How to Use An Employer of Record in
Malaysia

Malaysia's Employment Act 1955 requires employers to contribute 13% of each employee's salary to the Employees Provident Fund (EPF), plus 1.75% to the Social Security Organisation (SOCSO), and navigate state-level minimum wage variations that now stand at RM 1,700 per month in 58 city and municipal councils. An Employer of Record in Malaysia becomes your legal employer on the ground, handling all statutory registrations, payroll calculations, and compliance filings so you can hire without incorporating a local entity. The EOR removes the risk of misclassifying workers under the Employment Act, avoids penalties for late EPF or SOCSO remittances, and ensures your employment contracts meet the language and clause requirements enforced by the Ministry of Human Resources.

What Is an Employer of Record in Malaysia?

An Employer of Record in Malaysia is a third-party organisation that becomes the legal employer of your staff under Malaysian law, taking on all statutory obligations, payroll administration, and compliance responsibilities while you retain full operational control over your team's daily work, performance, and strategic direction. The EOR holds the employment contract, processes monthly payroll in ringgit, withholds income tax under the Inland Revenue Board's Monthly Tax Deduction (MTD) schedules, and files all contributions to EPF and SOCSO on time.

Under the Employment Act 1955, the EOR ensures every employment contract includes mandatory particulars such as job description, wage breakdown, working hours, rest days, and termination notice periods. The EOR also monitors state-level minimum wage orders, applies overtime premiums at 1.5 times the ordinary rate of pay, and adheres to any applicable collective agreements or sectoral wage councils that cover your employee's role. If your employee falls under Part XII of the Employment Act (covering employees earning below RM 4,000 per month or engaged in manual work), the EOR ensures compliance with additional protections around termination, layoff benefits, and maternity leave.

You retain complete control over hiring decisions, job scope, performance management, and day-to-day work direction. The EOR owns the legal employment relationship, payroll processing, statutory filings with the Inland Revenue Board of Malaysia (LHDN), EPF, and SOCSO, contract issuance in Bahasa Malaysia (or English with Bahasa translation), and all termination procedures including calculation of any statutory notice or indemnity in lieu of notice.

How Does an Employer of Record Work in Malaysia?

When you hire through an Employer of Record in Malaysia, the EOR takes on the legal role of employer under the Employment Act 1955, handling every statutory obligation from contract issuance to final settlement. You define the role, the employee joins your team operationally, and the EOR ensures every payroll cycle, contribution deadline, and compliance filing meets the standards set by the Ministry of Human Resources, the Inland Revenue Board of Malaysia (LHDN), and the Employees Provident Fund (EPF). Here is how the process works step by step.

Step 1: Define the Role and Terms

You provide the EOR with the job title, salary, working hours, and any benefits you want to offer beyond statutory minimums. The EOR checks whether any collective agreement or National Wages Consultative Council order applies to the role, particularly if the employee earns below RM 4,000 per month or works in a sector covered by sectoral wage councils. If the role requires specific allowances such as shift differentials, travel allowances, or housing, the EOR structures these to meet EPF and SOCSO contribution rules. The EOR confirms the employment falls under the correct category under the Employment Act 1955, distinguishing between employees covered by Part XII (enhanced protections) and those outside its scope.

Step 2: Compliance Check Before Contracting

The EOR verifies the proposed salary meets or exceeds the statutory minimum wage of RM 1,700 per month in designated city and municipal council areas, or RM 1,500 per month elsewhere, as set by the Minimum Wages Order 2024. The EOR confirms working hours do not exceed 8 hours per day or 48 hours per week under Section 60A of the Employment Act, and that overtime calculations follow the 1.5 times ordinary rate of pay mandated by Section 60D. The EOR also checks whether the role qualifies as an employee or a contractor under the Employment Act definition, ensuring you do not inadvertently misclassify someone as self-employed when statutory protections apply. This step protects you from retrospective EPF, SOCSO, and tax liabilities that arise from misclassification.

