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.

Read next: What is HRDF in 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:

Income Range (MYR)	Tax Percentage
0 to 5,000	0%
5,001 to 20,000	1%
20,001 to 35,000	3%
35,001 to 50,000	6%
50,001 to 70,000	11%
70,001 to 100,000	19%
100,001 to 400,000	25%
400,001 to 600,000	26%
600,001 to 2,000,000	28%
Above 2,000,001	30%

Relevant reading: Malaysia’s Annual Tax EA & E Form Guide

Optimize Your Malaysia Hiring Strategy Today

Omni frees global HR teams from administrative cycles by automating the entire end-to-end employee lifecycle — from recruitment and onboarding to employee engagement and payroll — allowing you to redirect your time to strategic work that drives business growth.

Powering Asia’s fastest-growing, modern companies, Omni scales alongside your company so you can customize and leverage the system to meet your business exactly where you are — as well as where you’re going. 

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.

Hiring foreign workers in Indonesia requires careful planning and strict adherence to local regulations. One of the most crucial steps in this process is preparing a Foreign Worker Utilization Plan (RPTKA), a document that justifies the employment of foreign workers and ensures compliance with Indonesian labor laws. 

In this article, we’ll guide you through the essentials of creating a successful RPTKA, helping you navigate the complexities of hiring foreign talent while meeting legal requirements and contributing to the development of Indonesia’s workforce.

What is a foreign worker utilization plan (RPTKA)?

RPTKA stands for Rencana Penggunaan Tenaga Kerja Asing, which is the Indonesian term for foreign worker utilization plan. This is a crucial requirement for companies in Indonesia that intend to employ foreign workers.

This document is a detailed plan that outlines the company’s rationale for hiring foreign workers, including information about the specific positions to be filled, the qualifications required, and the training or knowledge transfer programs to be implemented for local employees. 

Here are several reasons why this document is necessary:

Compliance with Indonesian labor laws: RPTKA is issued by the government to ensure that the employment of foreign workers is legal. Employers who choose not to adhere to these laws can face fines and other penalties which can hinder their business operations. 

Skill gap addressing: In sectors facing shortages of skilled workers, hiring from abroad can help address performance gaps in the workforce. It ensures that critical roles are filled, benefiting both businesses and the economy.

Economic benefits: The foreign worker utilization plan enables Indonesia to access foreign talent, allowing the country to leverage their diverse skills and expertise. 

Protection of workers rights: In scenarios like this, employers tend to take advantage of foreign workers. With RPTKA, workers are entitled to legal protection and can avoid cases such as exploitation. They can also access social benefits, healthcare and other essential services giving them the support they need during their stay. 

By requiring companies to submit an RPTKA, the Indonesian government can monitor and control the use of foreign labor, ensuring it aligns with national labor policies and contributes positively to the country’s economy and workforce development.

What are the types of Indonesia work visas for foreigners?

Work visas are crucial legal documents that allow foreign nationals to work and live in a host country. 

In Indonesia, companies must first obtain approval for the RPTKA before they can secure work visas for their foreign employees. Without this approval, the process of acquiring work visas is significantly impeded.

The following are the different types of work visas available for foreign nationals in Indonesia:

Temporary

Temporary work visa also referred to as VISTAS is an Indonesia work permit that allows foreign workers to legally reside and work in Indonesia. According to the Ministry of Manpower, this visa must be used within 90 days from the date of issuance. The stay permit starts from the date the traveler enters Indonesia. VISTAS is common for professionals, consultants, or workers on temporary assignments.

Over 6 months 

For employment in Indonesia that requires foreign workers to stay for more than six months, a long-term visa is necessary. This Indonesia work visa is referred to as a permanent stay permit (ITAP). For employees who have held temporary work visas for a specified number of years, typically in senior roles or with substantial connections to Indonesia, they may be eligible for a permanent stay permit, granted after maintaining an ITAS for the required duration.

Non-DKPTKA

Non-DKPTKA visas are issued for positions exempt from DKPTKA requirements. Employment under this category does not require contributions to the Foreign Worker Utilization Compensation Fund. These visas typically apply to certain roles that qualify for specific exemptions. For example, foreign workers engaged in short-term assignments, diplomatic or governmental roles, and certain educational or research positions might fall under this category, allowing them to bypass the standard DKPTKA regulations.

Special Economic Zone (SEZ)

A Special Economic Zone (SEZ) work permit is a type of visa issued to foreign workers employed within a designated SEZ in Indonesia. These zones operate under distinct economic regulations and policies that set them apart from the rest of the country. The SEZ Indonesia visa is valid for five years, with the possibility of extension. Alternatively, the SEZ RPTKA for directors or commissioners can be granted for a period determined by the employer’s needs.

What are the key components of an RPTKA?

Here we’ve compiled the necessary documents required for an effective RPTKA application. 

