Malaysia Employment Law & Compliance Guide for Employers
Key employment laws in Malaysia: what employers need to know
Employment in Peninsular Malaysia and Labuan is governed mainly by the Employment Act 1955 (as amended in 2022), while Sabah and Sarawak apply their own Labour Ordinances. Contributions run through the EPF and SOCSO, and income tax through monthly tax deductions. Foreign employers are often surprised that EPF has been mandatory for foreign employees since October 2025 and that Employment Pass salary floors roughly doubled from 1 June 2026. This page summarises the core employer rules as of October 2026, with official sources.
Malaysia employment rules at a glance
| Topic | What the rule is | Official source |
|---|---|---|
| Minimum wage | RM1,700 a month nationwide under the Minimum Wages Order 2024: from 1 February 2025 for employers with 5 or more employees and from 1 August 2025 for all employers. Hourly and daily rates are derived from the monthly figure. | Ministry of Human Resources – Minimum Wages portal |
| Standard working hours | Maximum 8 hours a day and 45 hours a week since 1 January 2023. A 30-minute break is required after 5 consecutive hours, and the working day may not spread over more than 10 hours. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Overtime pay | At least 1.5× the hourly rate on normal working days, 2× for overtime on rest days and 3× on public holidays, with a cap of 104 overtime hours a month. Statutory rates apply to employees earning up to RM4,000 a month or in manual roles. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Paid annual leave | 8 days a year with under 2 years' service, 12 days with 2–5 years and 16 days with 5 years or more, pro-rated for an incomplete year. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Public holidays | 11 paid public holidays a year. Five are fixed: National Day, the Yang di-Pertuan Agong's Birthday, the state Ruler's Birthday or Federal Territory Day, Labour Day and Malaysia Day. The employer chooses the rest from gazetted holidays. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Sick leave | 14 days a year (under 2 years' service), 18 days (2–5 years) or 22 days (5+ years), plus up to 60 days a year in total where hospitalisation is needed, with a medical certificate. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Maternity and parental leave | 98 days' paid maternity leave for eligible employees and 7 days' paid paternity leave for married fathers with 12 months' service (up to 5 births). Pregnant employees may be dismissed only for misconduct, wilful breach or business closure. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Probation period | No statutory maximum; 3 to 6 months is common and it can be extended in writing. Probationers are still protected against dismissal without just cause under the Industrial Relations Act 1967. | Industrial Relations Act 1967 (Act 177), Attorney General's Chambers |
| Notice period | Unless the contract sets otherwise, written notice of 4 weeks (under 2 years' service), 6 weeks (2–5 years) or 8 weeks (5+ years). Either party may pay wages in lieu of notice. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Severance pay | Termination benefits for covered employees with 12+ months' service: 10 days' wages per year (under 2 years), 15 days (2–5 years), 20 days (5+ years). Not due for misconduct, resignation or retirement; others rely on contract or Industrial Court awards. | Employment Act 1955 and Termination and Lay-Off Benefits Regulations 1980 |
| Employer social contributions | About 14%–16%: EPF 13% (wages up to RM5,000) or 12% (above), no ceiling; SOCSO 1.75% and EIS 0.2% on wages up to RM6,000; HRD Corp levy 1% for employers with 10+ Malaysian staff in covered sectors. | EPF (KWSP) – Mandatory contribution rates |
| Employee social contributions | EPF 11% of wages with no ceiling (0% from age 60); SOCSO 0.5% and EIS 0.2% on wages up to RM6,000. Foreign employees pay 2% EPF from October 2025 wages, matched by 2% from the employer. | EPF (KWSP) – Mandatory contribution rates |
| Income tax on salaries | Employers deduct Monthly Tax Deduction (MTD/PCB) and remit it by the 15th of the following month. Resident rates are progressive from 0% to 30% (30% above RM2 million); non-residents pay a flat 30%. | PwC Worldwide Tax Summaries – Malaysia (Income Tax Act 1967 rates) |
| Mandatory bonuses and 13th-month pay | None required by law. Annual bonuses are common and become binding if promised in the contract or set by a collective agreement. | Employment Act 1955 (Act 265), Attorney General's Chambers |
| Work permits for foreign nationals | Employment Pass for professionals, applied for by the employer via the Expatriate Services Division. From 1 June 2026: Category I from RM20,000 a month, II RM10,000–19,999, III RM5,000–9,999. Lower-skilled workers need a Temporary Employment Visit Pass. | Expatriate Services Division – Revised Expatriate Salary Policy |
| Employment contract requirements | Contracts for more than one month must be in writing and state how they can be terminated. No language is prescribed. Labour Department approval is needed before employing a foreign employee (Section 60K). | Employment Act 1955 (Act 265), Attorney General's Chambers |
Employer obligations in Malaysia, topic by topic
Filter by primary service relevance
Does an employment contract in Malaysia have to be in writing, and which law applies?
What are the maximum working hours and overtime rates in Malaysia?
What is the minimum wage in Malaysia in 2026, and when must wages be paid?
How much annual, sick and family leave must employers give in Malaysia?
What does an employer pay on top of salary in Malaysia?
What notice and termination benefits does an employer owe in Malaysia?
Can a company hire a foreign national in Malaysia, and what pass is needed?
Is it risky to engage independent contractors instead of employees in Malaysia?
Key employment laws in Malaysia and official sources
- Employment Act 1955 (Act 265), as amended by Act A1651 (2022) — Sets contracts, working hours, overtime, leave, wage payment, notice and foreign-employee approval rules in Peninsular Malaysia and Labuan.
