Hire in Malaysia with Confidence
Our workforce compliance guide to Malaysia covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Malaysia.
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Our workforce compliance guide to Malaysia covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Malaysia.
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in Malaysia.
We work with the best legal partners in Malaysia to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questioners will help you determine the worker status in compliance with Malaysian law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Any business hiring in Malaysia should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses that are hiring independent contractors under the guise of employment.
Understanding the distinctions between employees and independent contractors is critical to compliantly engaging workers in Malaysia. It is important to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you and lets you know when freelance talent must be engaged as an independent contractor or employed directly.
This is critical to compliantly engaging workers in Malaysia and thereby avoiding severe legal, financial, and other penalties.
Employment laws include: Labor Law, Employment Act 1955, Malaysia Civil Law Act 1956, Employment Act 1965, Industrial Relations Act 1967, Income Tax Act 1967, Employees Social Security Act 1969, Private Employment Agencies Act 1981; Employment Insurance System Act 2017
Other than the Malaysia Civil Law Act 1956, there are no specific labor laws governing relations with independent contractors.
Hiring practices are similar to many other countries. Hiring companies will typically advertise online using job boards. Candidates will typically submit a CV (which may include a photo) and a 1-page cover letter. Hiring steps include one or more rounds of interviews and, if necessary, assessments. Employers issue successful candidates with an offer letter, after which the employment contract is signed. By law, contracts must include termination provisions.
While Malay is the official language, English is a popular second language. However, this is Malaysian Standard English (MySE), which is a hybrid variety that differs significantly from the English spoken in native English language countries. Hiring companies should therefore be careful to specify the type and level of English language proficiency required.
Independent contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Independent contractors may be found via word of mouth, job boards, social networks, industry bodies, or other forums. Although the hiring practices vary, the independent contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
The four most common categories of an independent contractor are:
Employees are subject to income tax, which is withheld at source. However, all individuals (employees included) who earn over MYR 34,000 [USD 7,247] per year must still file their income taxes. The deadline for filing tax returns is 30 April (for the preceding tax year).
The tax year runs from 1 January to 31 December, and independent contractors
must file and pay their own income taxes. Tax returns must be submitted to the Inland Revenue Board (IRB) of Malaysia (Lembaga Hasil Dalam Negeri, LHDN) and must be paid by 30 April for the preceding tax year.
Contractors operating as an individual without a registered company must file ‘Form BE’, while those running a registered company must file ‘Form B’. Both forms can be downloaded from the LHDN portal and filed electronically via the MyTax portal. Taxes can be paid electronically via the ByrHASIL portal.
The tax year aligns with the calendar year (1 January to 31 December). The currency is the Malaysian ringgit (MYR). Employees’ income tax is deducted from their salary at source by their employer. The personal income tax rate ranges from 1% (for incomes between 5,001-20,000 per year) to 30% (for incomes over MYR 2 million [USD 426,300] per year).
There are two main security provisions schemes in Malaysia. The Employees Provident Fund (EPF) is mandatory for all Malaysian citizens and permanent residents working in the country. Employee contributions range from 0%-11% of salary depending on the age and income level, while employer contributions range from 4% to 13% of the employee’s salary.
The Social Security Organization (SOCSO) operates the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS). Typically, the employer and employee contribute to both the EIIS and IPS, up to MYR 69.05 [USD 14.70] for the employer and MYR 19.75 [USD 4.20] for the employee. For employees who are not eligible for the IPS, the employer alone contributes to the EIIS up to MYR 49.40 [USD 10.53] per month. The type of employment and other contractual arrangements can also affect the levels of contributions. There is also a mandatory Employment Insurance Scheme (EIS), with contributions capped at MYR 7.90 [USD 1.68].
There are no tax and social security withholding requirements for independent contractors. Contractors must file and pay their own income taxes, and also arrange their own social security provisions.
Independent contractors can, however, register for the voluntary Self-Employment Social Security Scheme (SESSS), along with the Voluntary Contribution with Retirement Incentive (i-Saraan).
Contractors who also work as employees (although not for the same company) may not need to pay additional social security contributions where this is already covered by the employment deductions.
Employees are paid on an hourly, weekly or monthly basis.
Independent contractors are paid according to a schedule defined within the contract.
Employees’ rights include: minimum wage (MYR 1,200 [USD 283] per month); maximum 48-hour work week; maximum 8-hour workday; maximum 6-day workweek; overtime pay (some types of work only); 11 days’ paid public holidays; paid annual leave ranging from 8-16 days (depending on length of service); paid sick leave; statutory maternity leave.