1. Company information

To hire foreign workers in Indonesia, you must provide details about your company such as company name, address, industry, tax identification number, and business license. Collecting accurate company details enable authorities to monitor and manage the employment of foreign workers, ensuring that the company adheres to labor laws, regulations and HR compliance. This also facilitates communication and coordination between the company and relevant government agencies throughout the employment period. 

2. Justification for foreign worker employment

Hiring foreign workers in Indonesia also requires employers to present strong and clear reasons why the worker is needed. Employers should highlight the various ways these workers will contribute to the company. It could be the specific skills, expertise or qualifications that the foreign worker brings that cannot be accessed locally. 

3. Foreign worker details 

Proper Rencana Penggunaan Tenaga Kerja Asing application requires companies to submit details about the proposed foreign worker. This information includes their qualifications, experience and the position to be filled. Job title, responsibilities and duration of employment should also be included in the document.

Read next: Employee Data Management: How HRIS Can Help Achieve Accuracy and Security

4. Training and development plan 

A training and development plan ensures that the foreign worker’s specialized skills and knowledge are effectively transferred to local employees, fostering a more skilled workforce. The plan should outline specific training methods, timelines, and goals for transferring knowledge to local employees. It should also include details on the types of training such as workshops, mentoring, on-the-job training and how the effectiveness of the training will be evaluated. Additionally, the plan should address how the foreign worker will be integrated into the company culture, including any orientation or cultural sensitivity programs that will help them adapt to their new work environment.

5. Compliance and commitment

Including a compliance and commitment document for the RPTKA serves as a form of assurance that the company complies with all relevant labor laws and regulations. This also includes the mandatory use of Indonesian workers for certain roles and functions.

After compiling the documents, you will submit the RPTKA application to the relevant government authorities, usually the Ministry of Manpower. The authorities then review the application to ensure compliance with regulations and may conduct interviews or inspections.

If approved, the company receives a RPTKA approval letter, which is necessary for obtaining a work permit for the foreign worker.

Tips to Ensure a Successful Foreign Worker Utilization Plan 

The RPTKA application process can often be tedious and time-consuming. To streamline the process and improve your chances of approval, you must adhere to the following tips. 

Clear and convincing reason 

Clearly justify the need for foreign workers by demonstrating a lack of suitable local candidates and how the foreign workers’ skills will benefit your company. For example, you can provide evidence of efforts to recruit local candidates, such as job postings or interviews, that didn’t yield suitable applicants. Additionally, outline specific projects or tasks that require specialized skills or expertise that foreign workers bring, and explain how these will contribute to the growth and success of your company.

Provide detailed and accurate information

Companies must ensure all required documents are complete and accurate to avoid delays. Creating a checklist is essential in this process. Start by compiling a comprehensive list of required documents, such as company registration, tax ID, and foreign worker qualifications, to ensure everything is covered. Review all documents carefully before submission and have a colleague or legal expert verify the details to catch any potential errors.

Demonstrate strong commitment for compliance

Regularly review and comply with all Indonesian labor laws and regulations, including quotas for foreign workers and mandatory roles for local employees. Subscribe to updates from the Ministry of Manpower or consult with a legal advisor to ensure you are informed about any new developments or changes in labor laws or regulations.

Take a proactive approach

Another way to streamline the application process and reduce the risk of delays is by ensuring that all required documents are prepared in advance, accurately completed, and thoroughly reviewed. It’s also important to address potential issues promptly and maintain regular communication with relevant authorities to stay updated on any changes in requirements. For instance, if certain documents might be difficult to obtain or if there are concerns about compliance, address these issues proactively rather than waiting for them to arise unexpectedly.

Successfully Navigate Through the RPTKA Process

By following the steps mentioned above, you will be able to develop a comprehensive and effective foreign worker utilization plan. A well-structured plan not only ensures compliance with immigration regulations, but also optimizes your workforce, increases efficiency, and contributes to your company’s success. 

Omni allows your organization to securely and centrally manage employee information such as proof of qualifications and well-maintained records required to apply for work permit Indonesia. Our employee-portal makes it easy for employee’s to upload and update their information, centralizing critical information such as employee identification numbers, training program dates, and renewal reminders, helping ensure your foreign worker utilization plan is accurate and meets the requirements of the Indonesian government.

Book your product tour today and learn how Omni can help you streamline your work permit Indonesia application and expertly navigate RPTKA process to ensure compliance for your organization.

Indonesia employment law is an important part of the employer-employee relationship, this is because one wrong step can lead to expensive consequences. The labor market is booming and regulations are constantly getting updated, organizations wanting to survive have to get this right. 

There are strict rules around hiring, firing, and employee benefits. Employers need to be keeping tabs in order to shield themselves from legal issues and nurture a flourishing company.

In this article, we’ll explain the ins-and-outs of Indonesia employment law to help you understand the main provisions of labor law in Indonesia, and what should be done in order to ensure that your business remains compliant.