Step 3: Employment Contract Issuance

The EOR prepares a written employment contract in Bahasa Malaysia, as required by the Employment Act 1955, or in English with a certified Bahasa Malaysia translation provided to the employee. The contract must include the employee's name and identity card number, job title and description, place of work, ordinary rate of pay and wage period, working hours and rest days, entitlement to annual leave and public holidays, notice period for termination by either party, and the commencement date of employment. If you are hiring on a fixed-term basis, the EOR structures the contract to comply with Section 12(3) of the Employment Act, ensuring renewal or extension does not inadvertently convert the contract into an indefinite term without proper documentation. The maximum probation period is three months under Section 11, extendable to six months only if expressly stated in the contract and limited to roles requiring extended assessment.

Step 4: Government Registrations and Filings

The EOR registers the employee with the Employees Provident Fund (EPF) within seven days of the commencement date, as mandated under Section 7 of the Employees Provident Fund Act 1991, and obtains an EPF member number. The EOR also registers the employee with the Social Security Organisation (SOCSO) within 30 days under the Employees' Social Security Act 1969, covering Employment Injury Scheme and Invalidity Pension Scheme contributions. If the employee is liable for the Employment Insurance System (EIS), the EOR registers them with the Employment Insurance System Organisation (PERKESO) and begins deducting the 0.2% employee contribution alongside the 0.2% employer contribution. Failure to register within these deadlines can result in penalties of up to RM 10,000 or imprisonment, plus liability for all backdated contributions and interest.

Step 5: Monthly Payroll in Ringgit

The EOR processes payroll monthly, paying the employee in Malaysian ringgit on the agreed pay date, typically the last working day of the month or a fixed date such as the 25th. The EOR withholds income tax using the Monthly Tax Deduction (MTD) schedules published by the Inland Revenue Board of Malaysia (LHDN), applying the correct PCB (Potongan Cukai Bulanan) rate based on the employee's gross income, tax residency status, and any relief claims declared via Form TP1. The EOR deducts the employee's 11% EPF contribution (or 9% for those aged 60 and above), the employee's SOCSO and EIS contributions, and remits the employer's 13% EPF, 1.75% SOCSO, and 0.2% EIS contributions to the respective agencies by the 15th of the following month. The EOR issues a monthly payslip detailing gross salary, all deductions, net pay, and employer contributions.

Step 6: Ongoing Compliance and Filings

Every month, the EOR submits EPF contributions via the i-Akaun employer portal by the 15th, files SOCSO and EIS contributions through the ASSIST portal by the last day of the following month, and remits MTD withholdings to LHDN by the 15th of the following month. The EOR maintains a wage register as required under Section 69 of the Employment Act, recording every employee's name, identity card number, hours worked, wages paid, deductions made, and overtime hours. The EOR files an annual EA form for each employee by the last day of February, summarising total remuneration, EPF contributions, and tax withheld, and submits this to LHDN via e-Filing. The EOR also tracks any changes to minimum wage orders, EPF contribution rates, or SOCSO thresholds, implementing these changes automatically in the next payroll cycle.

Step 7: Termination and Final Settlement

When employment ends, the EOR follows the termination procedures mandated by the Employment Act 1955, ensuring you provide the statutory notice period or payment in lieu. For employees covered by Part XII, the notice period ranges from four weeks (if employed less than two years) to eight weeks (if employed five years or more), as set by Section 12. For those outside Part XII, notice periods are governed by the employment contract or common law, typically one to three months depending on seniority. The EOR calculates any termination or layoff benefits due under Section 60N, which applies to employees earning below RM 4,000 per month who are made redundant, providing 10 days' wages per year of service for those employed less than two years, 15 days' wages per year for two to five years, and 20 days' wages per year for five years or more. The EOR processes the final payroll, deducts outstanding loans or advances, remits final EPF and SOCSO contributions, and provides the employee with a Borang C (EPF withdrawal form) and a reference letter if requested.

Employment Laws and Compliance an Employer of Record Handles in Malaysia

When you hire through an Employer of Record in Malaysia, the EOR assumes full responsibility for compliance with Malaysian employment law, statutory contributions, and Ministry of Human Resources filings. You do not need to build an in-country HR function or monitor regulatory updates yourself.

