Malaysia is recognized as one of “the strongest, most diversified, and fastest-growing in Southeast Asia” by Brittanica. This is seen across diverse sectors, such as tourism, pharmaceuticals, commerce, tech, and manufacturing.
The country is home to top talents in many fields, and having access to global talents allows you to tap into that market. Not to mention, Malaysia takes 12th place globally for Ease of Business in the Doing Business Rankings, so there’s even more incentive to invest there.
Nevertheless, the question remains how hiring foreign workers in Malaysia works. In short, you need to establish a legal entity in Malaysia, advertise for job opportunities, review applications to create a shortlist, interview the shortlisted applicants, make job offers, send employment contracts, and, finally, onboard new hires.
However there are more details to the process, legal requirements, working conditions, payroll Malaysia, average salary in Malaysia, and employee management. So, let’s get right into these logistics.
1. Understanding the Malaysian Labor Market
By tackling the different laws and regulations that govern this market, you can decide if hiring foreign workers in Malaysia is right for you. If it is, you should understand how to comply with the market laws and protect your business in Malaysia payroll management by learning about its inner workings (like the average salary in Malaysia, for example).
Employment Act 1955
The 1955 Employment Act mainly governs employment in Malaysia. The act requires you to create a written contract for all working arrangements over one month when hiring foreign workers in Malaysia, stating their terms and conditions (like the average salary in Malaysia and probation period Malaysia policies).
By documenting your transactions in payroll Malaysia ensures that you comply with these labor laws. For instance, it monitors the minimum and average wage in Malaysia and the benefits during the probation period Malaysia mandates.
Read next: Understanding Malaysia’s Employment Act: Updates & FAQs in 2024
Minimum wage
Since you’re hiring foreign workers in Malaysia, know that the minimum and average salary in Malaysia applies to all workers, including employees who are paid based on their workload.
The minimum wage in Malaysia is RM1,500 per month according to the Minimum Wages Order 2022. For payroll Malaysia purposes, that makes the minimum wage in Malaysia RM7.21 per hour and RM69.23 per day in a five-day week.
It’s important to ensure that your employees’ average wage in Malaysia is above the minimum to remain compliant to regulations.
But what is the average salary in Malaysia? It’s estimated to be around RM4,000 per month. Naturally, this average salary in Malaysia increases with overtime payments, which you should factor into your Malaysia payroll processes.
Working hours
If you’re hiring foreign workers in Malaysia, the working hours are 45 hours per week. The standard hours are from 9AM to 5PM every Monday to Friday.
As for overtime, employees can legally work up to 104 extra hours per month. When you manage payroll, Malaysia requires you to track working hours and add the overtime rate to the average wage in Malaysia your employees are paid.
Social security
Social Security laws protect Malaysia’s workforce against discrimination based on age, religion, gender, and race. We elaborate further below but, think Malaysian Social Security System (SOCSO) and Employment Provident Fund (EPF), the state retirement fund.
As an employer, you’re responsible for contributing a monetary value (based on your employees’ average salary in Malaysia) within your Malaysia payroll processes.
2. Process for Hiring Foreign Workers in Malaysia
Understanding the process for hiring foreign workers in Malaysia empowers you to take actual steps to find top talents in the country. Here’s what to do.
Job description
Hiring foreign workers in Malaysia starts with drafting a job description and required qualifications. Ensure that the job scope is relevant to the position and sets clear expectations.
Recruitment channels
If you don’t have a local team in Malaysia, your main recruitment channels will most likely be online platforms. Post the job ad to the platforms with a high presence of your target audience, especially popular ones in Malaysia, such as Hiredly, Adnexio, and Linkedin. You can also use industry-specific job boards and publications.
Alternatively, take advantage of employer of record (EOR) providers in Malaysia as a flexible solution to hire talent without setting up a local entity.
Screening and selection
With screening software, you can filter through job applications you receive to find eligible candidates. Once you’ve shortlisted a few, schedule screening interviews to assess their relevant experience and cultural fit. After a few rounds of interviews, you should be able to confidently select your new hires to officially start hiring foreign workers in Malaysia.
Job offers
The final step in the hiring process is to send out job offers and draft up an employment contract, which is necessary for hiring foreign workers in Malaysia. A period of negotiation might follow to agree on the employment terms, which means you must be aware of the typical benefits and average salary in Malaysia.
Once they accept your job offer, you can add them to your Malaysia payroll system. Then comes the probation period—Malaysia requires employers to offer probationers the same rights as employees. So, if you pay employees above the average wage in Malaysia, you pay your probationers the same.
3. Onboarding and Compliance
Proper onboarding and compliance make hiring foreign workers in Malaysia and registering them in your Malaysia payroll system a seamless and compliant process.
Employment contracts
A contract for hiring foreign workers in Malaysia usually includes the following:
- Identification of employer and employee
- Start date
- Duration (if applicable)
- Workplace and working hours
- Employee salary (with benefits and compensation stated)
- Job description and responsibilities
- Payment conditions
- Probation period Malaysia
- Time off
- Notice period and termination regulations
- Health and safety guidelines
- Anti-discriminatory clauses
Employee registration
You must register the details of your new hires with mandatory social insurance programs such as EPF and SOCSO. Also, by adding your employees to the company payroll, you can track compliance by referring to the minimum and average salary in Malaysia.
Induction training
During the probation period, Malaysia businesses conduct induction training to introduce probationers to the work environment and business processes. This training supports them throughout the onboarding process.
Relevant read: Create a Memorable New Hire Orientation: Tips, Checklists, and Best HR Practices
4. Managing Your Workforce
Effective workforce management reduces stress, ensures compliance, and enhances work satisfaction, increasing employee loyalty and retention rates. It’s composed of the following:
Malaysia payroll and benefits
To understand the Malaysia payroll system, you should be aware of the minimum and average salary in Malaysia and the minimum and average wage in Malaysia per hour. You should also mind the payroll Malaysia cycle, which is typically monthly.