There are no statutory benefits for independent contractors.
Statutory employee benefits include social security provisions under the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS), plus the Employment Insurance System (EIS).
Independent contractors’ benefits are governed by the content of the contract.
Employees are typically paid via cash, cheque, or bank transfer.
Independent contractors send an invoice (or another form of payment request) and typically require payment within 14 days or 28 days of submission unless otherwise stipulated in the contract. Independent contractors are not paid by payroll in most cases.
Employment laws include: Labor Law, Employment Act 1955, Malaysia Civil Law Act 1956, Employment Act 1965, Industrial Relations Act 1967, Income Tax Act 1967, Employees Social Security Act 1969, Private Employment Agencies Act 1981; Employment Insurance System Act 2017
Hiring practices are similar to many other countries. Hiring companies will typically advertise online using job boards. Candidates will typically submit a CV (which may include a photo) and a 1-page cover letter. Hiring steps include one or more rounds of interviews and, if necessary, assessments. Employers issue successful candidates with an offer letter, after which the employment contract is signed. By law, contracts must include termination provisions.
While Malay is the official language, English is a popular second language. However, this is Malaysian Standard English (MySE), which is a hybrid variety that differs significantly from the English spoken in native English language countries. Hiring companies should therefore be careful to specify the type and level of English language proficiency required.
Employees are subject to income tax, which is withheld at source. However, all individuals (employees included) who earn over MYR 34,000 [USD 7,247] per year must still file their income taxes. The deadline for filing tax returns is 30 April (for the preceding tax year).
The tax year aligns with the calendar year (1 January to 31 December). The currency is the Malaysian ringgit (MYR). Employees’ income tax is deducted from their salary at source by their employer. The personal income tax rate ranges from 1% (for incomes between 5,001-20,000 per year) to 30% (for incomes over MYR 2 million [USD 426,300] per year).
There are two main security provisions schemes in Malaysia. The Employees Provident Fund (EPF) is mandatory for all Malaysian citizens and permanent residents working in the country. Employee contributions range from 0%-11% of salary depending on the age and income level, while employer contributions range from 4% to 13% of the employee’s salary.
The Social Security Organization (SOCSO) operates the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS). Typically, the employer and employee contribute to both the EIIS and IPS, up to MYR 69.05 [USD 14.70] for the employer and MYR 19.75 [USD 4.20] for the employee. For employees who are not eligible for the IPS, the employer alone contributes to the EIIS up to MYR 49.40 [USD 10.53] per month. The type of employment and other contractual arrangements can also affect the levels of contributions. There is also a mandatory Employment Insurance Scheme (EIS), with contributions capped at MYR 7.90 [USD 1.68].
Employees are paid on an hourly, weekly or monthly basis.
Employees’ rights include: minimum wage (MYR 1,200 [USD 283] per month); maximum 48-hour work week; maximum 8-hour workday; maximum 6-day workweek; overtime pay (some types of work only); 11 days’ paid public holidays; paid annual leave ranging from 8-16 days (depending on length of service); paid sick leave; statutory maternity leave.
Statutory employee benefits include social security provisions under the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS), plus the Employment Insurance System (EIS).
Employees are typically paid via cash, cheque, or bank transfer.
Other than the Malaysia Civil Law Act 1956, there are no specific labor laws governing relations with independent contractors.
Independent contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Independent contractors may be found via word of mouth, job boards, social networks, industry bodies, or other forums. Although the hiring practices vary, the independent contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
The four most common categories of an independent contractor are:
The tax year runs from 1 January to 31 December, and independent contractors
must file and pay their own income taxes. Tax returns must be submitted to the Inland Revenue Board (IRB) of Malaysia (Lembaga Hasil Dalam Negeri, LHDN) and must be paid by 30 April for the preceding tax year.
Contractors operating as an individual without a registered company must file ‘Form BE’, while those running a registered company must file ‘Form B’. Both forms can be downloaded from the LHDN portal and filed electronically via the MyTax portal. Taxes can be paid electronically via the ByrHASIL portal.
There are no tax and social security withholding requirements for independent contractors. Contractors must file and pay their own income taxes, and also arrange their own social security provisions.
Independent contractors can, however, register for the voluntary Self-Employment Social Security Scheme (SESSS), along with the Voluntary Contribution with Retirement Incentive (i-Saraan).
Contractors who also work as employees (although not for the same company) may not need to pay additional social security contributions where this is already covered by the employment deductions.