• Employment Contracts and Written Particulars: The EOR issues every employment contract in Bahasa Malaysia or with a certified Bahasa translation, including all mandatory particulars under Section 12 of the Employment Act 1955 such as job description, wage breakdown, working hours, rest days, notice periods, and public holiday entitlements. Non-compliance with written contract requirements can result in penalties of up to RM 10,000 under Section 99, and contracts missing mandatory particulars are unenforceable in Labour Court disputes.
• Income Tax Withholding and MTD: The EOR withholds Monthly Tax Deduction (MTD) from every employee's gross income using the PCB schedules published by the Inland Revenue Board of Malaysia (LHDN), files and remits these withholdings by the 15th of the following month via e-Filing, and issues annual EA forms by 28 February. Failure to withhold or remit MTD on time results in penalties under Section 120 of the Income Tax Act 1967, including interest of 10% per annum on late payments and potential director liability for systematic non-compliance.
• Employees Provident Fund Contributions: The EOR registers every employee with EPF within seven days of commencement, deducts the employee's 11% contribution (9% if aged 60 or above), contributes the employer's 13%, and remits both to EPF via i-Akaun by the 15th of the following month. Late or unpaid EPF contributions attract a 6% annual interest charge under Section 43 of the Employees Provident Fund Act 1991, and repeated non-compliance can lead to prosecution, fines of up to RM 20,000, and imprisonment for up to three years.
• Social Security (SOCSO and EIS): The EOR registers employees with the Social Security Organisation (SOCSO) within 30 days, contributes 1.75% of monthly wages for employees earning below RM 5,000 per month to the Employment Injury Scheme and Invalidity Pension Scheme, and contributes 0.2% to the Employment Insurance System (EIS) while deducting the employee's 0.2% EIS share. Non-registration or late contributions result in penalties under the Employees' Social Security Act 1969, including interest at 6% per annum, fines of up to RM 10,000, and personal liability for directors in cases of wilful default.
• Statutory Leave Entitlements: The EOR grants every employee a minimum of 8 days' paid annual leave during the first two years of service, increasing to 12 days after two years and 16 days after five years, as required by Section 60E of the Employment Act 1955. The EOR also provides 11 gazetted public holidays or any replacement days agreed under the contract, 14 consecutive days of paid sick leave per year (rising to 18 or 22 days with longer service), and 98 consecutive days of maternity leave for female employees under the Employment (Amendment) Act 2022, paid at full wages for the first 60 days by the employer and the remaining 38 days via EIS. Failure to grant statutory leave or pay leave wages exposes the employer to claims in the Labour Court and penalties of up to RM 10,000 per offence.
• Termination and Severance: The EOR ensures all terminations comply with Section 12 notice periods, calculates termination or layoff benefits under Section 60N for employees earning below RM 4,000 per month made redundant, and follows the due inquiry process under Section 14 if terminating for misconduct. For redundancies, the EOR pays 10, 15, or 20 days' wages per year of service depending on tenure, remits final EPF and SOCSO contributions, and provides Borang C for EPF withdrawal. Unlawful termination without due inquiry or statutory notice can result in reinstatement orders or compensation awards of up to 24 months' wages under the Industrial Relations Act 1967.
• Working Time and Overtime: The EOR ensures working hours do not exceed 8 hours per day or 48 hours per week under Section 60A, grants a minimum of one rest day per week, and pays overtime at 1.5 times the ordinary rate of pay for hours beyond the daily or weekly limit as mandated by Section 60D. The EOR maintains accurate records of working hours and overtime in the wage register, as required by Section 69. Non-compliance with working time limits or failure to pay overtime premiums results in penalties of up to RM 10,000 per employee and potential prosecution under Section 99.
• Occupational Safety and Health: The EOR ensures your workplace complies with the Occupational Safety and Health Act 1994, registers the place of work with the Department of Occupational Safety and Health (DOSH) if required, and maintains accident and dangerous occurrence records as mandated by the Occupational Safety and Health (Notification of Accident, Dangerous Occurrence, Occupational Poisoning and Occupational Disease) Regulations 2004. The EOR also ensures employees receive any mandatory safety training for hazardous roles and that personal protective equipment is provided where necessary. Failure to comply with OSHA requirements can result in fines of up to RM 50,000 or imprisonment for up to two years, plus civil liability for workplace injuries.
• Employee Data Protection: The EOR processes employee personal data in compliance with the Personal Data Protection Act 2010 (PDPA), obtaining consent where required under Section 6, implementing security measures to prevent unauthorised access under Section 9, and responding to employee access requests under Section 30. The EOR registers as a data user with the Personal Data Protection Commissioner if the EOR entity holds more than the prescribed threshold of personal data. Non-compliance with PDPA obligations results in fines of up to RM 500,000 for each contravention, plus civil claims from affected employees for data breaches or unauthorised use.
• Collective Agreements and Sector Minimums: The EOR identifies whether any collective agreement, trade union recognition, or sectoral wage council order applies to the employee's role, particularly in sectors such as manufacturing, plantation, or logistics where collective bargaining is common. If a collective agreement applies, the EOR ensures wage rates, allowances, and termination procedures meet or exceed those negotiated terms. The EOR also monitors National Wages Consultative Council orders and implements any sectoral minimum wage increases immediately upon gazettal, ensuring compliance with both the Employment Act 1955 and the Industrial Relations Act 1967.

