employing people across borders, not all are legal or sensible. Here is an overview of each way to employ a worker in Malaysia, outlining the potential cons.

HQ country employment & payroll
While the person is in Malaysia, they are employed and paid directly by the company’s HQ entity. This option may appear attractive, but it generally isn’t legal in the long term. Also, HQ payroll won’t be possible if the person is not a tax resident in the HQ country.

Independent contractor agreements
People in Malaysia are registered as sole traders or as owners of limited liability companies and invoice for their work. There is no direct employment relationship. In Malaysia, this is not a compliant or legal way to engage full-time workers who work solely for your company. There will be challenges in attracting and retaining talent.

Direct local employer setup
The company sets up as a fully-compliant local employer. This often involves setting up a local entity and local tax registration. The downside is that this option is expensive, time-consuming, and of a high level of complexity. There are several unknowns around how obligations and costs will evolve over time. There will be a need to stay on top of changes in regulations.

Partnering with an Employer of Record or full-service Professional Employer Organisation
Employment is handled by a platform that specialises in employing people on behalf of customer companies. The Employer of Record helps to hire and pay employees. For some countries, the ongoing costs may be higher than direct employment. Some education is needed to inform employees about how the employment relationship will work.

Generally, registering a company in Malaysia can take anywhere from a few days to a few weeks, depending on the complexity of the company structure and the completeness of the application.

However, the difficult part comes after the initial setup when payroll needs to be calculated and run every month, taxes filed, benefits extended, and changes in rules and regulations followed.

While many employers practice employing remote workers as independent contractors, it’s a bad practice. If an individual is giving their full and undivided attention to your company in Malaysia, treating them as an independent contractor is likely a breach of Malaysian employment laws and of those in your country.

Your company could be liable for fines on owed holiday pay, sick pay, social welfare payments, paternity benefits, maternity benefits, or other legal measures. Since the individuals you are working with do not receive the benefits of local employment laws and protections that are often afforded to people working full-time hours.

When you hire employees in Malaysia, you have certain obligations as an employer. HR compliance is about ensuring your policies and procedures respect all applicable laws and regulations regarding employment and work practices.

Complying with local employment law in Malaysia is fundamental for the correct running of your business, not only because these laws are in place to protect employees and guarantee their rights are safeguarded, but also to minimise your risk of liabilities as an employer. Being compliant means respecting and following all local labour laws, sick leave and illness benefits, annual leave, minimum wage, tax credits, and working hours regulations.

As with every other country, there are certain costs associated with employing a worker in Malaysia that come on top of the gross salary you are offering.

It means that Boundless is the legal employer of the individual, as far as the Malaysian government, tax, and employment authorities are concerned.

We are responsible for:

• informing you about any pre-employment requirements
• ensuring employment is compliant with Malaysian employment law
• informing you about the length of the maternity leave, paternity leave, public holidays, illness benefits, medical benefits
• providing a locally compliant employment contract
• processing local payroll
• filing employment-related tax returns
• issuing payslips to the employee
• distributing salary payments
• payments to the local tax authorities

Customers who work with an Employer of Record in Malaysia are responsible for:

• sourcing and recruiting their own workers
• managing the employee’s day-to-day workload
• contributing to the personal/professional development of the employee through their work
• following any guidance we give on employment and HR best practices or legal obligations in Malaysia, such as the employment contract, public holidays, annual leave, sick leave, maternity and paternity benefits, probationary periods, overtime pay, statutory redundancy payments, liability insurance and many others
• ensuring that payroll bills relating to their team are paid to Boundless before the cut-off point in each pay cycle

Boundless as the Employer of Record files all pertinent taxes and social security contributions as they relate to the compliant employment of an individual in their home country.

We carefully choose employment lawyers or advisories to partner with in each country we operate in, including Malaysia. They ensure the Malaysian employment contracts and any other relevant documents required for new employees comply with the local jurisdiction.

We have thorough discussions on specific norms such as payroll services, social protection, data protection, notice periods or work-from-home regulations. Whenever a potentially sensitive issue arises in Malaysia, our internal team contacts the relevant firm to ensure all steps are taken to resolve it promptly.

The company remains responsible and informs employees of the day-to-day management of the people and teams employed through Boundless, including any disciplinary or performance issues. Boundless ensures compliance with Malaysia-specific procedures, practices, and labour laws while employing people and teams on behalf of the company.

Any new employee who is locally employed through an Employer of Record gets full employment rights and benefits as specified in Malaysia employment law. They get a locally compliant employment contract, statutory parental leave, annual leave, illness benefits, any relevant tax credits, and many more.

In Malaysia, both employers and employees are required to make social security contributions. Employers typically contribute 12% to 13% to the Employees Provident Fund (EPF), along with approximately 1.75% to SOCSO and 0.2% to the Employment Insurance System (EIS), while employees contribute 11% to EPF, around 0.5% to SOCSO, and 0.2% to EIS, subject to applicable salary ceilings. In addition, employees are subject to personal income tax on a progressive scale ranging from 0% to 30%, depending on their income level.