Independent contractors are paid according to a schedule defined within the contract.
There are no statutory benefits for independent contractors.
Independent contractors’ benefits are governed by the content of the contract.
Independent contractors send an invoice (or another form of payment request) and typically require payment within 14 days or 28 days of submission unless otherwise stipulated in the contract. Independent contractors are not paid by payroll in most cases.
Under Malaysian law, an employee is defined as working under a contract of service, which is “any agreement whether oral or in writing and whether express or implied, whereby one person agrees to employ another as an employee and that other agrees to serve his employer as an employee and includes an apprenticeship contract.” In contrast, an independent contractor operates under a contract for service, which involves being compensated for services and/or outcomes delivered.
The key criteria in determining whether an individual is effectively working as an employee versus an independent contractor include the degree of control that the hiring company or client has over the individual. If the real substance of the company-contractor relationship proves to effectively be an employment relationship, the hiring company may suffer legal and financial penalties (including overdue payroll taxes). It is therefore important to leverage an employment service partner like Worksuite when hiring in Malaysia in order to ensure that independent contractors fall under the correct working relationship with your business.
As mentioned above, the key determinant of someone being an independent contractor rather than an employee is the level of control they work under. This includes considering the hiring company’s ability to make certain decisions on the individual’s behalf (such as their level of compensation), the authority to directly issue instructions to the individual, and the ability to legally enforce authority over them. However, in reality, a variety of factors are considered. In general, an individual will be considered an independent contractor if they:
If a dispute about the status of an individual is brought before Malaysian courts, the burden of proof will automatically fall upon the hiring company to demonstrate that the individual qualifies as an independent contractor rather than an employee.
There are four main categories under which independent contractors can operate in Malaysia, with sole proprietorship being the most common.
There are two main types of contracting model for working with independent contractors in Malaysia.
A. Direct engagement of the contractor as self-employed or registered via their own company. Under this model, the hiring company engages directly with the independent contractor – as a sole proprietor, partnership, or company (see above) – and establishes a direct contract for the provision of services. The hiring company then pays the independent contractor directly, following the terms of the contract.
B. Third party. These companies come in two forms and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.
Companies hiring independent contractors in Malaysia should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific legal requirements related to paying contractors in Malaysia. The contract should stipulate the preferred payment method agreed upon by both parties.
Employees in Malaysia are subject to income tax, which is withheld at source. The personal income tax rates range from 1% (for incomes between 5,001-20,000 per year) to 30% (for incomes over MYR 2 million [USD 426,300] per year). However, all individuals who earn over MYR 34,000 [USD 7,247] per year must file their income taxes with the Inland Revenue Board (IRB) of Malaysia (Lembaga Hasil Dalam Negeri, LHDN) and this includes employees and contractors. The tax year runs from 1 January to 31 December, and the deadline for filing tax returns is 30 April (for the preceding tax year). Whereas employees need to file their taxes with payment being taken at source, independent contractors must both file and pay their own income taxes.
Contractors operating as an individual without a registered company must file their income taxes using ‘Form BE’, while those running a registered company must file ‘Form B’. Both forms can be downloaded from the LHDN portal and filed electronically via the MyTax portal. Contractors can also pay their taxes electronically via the ByrHASIL portal.
There are two main security provisions schemes in Malaysia. The Employees Provident Fund (EPF) is mandatory for all Malaysian citizens and permanent residents working in the country. Employee contributions range from 0%-11% of salary depending on the age and income level, while employer contributions range from 4% to 13% of the employee’s salary. There is also an Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS), which are managed by the Social Security Organization (SOCSO).
Typically, the employer and employee contribute to both the EIIS and IPS, up to MYR 69.05 [USD 14.70] for the employer and MYR 19.75 [USD 4.20] for the employee. For employees who are not eligible for the IPS, the employer alone contributes to the EIIS up to MYR 49.40 [USD 10.53] per month. The type of employment and other contractual arrangements can also affect the levels of contributions. There is also a mandatory Employment Insurance Scheme (EIS), with contributions capped at MYR 7.90 [USD 1.68].
There are no payer tax and social security withholding requirements for independent contractors, who must arrange their own social security provisions. Independent contractors can, however, register for the voluntary Self-Employment Social Security Scheme (SESSS), along with the Voluntary Contribution with Retirement Incentive (i-Saraan). Contractors who also work as employees (although not for the same company) may not need to pay additional social security contributions where this is already covered by the employment deductions.