Core Components of Indonesia Employment Law

Manpower law

Manpower law Indonesia also known as Law No. 13 of 2003, is useful for governing various sectors in employment which includes employment contracts, working hours, leave periods, and termination. Under the manpower law Indonesia, employers are required to provide clear job scope, employment contracts and identification numbers for their employees. This is healthy for HR compliance and ensures that employees are well informed on their rights and obligations.

Industrial relations dispute law

The industrial relations dispute law governs disputes between employers and employees, especially collective labor disputes. In terms of the Indonesia employment law, the parties will adopt dispute resolution options through mediation, arbitration and court proceedings amongst others. For instance, if employees have a dispute over wages, they may issue a complaint in the Industrial Relations Court who will take charge over the processes to determine a resolution to the issues.

Labor union law

The labor union law shows the right of employees to form and join labor unions. The law regulates union activities, collective bargaining, and strikes. For example, factory workers who agree to form a labor union in order to bargain with the employer for minimum wages and better working conditions, it is legal under the Indonesia employment law. 

Minimum wage

Indonesia’s minimum wage law prescribes the minimum wage rates for employees across the different sectors and regions of the country. Employers are legally mandated to pay wages meeting or exceeding the prescribed minimum wage rates. For instance, the minimum wage in Jakarta is pegged at IDR 4,400,000. This means every employer based in Jakarta has to pay a minimum of this amount to their employees. This is made possible by the Indonesia labor law, as it ensures fairness in the remuneration of employees.

Social security (SJSN)

The SJSN system gives social security benefits, such as health insurance, pensions, and workers’ compensation. Employers are required to register their employees on BPJS. Employers are recommended to join BPJS and ensure that workers receive health insurance and pension in accordance with the employment agreement.

Key Provisions of the Indonesia Employment Law

Core labor rights

• Minimum wage: Employers are expected to pay their workers the minimum wage determined by the Indonesia employment law. This wage is periodically reviewed and adjusted to align with inflation and the cost of living. The minimum wage ensures that all employees receive a basic level of income sufficient to cover essential living expenses like food, housing, and transportation.

Read next: Helping Employees Prepare for Income Tax Indonesia

• Working hours: Employees work normally within a 40-hour week limit, and such may be evenly distributed in an 8-hour day with a five-day workweek or in a 7-hour day over a six-day workweek. Work extended beyond these hours constitutes overtime work. According to the Indonesia labor law, overtime work will be compensated at an increased rate, normally 1.5 times the regular hourly wage for the first one hour and at double the regular hourly wage after that, so as to ensure fairness in remuneration if work is extended.

• Annual leave: A minimum of 12 days of paid annual leave is granted to the employees after completion of one year of continuous service with the same employer. This leave, in addition to the public holidays, has been designed to provide adequate rest and time to recharge oneself for work and attend to personal matters. According to the Indonesia employment law, employers are under obligation to provide this leave and shall not be able to reject or disallow it without sufficient reason.

• Social security: Employers are mandated to register their employees into the national social security programs such as health insurance, work injury compensation, old-age pensions, and death benefits. They offer protection against disease and eventual invalidity arising from injuries sustained at work, aging, and death. These contributions are paid by both employer and employee through payroll deductions.

• Maternity leave: Female workers are entitled to three months of maternity leave that start before and end after child delivery, according to the Indonesia employment law. It is fully paid by the employer, including her salary during this leave period. An employer cannot dismiss a worker while on maternity leave from work. Hence, this guarantee offers complete job security to working mothers.

Employment contracts

• Written contracts: All employment agreements must be documented in writing to ensure clarity and legal protection for both parties. These written contracts should clearly outline the terms and conditions of employment on both the employer and employee sides. This can help to prevent misunderstandings and disputes by providing a clear reference point incase of disparity.

• Fixed-term contracts: Fixed-term contracts are contracts directed at a certain period of employment. The Indonesia labor law at times limits the maximum period that this can take, mostly up to two years and possibly even longer in particular instances. The law requires that, in addition to the fixed term, the employer must spell out any provisions for renewal or termination in the first place. Where the fixed-term contract is renewed beyond the legal limit, it can be treated as a permanent contract, entailing claims to higher rights and protection.

• Termination: Indonesia employment law clearly spells out how employment can be terminated to be fair and open. Termination has to take place for a valid reason, which can be poor performance or misconduct. Also, legally, the employer has to serve the employee with a notice period, usually of one month, before terminating the employment. In cases of wrongful termination, employees are entitled to severance calculated in relation to the length of service and last drawn salary.

Industrial relations

• Labor unions: Employees have the right to form and join labor unions, which serve as a means to advocate for their rights and interests. Labor unions can be useful in representing workers in discussions with employers, helping to ensure fair treatment, safe working conditions, and equitable compensation. The Indonesia employment law protects union activities, prohibiting employers from discriminating against employees who participate in union activities or serve as union representatives.