How Much Does It Cost to Use an Employer of Record in Malaysia?

The cost of using an Employer of Record in Malaysia has two components: the EOR service fee and the statutory employer contributions fixed by Malaysian law. Statutory costs are non-negotiable and apply whether you hire through an EOR or your own entity. Playroll's EOR service fee starts from $399 per employee per month, billed separately from payroll costs. The fee covers contract preparation, government registrations with EPF, SOCSO, and EIS, monthly payroll processing, MTD withholding and remittance to LHDN, ongoing compliance monitoring, and termination administration when required.

Let's look at an example that includes a base salary and the EOR service fee.

The EOR service fee covers all compliance administration, payroll processing, government filings with EPF, SOCSO, EIS, and LHDN, employment contract issuance in Bahasa Malaysia, ongoing monitoring of regulatory changes such as minimum wage updates or EPF rate adjustments, and termination support including final settlement calculations and Borang C issuance. You avoid the cost of incorporating a Malaysian entity, hiring local HR and payroll staff, maintaining wage registers and statutory records, and engaging external legal counsel for employment disputes.

Employer of Record vs Setting Up an Entity in Malaysia

If you plan to hire in Malaysia long-term or build a substantial team, you might consider incorporating a local entity rather than using an Employer of Record. Foreign companies typically set up a private limited company, known as a Sdn. Bhd. (Sendirian Berhad), which requires registration with the Companies Commission of Malaysia (SSM), appointment of at least one local resident director, a registered office address in Malaysia, and paid-up share capital of at least RM 1. The incorporation process takes 6 to 10 weeks when accounting for name approval, constitutional document preparation, director appointments, and SSM filing, with total setup costs ranging from $3,000 to $6,000 including legal, secretarial, and registration fees.

For companies hiring fewer than 15 employees in Malaysia, an Employer of Record is almost always the faster and more cost-effective route.

Playroll also supports your long-term growth through its Global Entity Setup product, which handles entity incorporation and local payroll in 120+ countries, so you can transition from EOR to your own compliant entity in Malaysia when the time is right, without switching providers or rebuilding your HR processes.

How Long Does It Take to Hire Someone in Malaysia Through an Employer of Record?

You can hire an employee in Malaysia through an Employer of Record in 10 to 15 business days from the moment you agree terms with your candidate to their first official working day.