- Industrial Relations Act 1967 (Act 177) — Lets any employee challenge a dismissal without just cause before the Industrial Court.
- Minimum Wages Order 2024 (under the National Wages Consultative Council Act 2011, Act 732) — Sets the RM1,700 monthly minimum wage and its hourly and daily equivalents.
- Employees Provident Fund Act 1991 (Act 452) — Requires monthly EPF retirement contributions from employers and employees, including foreign employees from October 2025.
- Employees’ Social Security Act 1969 (Act 4) and Employment Insurance System Act 2017 (Act 800) — Require SOCSO employment injury and invalidity contributions and EIS job-loss insurance contributions.
- Income Tax Act 1967 (Act 53) — Sets income tax rates and the employer’s duty to make Monthly Tax Deductions (MTD/PCB) from salaries.
- Immigration Act 1959/63 (Act 155) – Employment Pass rules — Governs work passes for foreign nationals, administered for professionals by the Expatriate Services Division.
FAQs: hiring employees in Malaysia
Can a foreign company hire employees in Malaysia without a local entity?
Not directly in most cases. Registering with EPF, SOCSO and the Inland Revenue Board, running monthly tax deductions and sponsoring Employment Passes all require a Malaysian employer. A foreign company without an entity usually hires through an Employer of Record, which employs the staff locally and runs payroll, or registers a subsidiary or branch. Treating staff as contractors instead carries misclassification risk under the Employment Act’s presumption of employment.
How much does an employee cost in Malaysia on top of gross salary?
About 14–16% for a Malaysian employee. The employer pays EPF of 13% on wages up to RM5,000 a month or 12% above that, with no ceiling, plus SOCSO of 1.75% and EIS of 0.2% on wages up to RM6,000. Many employers also pay a 1% HRD Corp training levy. For foreign employees, the employer pays 2% EPF and SOCSO employment injury cover.
What is the minimum wage in Malaysia in 2026?
The minimum wage is RM1,700 a month under the Minimum Wages Order 2024. It took effect on 1 February 2025 for employers with five or more employees and on 1 August 2025 for all other employers. It applies across Peninsular Malaysia, Sabah, Sarawak and Labuan, and hourly or daily rates are derived from the monthly figure. Domestic workers are excluded.
How much notice and severance does an employer owe when dismissing an employee in Malaysia?
Notice is 4, 6 or 8 weeks depending on service (under 2 years, 2–5 years, over 5 years), unless the contract says otherwise, or wages in lieu. Covered employees with at least 12 months’ service also receive termination benefits of 10, 15 or 20 days’ wages per year of service. Any dismissal needs just cause, or the Industrial Court can order reinstatement or compensation.
Can a company hire a foreign national in Malaysia, and what permit is needed?
Yes. Professionals need an Employment Pass, which the employer applies for through the Expatriate Services Division after position approval. From 1 June 2026 the basic salary must be at least RM5,000 a month (Category III), RM10,000 (Category II) or RM20,000 (Category I). Lower-skilled workers need a Temporary Employment Visit Pass in approved sectors. Foreign employees must contribute 2% to EPF.
Is it risky to engage contractors instead of employees in Malaysia?
Yes. Since 2023 Section 101C of the Employment Act presumes a worker is an employee where the company controls the work, sets hours, supplies tools or pays regularly. A misclassified contractor can claim overtime, leave and termination benefits, file an unfair dismissal claim, and trigger EPF and SOCSO arrears. Contractor agreements suit defined projects with genuine independence.
Related NNRoad resources for Malaysia: Employer of Record in Malaysia · Payroll in Malaysia · Hiring foreign employees in Malaysia · Contractors and on-demand talent in Malaysia · Malaysia employer cost calculator
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Regulation Updates in Malaysia
UPDATE ON REVISED EXPATRIATE SALARY POLICY
What it is: The update defers the succession plan requirement under the Revised Expatriate Salary Policy to 2027-01-01.
What it changes: Effective 2027-01, the documented succession/replacement plan requirement in Employment Pass applications and renewals will not be active before that date, delaying the operational obligation for employers.
Who is affected:
- Employers applying for or renewing Employment Passes that would have required a succession/replacement plan prior to 2027
What employers should do:
- Prepare to implement the succession/replacement plan requirement starting from 2027-01-01
- Review current Employment Pass processes to align with the new effective date when the requirement becomes active
Notes: Effective month: 2027-01.
Post-Maternity Leave Allowance under the Employment Insurance System Act 2017
What it is: The Post-Maternity Leave Allowance is a new benefit under the Employment Insurance System Act 2017 that provides up to 30 days of additional paid leave after the existing 98-day maternity leave.
What it changes: This policy adds a new Post-Maternity Leave Allowance, extending mandatory benefits that must be accounted for in payroll reporting and EIS eligibility starting 2026-05-01.
Who is affected:
- Workers and employers referenced by the policy summary
What employers should do:
- Account for the new Post-Maternity Leave Allowance in payroll reporting
- Update EIS eligibility considerations to reflect the new allowance
Notes: Effective month: 2026-05.
Oct 2025: Sarawak Labour Ordinance Reforms 2025
In 2025, Sarawak introduces significant Labour Ordinance reforms aimed at modernizing employment standards, enhancing worker protections, and promoting better work-life balance. These changes mark a milestone after two decades of legislative stability, reflecting Sarawak’s commitment to aligning its labour laws with contemporary workforce needs and ensuring fair treatment for all employees.
Update first published on NNRoad in Oct 2025. The current rules are summarised in the sections above.
Discover the latest employment and compliance updates in Malaysia — helping you stay ahead in a changing regulatory landscape.