• Collective bargaining: This allows labor unions to discuss and agree on wages, working conditions, and other terms of employment with employers. During collective bargaining, representatives of the union and the employers sit down and arrive at an agreement on things like salary increments, other benefits that may be provided, working hours, and even workplace safety. Such collective bargaining agreements through this process are legally binding, set clear and fair standards of employment for all workers within the bargaining unit.

• Dispute resolution: In conflict management, employees may use such methods as mediation, facilitated by an impartial third party in bringing agreeable novel solutions to current cases, or arbitration, where an impartial arbitrator consistently comes up with a final conclusive ruling on the dispute at hand. Additionally, in some cases, complex disputes may require labor court intervention in order to arrive at a resolution. The resolution is designed to occur quickly and with impartiality, therefore minimizing the incidence of protracted disputes, ensuring that the rights of workers are upheld.

Other provisions

• Overtime pay: Employees must receive additional compensation for any overtime worked, as mandated by Indonesia employment law. They are protected to avoid exploitation from organizations.

• Religious holidays: There is a provision for the workers to take time off during religious, officially accepted holidays, and in this way, there exists a diverse cultural or religious practice. Time should be granted-off, with pay due, for observing public holidays officially declared by the government in respect of major events falling on religious occasions. This provision aims at respect for the religious practice of employees and embraces cultural diversity and inclusion.

• Health & safety: Indonesian employers need to provide a safe and healthy working environment by observing occupational health and safety. Organizations have the responsibility to provide the necessary training and ensure that workplaces are safe and free from hazards. Observance of regular inspections and audits for maintaining safety is a must on both sides to protect from injury or work-related illnesses.

• Discrimination: Indonesia employment law prohibits discrimination in cases of an employee or job applicant based on race, gender, and religion, among other characteristics that fall under the law. Employers should not exercise bias in any employment practice, including hiring, promotion, and compensation.

Best Practices for Indonesia Employment Law

1. Stay updated with labor laws and regulations

As an employer, you’re expected to review and stay informed about changes in labor laws and regulations. This will help you stay compliant and avoid legal issues. To do this, you can subscribe to legal updates, attend relevant seminars, and consult legal experts to stay updated about new developments.

2. Partner with local HR consultants 

Also, employers are expected to engage with local HR consultants who have expertise in Indonesian labor laws and practices. They can provide valuable insights and offer guidance on best practices tailored to the local context. This partnership can help businesses follow the Indonesia employment laws to the letter.

3. Maintain comprehensive documentation

Keeping detailed records of all employment-related documents, including contracts, payroll records, performance reviews, and disciplinary actions is important for organizations. These documents can end up as evidence for both employees and employers in cases of disputes.

4. Build strong employee relations

Employers should aim to foster a positive work environment by maintaining open communication, providing fair treatment, and addressing employee concerns promptly. In cases of strong relations, it’s easier for employees to trust that the employers have their best interest at heart and that they are compliant to the Indonesia employment law.

5. Implement strategies for risk management

Finally, there should be strategies to manage risks associated with employment. This can include conducting regular audits, providing training on compliance and safety, and establishing clear policies and procedures in organizations. Proactive risk management prepares both parties for the worst case scenarios.

Building a Compliant and Efficient Workforce with Omni

Omni’s all-in-one solution helps streamline HR processes and ensure it is free of manual error to reduce the administrative burden on HR. With secure and centralized employee database, HR teams can easily store, update, and communicate employee information across departments and with employees. 

Our payroll solutions make it easier than ever to calculate accurate employee payments and tax calculations through automation that saves time and reduces errors. And with automated payroll information synchronization, end of month processing becomes a streamlined and seamless effort.

Start your free trial today and learn how Omni can help you remain compliant with regulations like the Indonesian employment law and reduce your administrative workload for all of your People management needs.

Big companies have big opportunities but also, big challenges. At a global scale, your organization is able to tap into different markets, recruit from diverse talent pools, and ultimately reach more people. To do so, it needs to juggle a complex set of global HR compliance responsibilities, and it is often easier said than done. 

Global HR compliance is absolutely essential for maintaining a company that abides by shifting and varied regulations that cover everything from fringe benefits and time off to work hours and minimum wage. Having dedicated oversight that routinely checks in on your global workforce is a major part of HR compliance success.

In this article, we’re going to walk you through everything you need to know about global HR compliance responsibilities, including pitfalls to avoid, best practices, and why a robust framework is worth your time.

What is global HR compliance?

A company with a global reach is a good thing to have, and expanding into new markets is an exciting opportunity for growth. But with that excitement comes a whole new layer of complexity—global HR compliance.

Human Resource compliance is the rulebook for managing your international workforce. It involves understanding and adhering to the employment laws, regulations, and cultural norms in each country where you operate. It’s more than ticking boxes on a checklist— global HR compliance is about creating a fair, safe, and inclusive workplace for your employees across the globe.