The Malaysia payroll duties include tax collection and contributions from the average salary in Malaysia and reporting for each financial year. For that, you must understand Malaysia payroll regulations regarding statutory public insurance programs, employer and employee contribution rates, and income tax brackets.
A central payroll Malaysia management software can help calculate the average salary in Malaysia for each employee (after deducting taxes). Aside from offering the average wage in Malaysia to satisfy employers, you want to provide a competitive, local, tailored benefits package when hiring foreign workers in Malaysia.
Performance management
For effective performance management, you monitor employee performance with certain KPIs in mind. You can conduct an employee performance appraisal regularly to make informed decisions.
Think training, courses, employee promotions, and raises (to the average wage in Malaysia that you offer). Other than paying above the average wage in Malaysia, many Malaysians are used to getting performance-based bonuses.
Additional reading: 12 Employee Recognition Examples to Keep Your Team Engaged All Year
Employee relations
When you’re hiring foreign workers in Malaysia, how do you build a positive employer-employee relationship (aside from offering an above-average salary in Malaysia)? You refer to labor laws, such as the Employment Act, which covers the average wage in Malaysia and Malaysia payroll-related policies.
Also, The Industrial Relations Act (IRA) outlines the rights and responsibilities of both parties and trade unions. In other words, it helps you through contracts, disagreements, and terminations. Your Malaysia payroll system should comply with such regulations.
Compliance
When it comes to compliance, Malaysia’s labor laws and regulations are complex and ever changing. To ensure that you remain compliant, it is suggested to seek advice from legal and compliance experts in Malaysia when hiring foreign workers in Malaysia.
They can assist with the registration of new employees for mandatory contributions, ensuring you pay a compliant average wage in Malaysia. Also, a solid payroll Malaysia solution can help you comply with Malaysia payroll policies, ensuring your average wage in Malaysia is above the minimum.
5. Taxes and Contributions
When hiring foreign workers in Malaysia, understanding the scale of your responsibility for taxes and contributions as an employer is key to legal compliance and payroll Malaysia processes. That’s because you might inevitably need to make certain deductions from your employees’ average wage in Malaysia.
Employer obligations
When hiring foreign workers in Malaysia, it’s important to include the following taxes and contributions within your system for payroll.
Employees Provident Fund (EPF)
The EPF is Malaysia’s state mandatory retirement fund that employees of the private sector can access upon retirement or for certain purposes (that you contribute to as part of your payroll Malaysia processes). It’s a safety net for your employees when they don’t make an average salary in Malaysia.
Withholding EPF from the employee salary falls partly under the Malaysia payroll processes which you must conduct, as it contains contributions from employees and employers. That’s 4% to 13% of your employee’s monthly wage in Malaysia (according to their age, income, and resident status).
Learn more: The Employer’s Handbook to EPF Contributions in Malaysia
Social Security Organization (Socso)
When it comes to Socso, another part of payroll, Malaysia mandates it to assist employees financially when they can’t work because of the death of a family member or their injury or disability.
Like the EPF, employers and employees must contribute to it. According to Malaysia payroll policies, you must pay 1.25% of your employee wages for those who are 60 and above and 1.75% for those who below 60.
Additional reading: Navigating Malaysia’s Employment Insurance System (EIS)
Human Resource Development Fund (HRDF)
The Human Resources Development Fund is for companies with over ten employees. Part of payroll, Malaysia has dedicated this to financing upskilling and training of employees. According to Malaysia payroll regulations, you must contribute 1% of your employee’s total average wage in Malaysia, so be sure to include that to the requirements for your payroll Malaysia.
Tax compliance
Protecting your business by ensuring tax compliance comes with the package of hiring foreign workers in Malaysia. Regarding payroll, Malaysia laws impact payroll processes, as they play into the minimum and average salary in Malaysia, and how much you must withhold for taxes or benefits in Malaysia payroll processes.
To achieve Malaysia payroll and tax compliance, you should also keep employee records, including the following:
- Employment letter
- Commission slip
- Expense claim slip
- Monthly leave record
Additionally, you must file your company’s taxes for Malaysia payroll compliance purposes. That means submitting your employees’ income tax return forms for their average wage in Malaysia.
Learn more: 2024 Malaysia Tax Guide
Employee obligations
Aside from your obligations, here are some important employee obligations that you need to ensure that your workforce is aware of.
Employees Provident Fund (EPF)
As mentioned, when hiring foreign workers in Malaysia, your employees contribute to the EPF. It is often between 0% to 11% of their wage in Malaysia, depending on the factors above.
Social Security Organization (Socso)
Socso is a levy that employees contribute less to (than employers), with percentages ranging from 0.5% to 3%. It’s worth noting that there are specific circumstances where employees with higher salaries might be able to opt out of this contribution.
Income tax
The income tax is the percentage of an employee’s income that they owe to payroll Malaysia and tax system if they’re residents, and its value is based on the range of their salary in Malaysia. Here’s a quick breakdown of the tax brackets:
Relevant reading: Malaysia’s Annual Tax EA & E Form Guide
Optimize Your Malaysia Hiring Strategy Today
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Omni’s all-in-one software helps you stay up to date with the latest laws and regulations for global hiring in Malaysia. Our comprehensive payroll solution is tailored to Malaysia’s specific requirements. With features like support for MYR, automated mandatory contribution calculations, and instant payroll reports, Omni can help HR teams simplify their payroll processing while ensuring compliance with labor laws and regulations.
Start your free trial today and see how Omni can simplify the intricacies and complexities of hiring foreign workers in Malaysia.
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