• Stage 1: Contract preparation and signing (2 to 3 business days): The EOR drafts the employment contract in Bahasa Malaysia, incorporating all mandatory particulars under Section 12 of the Employment Act 1955, confirms the salary meets minimum wage thresholds, and calculates EPF, SOCSO, and EIS contributions. The employee reviews, signs, and returns the contract electronically or by courier. Timing depends on how quickly the employee completes identity verification, provides their EPF number if already registered, and returns the signed contract.
• Stage 2: Government registrations (3 to 5 business days): The EOR registers the employee with the Employees Provident Fund (EPF) via the i-Akaun portal, obtains an EPF member number if the employee is registering for the first time, and registers with SOCSO and EIS via the ASSIST portal. Section 7 of the EPF Act 1991 requires registration within seven days of commencement, and late registration can trigger penalties and backdated contribution interest. If the employee already holds an EPF number and Tax Identification Number, this stage can be completed within 3 business days.
• Stage 3: Payroll configuration and first cycle (3 to 5 business days): The EOR configures the employee's payroll profile, applies the correct MTD withholding bracket based on the employee's tax residency and gross income, and schedules the first payroll run. If the employee starts mid-month, the EOR calculates a pro-rated salary and contributions for the partial month, with the first payslip issued on the next scheduled pay date, typically the last working day of the month. Timing depends on whether the employee provides their tax file number and completes Form TP1 (employee tax relief claim) before the payroll cut-off.
• Stage 4: Malaysia-specific requirements (2 to 4 business days, can run in parallel): If the role requires a foreign employee to hold an Employment Pass, the EOR coordinates with your immigration counsel to ensure the work permit is approved before the employee commences work, as working without a valid pass is an offence under Section 55B of the Immigration Act 1959/63. If the employee is joining a sector covered by a collective agreement or wage council order, the EOR verifies that wage rates and benefits meet the negotiated minimums before finalising the contract. These checks typically run in parallel with government registrations but can add 2 to 4 business days if external verification is required.

The timeline can extend by 3 to 7 business days if the employee does not yet have an EPF number, if their identity documents require additional verification by SSM or the National Registration Department, or if the start date falls within a Malaysian public holiday period such as Hari Raya Aidilfitri or Chinese New Year when government portals are closed. Delays also occur if the employee's tax residency status is unclear and requires clarification from LHDN before applying the correct MTD rate, or if the contract requires amendments after initial review.

By comparison, incorporating a Sdn. Bhd. entity in Malaysia takes 6 to 10 weeks, followed by another 2 to 3 weeks to register as an employer with EPF, SOCSO, LHDN, and EIS before you can legally hire your first employee.

How Playroll's Employer of Record Process Works in Malaysia

Playroll's Employer of Record service in Malaysia handles every step from contract drafting to final payroll settlement, so you can hire compliantly without incorporating a local entity or managing statutory filings yourself.

You define the role and employment terms

You tell us the employee's job title, salary, working hours, and any benefits you want to offer beyond statutory minimums. We confirm the salary meets the minimum wage thresholds under the Minimum Wages Order 2024 and calculate the total employer cost including EPF, SOCSO, and EIS contributions.

We prepare a compliant employment contract

Playroll drafts the employment contract in Bahasa Malaysia, incorporating all mandatory particulars under Section 12 of the Employment Act 1955, including job description, wage breakdown, notice periods, rest days, and public holiday entitlements. We apply the correct probation period, overtime provisions, and termination clauses based on whether the employee falls under Part XII protections. The contract is ready for signature within 2 to 3 business days.

We onboard the employee and payroll goes live

Once the contract is signed, we register the employee with EPF, SOCSO, and EIS, configure their payroll profile with the correct MTD withholding, and notify the Inland Revenue Board of Malaysia of the new employment. The employee can start work within 10 to 15 business days from contract signature. Playroll processes monthly payroll on your chosen pay date, deducts and remits all statutory contributions by the 15th of the following month, and issues compliant payslips showing gross salary, deductions, net pay, and employer on-costs.

We manage ongoing compliance and support your growth

Playroll monitors changes to EPF contribution rates, minimum wage orders, and MTD schedules, implementing updates automatically in the next payroll cycle. We file monthly contributions with EPF, SOCSO, and EIS, submit annual EA forms by 28 February, and maintain wage registers as required by Section 69 of the Employment Act. If your hiring grows to where a local entity makes sense, Playroll can handle that too through our global entity setup service, incorporating your Sdn. Bhd. and transitioning your payroll without interrupting compliance or switching providers.