In a nutshell, here’s why it matters:

• Protecting your business: Non-compliance can lead to hefty fines, lawsuits, and damage to your company’s reputation.
• Protecting your employees: Ensuring your employees are treated fairly and in accordance with local laws is not only ethical but also essential for attracting and retaining top talent.
• Streamlining operations: A well-defined global HR compliance strategy can help you standardize processes, reduce risk, and create a more efficient global workforce.
• Building a positive employer brand: Demonstrating your commitment to compliance shows potential employees that you value their well-being and are a responsible global employer.

What are some common HR compliance issues?

Even with the best intentions, navigating global Human Resource compliance can be tricky. Here are some common areas your organization is going to want to look out for:

Discrimination

Understanding local laws: Each country has its own anti-discrimination laws, covering protected characteristics like race, gender, age, religion, and disability. It’s essential to understand these nuances to ensure fair treatment of all employees.

Equal pay for equal work: Compensating employees fairly based on their skills and experience, regardless of their background, is crucial for compliance and employee morale.

Read next: The Pay Parity Guide for HR

Wage & work hours

Minimum wage compliance: Ensure you’re paying your employees at or above the minimum wage set by the local laws. This varies significantly from country to country, so make sure you’re up to date on the latest regulations.

Overtime regulations: Different countries have different rules about overtime pay, maximum working hours, and mandatory rest breaks. Make sure your organization’s practices align with local regulations.

Leave management

Paid time off (PTO): Understand the legal requirements for paid leave in each country, including annual leave, sick leave, maternity/paternity leave, and public holidays.

Leave documentation: Keep accurate records of employee leave requests and usage to ensure compliance and avoid disputes.

Read next: HR’s Guide to Employee Leave Management 

Work safety

Health and safety standards: Every country has regulations to protect workers’ health and safety. Make sure your workplaces meet these standards and that employees are trained on safety procedures.

Reporting and documentation: Properly document workplace incidents and injuries to comply with reporting requirements and protect your company from liability.

Relevant reading: Singapore’s Workplace Safety and Health Act Guide

Employee benefits administration

Mandatory benefits: Some countries have mandatory employee benefits, such as health insurance or pension contributions. Make sure you’re providing these benefits in accordance with local laws.

Voluntary benefits: Even voluntary benefits can have compliance implications. Check that your benefits plans comply with tax laws and other regulations.

These are just a few examples of common HR compliance issues, but you can see the value in thoroughly understanding the regulations of each country your organization operates in. By being aware of these potential pitfalls and proactively addressing them, you can protect your business, your employees, and your reputation.

Why is global HR compliance important?

A robust compliance strategy can be a major asset to your organization, adding to its success in many different ways. These include:

Avoid legal and financial risks

• Lawsuits and penalties: Non-compliance can result in costly lawsuits, hefty fines, and other legal actions. These financial burdens can significantly impact your bottom line.
• Business disruption: Legal battles and investigations can divert valuable time and resources away from your core business operations, causing delays and disruptions.
• Reputational damage: Negative publicity surrounding legal issues can tarnish your organization’s image, making it harder to attract and retain talent.

Boost employee morale

• Fair and equitable treatment: When employees know their rights are protected and they’re being treated fairly, it creates a positive work environment and boosts morale.
• Increased engagement: Employees who feel valued and supported are more likely to be engaged in their work, leading to increased productivity and innovation.
• Attracting top talent: A reputation for strong Human Resource compliance can make your company a more attractive employer, helping you recruit the best candidates.

Maintain positive brand reputation

• Consumer trust: Customers are increasingly conscious of ethical business practices. Demonstrating your organization’s commitment to fair labor practices and compliance will strengthen your brand image and build trust with consumers.
• Investor confidence: Investors are more likely to support companies with a strong track record of compliance, as it reduces risk and demonstrates responsible business practices.
• Competitive advantage: A positive brand reputation can set you apart from your competitors, making it easier to attract customers, partners, and investors.

Ensure smooth global operations

• Standardized processes: A centralized global HR compliance strategy can help you standardize HR processes across all your locations, making it easier to manage your workforce and ensure consistency.
• Reduced complexity: By understanding and proactively addressing compliance requirements, you can simplify global HR operations and avoid costly mistakes.
• Efficient expansion: When you’re confident in your compliance practices, expanding into new markets becomes less risky and more streamlined.

Sticking to your HR compliance responsibilities helps build a strong foundation for your organization’s long-term success. By prioritizing compliance, you can create a more positive workplace, enhance your reputation, and ensure smooth global operations.

What are an employer’s HR compliance responsibilities?

As an employer, ensuring HR compliance isn’t just a legal necessity; it’s a core part of building a successful and ethical business. Here’s what you need to keep on your radar:

1. Keep track of the compliance obligations

Familiarize yourself with all applicable labor laws, regulations, and industry standards. This includes everything from minimum wage and overtime rules to anti-discrimination laws and data protection regulations.

Laws and regulations change over time, so it’s important to stay up-to-date with the latest developments. Subscribe to newsletters, attend industry events, and consult with legal experts to ensure you’re always in the know.

2. Divide compliance responsibilities within HR departments

Clearly define who is responsible for each aspect of Human Resource compliance. This could include specific individuals or teams dedicated to areas like payroll processes, benefits administration, or employee relations.

Also, consider establishing a dedicated compliance team to oversee and manage all aspects of HR compliance. This team can develop policies, conduct audits, and provide training to ensure everyone is on the same page.

3. Stay up-to-date with relevant legal changes

Actively monitor changes in labor laws, regulations, and court rulings that could impact your HR practices. Regularly review your global HR compliance policies and procedures to ensure they are aligned with the latest legal requirements. Communicate any changes to your employees to maintain transparency and avoid misunderstandings.

4. Audit your HR policies

Conduct periodic audits of your global HR compliance policies and practices to identify any areas of non-compliance. This can be done internally or with the help of external auditors.  

If you discover any issues during an audit, take immediate corrective action to address them. This could involve updating policies, retraining employees, or revising procedures.

5. Maintain accurate records

Keep detailed records of employee information, payroll data, leave requests, performance reviews, and any other relevant HR documentation. This will help you demonstrate compliance in case of any disputes or audits.

Make sure your HR records are stored securely, both physically and electronically, to protect sensitive employee data.

Read next: Employee Data Management: How HRIS Can Help Achieve Accuracy and Security

6. Educate managers and employees

Provide regular training to your managers and employees on HR policies, procedures, and legal requirements. This will help create a company culture of compliance and reduce the risk of unintentional violations.  

Encourage open communication and dialogue between managers and employees about HR issues. This can help identify potential problems early on and prevent them from escalating into bigger issues.

7. Utilize HR technology

Leverage HR technology, such as HRIS systems and compliance software, to automate tasks, streamline processes, and improve record-keeping. These tools can help you stay organized and efficient while reducing the risk of human error.   

By following these steps, you can create a comprehensive global HR compliance program that protects your business, your employees, and your reputation. Remember, compliance is an ongoing effort, so be sure to regularly review and update your policies and practices to stay ahead of the curve.

Building a Sustainable Global Workforce with Omni

While global HR compliance is crucial for avoiding legal issues, it is even more fulfilling to prioritize compliance for the well-being of your employees. Make it your goal to enhance their working conditions, leading to increased job satisfaction and employee engagement.

Adding purpose into tasks that may seem mundane or bureaucratic motivates you to strive for excellence, achieving better HR compliance in the process. Although this may look like additional effort, a reliable HR software solution takes on the bulk of the workload, allowing you to focus on advancing your mission.

With Omni, you gain access to data-driven insights that empower informed decision-making, as well as seamless integrations that effortlessly connect with your existing employee favored systems, making your entire engagement process more efficient and modern.

Omni scales alongside your team so you can customize and leverage the system to meet your business exactly where you are—as well as where you’re going.

With a full suite of modules to support every aspect of your business, Omni’s platform offers an intuitive and fully customizable platform that integrates with your team’s favorite tools for a seamless and timely adoption.

If you’d like to learn more about how Omni’s all-in-one HR software automates the entire end-to-end employee lifecycle, saving People leaders from administrative tasks and increasing organizational innovation, schedule your product tour today!

Backed by the Malaysian Employment Act, workers in Malaysia enjoy legal benefits that protect them during employment and unemployment. The Employment Insurance System (EIS) contribution is one of these benefits. 

Like any other employment regulation, it has its requirements and processes that every employer must follow while ensuring their employees do the same. As an employer looking to grow your business legally, you must understand the financial implications of the EIS contribution. Failure to comply could result in a penalty.

Hence, this article aims to answer all your questions concerning the EIS scheme. From knowing how to determine eligible employees to understanding the contribution rate, this piece will help you navigate the EIS for proper implementation.

What is the Employment Insurance System (EIS)?

The Employment Insurance System (EIS) is a Malaysian scheme that provides financial assistance to employees who have lost their jobs. Its main aim is to serve as a makeshift source of income for retrenched employees until they find another job. 

It was established on 1 January 2018 and is managed by the governmental organization Pertubuhan Keselamatan Sosial (PERKESO), also known as the Social Security Organization (SOCSO).

This monetary support is funded by monthly contributions from employers and employees. Benefits include allowances for training and job hunting. The scheme also provides additional support, such as career counseling and job matching, so retrenched employees can find another source of income faster.

The EIS scheme is a crucial part of Malaysia’s social security framework. It provides a cushion for retrenched employees and promotes economic stability and adequate welfare in the workforce.

Who qualifies for EIS contribution?

The Employment Insurance System Act 2017 (Act 800) stipulates the requirements to qualify for an EIS contribution. 

Generally, eligible workers who qualify are:

• Malaysian citizens, whether permanent or temporary residents.
• Employees aged 18 – 60
• Those who work in the private sector on a full or part-time basis
• Those who contribute towards their EIS monthly
• Retrenched workers

However, while the EIS contribution covers all working Malaysian citizens, some categories of employees are exempted from this scheme. 

They include:

• Domestic employees
• Civil servants
• Employees in local authorities and statutory bodies 
• Self-employed employees
• Employees aged 57 and above who have never contributed to the Employment Insurance System. They’re also not required to contribute.
• Employees who have reached the compulsory retirement age.
• Workers whose fixed-term contract has expired without renewal.
• Employees fired for disciplinary reasons out of misconduct.
• Workers who resigned voluntarily.

Also, not all job losses are eligible for the EIS contribution. The categories of employment loss that qualifies for the Employment Insurance System in Malaysia are:

• The usual retrenchment or redundancy
• Voluntary/Mutual separation scheme (VSS/MSS)
• Constructive dismissal
• Company closure due to natural disasters or bankruptcy
• Resignation due to sexual harassment, threats, or being ordered to carry out harmful duties that aren’t within the job scope

On the other hand, the kinds of employment loss that do not qualify for the Malaysian EIS are:

• Dismissal due to employee misconduct
• Voluntary resignation
• Retirement
• Unconditional termination or expiry of a fixed-term contract

Who is responsible for EIS contributions?

In Malaysia, all employers and employees must contribute to the EIS scheme, whether full-time, part-time, or contract. However, the employer is responsible for remitting the contribution to PERKOSO.

After registering your business and employees with SOCSO to participate in the EIS, deduct the contribution from your salary and employees’ salaries. Then, pay them all to SOCSO regularly. 

Similarly, employees should contribute a certain percentage of their income to the EIS scheme. They should also give their employers accurate and up-to-date information to ensure their correct results when calculating contributions. 

How to Pay for Employees’ EIS

Submit your company’s EIS contribution to Perkoso via the PERKOSO Assist portal. To do this:

• Log in to the Assist Portal.
• Click on My Sites and choose EIS-Contribution to generate an Electronic Challan cum Return (ECR).
• Select Employer Contribution, and when it drops down, click on Add Contribution (Text file).
• Click on the Text file, upload your EIS file, then submit it.

Once you’ve uploaded and submitted your file, complete your payment via any of these ways:

• Internet banking.
• Financial Process Exchange (FPX)
• Direct Debit Authorisation (DDA)
• Submit a money order, cheque, or postal order payable to PERKESO. The order or cheque should have your name, Employer Code, and the month and year of contribution written on the back.
• Remit via your bank portal or counter with your ACR reference. Maybank, RHB Bank, and Public Bank are banks approved by PERKESO as collection agents.
• Prihatin mobile app

Be sure to submit your employees’ EIS contributions by the 15th of the following month to avoid penalties. Defaulting employers may be prosecuted and punished with imprisonment for a term that may extend to two years and/or with a fine of not more than RM10,000.

What is the EIS contribution rate?

On 1 September 2022, the EIS contribution rate was capped at an insured salary of RM 5,000 monthly. This is in line with the increase of the Wage Ceiling Limit for Act 4 and Act 800 of the EIS scheme in Malaysia. Per the act, the EIS contribution rate is divided into two:

For employer

Employers should pay a total contribution of 0.4% per month. That is, 0.2% of their salary and their employees’ salary. For instance, when wages exceed RM4,000 but don’t exceed RM4,100, employees and employers will contribute RM8.10 each, making it a total of RM16.20.

For employees

Employees should also contribute 0.2% of their hourly, daily, or monthly wages to the Employment Insurance System. 

However, not all income categories are subject to EIS contribution. According to PERKESO, the employees can contribute from wages, overtime, commissions, service charges, allowances and incentives, and leave emoluments. 

The categories exempted from EIS contribution are travel allowance, Employee Provident Fund (EPF) contributions, expenses claim, gratuity or payment for dismissal, benefit in kind, and bonuses.

Read next: Your Guide to Malaysia Payroll

What are the differences between EIS and EPF?

The Employee Insurance System (EIS) and the Employees Provident Fund (EPF) are different social security schemes in Malaysia, and each serves a separate purpose.

For one, EPF is a mandatory savings scheme that helps employees save for retirement. It offers financial support to workers when they retire or can no longer work due to old age or declining health. It is also widely known as the Kumpulan Wang Simpanan Pekerja (KWSP) and is under the Ministry of Finance.

In addition, the EPF comprises about 9% to 11% of employees and 12% to 13% of employers’ monthly income. Its perks include long-term savings for retirement, potential returns on investments, tax benefits, housing and education withdrawals, and monetary support during emergencies.

On the other hand, EIS is an initiative that offers temporary financial support to laid-off employees until they find a new job. The contribution comprises 0.2% of employees’ and employers’ monthly income. Its benefits include job search allowance, training fees, and re-employment programs.

Also, EPF is withdrawable under certain conditions such as retirement age (usually 55), permanent disability, buying a house or leaving the country whereas EIS isn’t withdrawable. Employees only access the periodic payment during involuntary employment.

How do employees register for EIS and can they opt out?

Malaysian employees don’t need to register for the Employee Insurance System. Instead, the EIS contribution mandates all employers to register eligible employees as Insured Persons (IP) as part of the employers’ obligations under the Social Security Organization (SOCSO). 

But first, you must register your business with SOCSO if you haven’t done so already. Afterward, upon hiring a new employee, enroll their details via the EIS portal with these steps:

• Click on Add Employee.
• Complete the Employee Information fields and Employee Application Status with the employee’s details, such as their name, identification number, date of employment, salary details, etc.
• Click on Save to proceed to the next page.
• Fill in the necessary details on the page, then save and continue.

Employees cannot opt out of the EIS because participation is compulsory for all eligible private sector workers per the Employment Insurance System Act 2017. This is necessary to support employees financially in the event of unemployment.

How does the EIS contribution benefit employees?

The EIS contribution benefits employees in the following ways:

Temporary income support

The Employment Insurance System offers these temporary income support to retrenched employees:

Job Search Allowance (JSA): This is a replacement income for those who have lost their only job. Eligible recipients will receive the allowance for three to six months, depending on the recipient’s Contributions Qualifying Conditions. For instance, the employee must have paid their EIS contribution for a minimum number of months within a specified period.

Reduced Income Allowance (RIA): This is a financial allowance for people who have multiple jobs but lost at least one, not all. Payment rates and duration are the same as Job Search Allowance (JSA). When an insured person loses all their jobs at once, they’re entitled to both JSA and RIA.

After receiving the first installment of their allowance, employees will have to prove they’re actively searching for jobs before they receive subsequent installments.

Training Allowance (TA): This incentive is paid to training recipients to encourage them to attend training sessions. It’s paid at a daily rate of RM 10-20, depending on the employee’s previous salary. But to receive this support, recipients must prove that they have attended all training sessions.

Training Fee (TF): Training service providers receive this incentive so that successful applicants will receive up to six months of training at a maximum cost of RM 4000.

Early Re-employment Allowance (ERA): This financial support is for recipients who return to work while still receiving JSA. It is worth 25% of the JSA the recipient is entitled to but hasn’t received.

Read next: How to Apply, Claim, and Select Training Programs for HRDF Malaysia

Job search assistance

The Employment Insurance System Office provides two kinds of job search assistance:

Re-employment Placement Program: Insured persons registered with the Re-employment Placement Program receive one-on-one support from a SOCSO Employment Services Officer.

Career Counseling: Here, SOCSO Employment Services Officers offer a counseling service to identify problems, such as performance gaps, that a laid-off employee may face when deciding on a future career. This counseling happens during their unemployment period or after they’re re-employed as part of the EIS active labor market program. 

Furthermore, the scheme requires insured persons to enroll with MyFutureJobs. The platform matches laid-off employees with suitable vacancies. EIS also encourages applicants to attend vocational training to improve their skills and advance in their careers.

How can employees claim EIS benefits?

Employees can apply for EIS benefits through the EIS Portal or at the nearest PERKESO office.  Here’s how it works:

Eligibility verification

To successfully apply for and claim their EIS benefits, the insured person must meet these requirements:

• Apply within 60 days from the date of loss of employment.
• Meet PERKOSO’s Contributions Qualifying Conditions (CQC), which involves paying their monthly contributions for a minimum number of months within a specified period.
• Be unemployed under the categories of unemployment that qualify for EIS.

Documentation required

The documents required include:

• A copy of your NRIC
• Payslip for the Last six months.
• Proof of loss of employment. For example, termination letter
• A copy of bank account information 

Claim process

Employees should contact the EIS office to claim their benefits in person or submit their application via the SOSCO Assist portal. Once approved, the applicant will receive financial support to cushion the challenging unemployment period.

Simplify EIS Compliance with HRIS

Navigating the ever-evolving regulations when it comes to Malaysia’s Employment Insurance System (EIS) can be challenging, and staying up to date with the latest mandates is crucial for HR teams to remain compliant. That’s why it’s important to have the right tools by your side.

Omni’s all-in-one HR software helps you stay up to date with the latest laws and regulations for Malaysia’s Employment Insurance System while streamlining the end-to-end employee management lifecycle. Our comprehensive payroll solution is tailored to Malaysia’s specific requirements. With features like support for MYR, automated EIS contribution calculations, and instant payroll reports, Omni can help HR teams simplify their payroll processing while ensuring compliance with the Employment Insurance System Act.

Start your 14 days free trial and see how Omni can simplify the intricacies and complexities of Malaysia EIS contribution and minimize the costs associated with common errors.