The essential guide to payroll in Malaysia
Whether you’re setting up operations or you’re joining a team there, here’s what you need to know about payroll in Malaysia. Learn more in our ultimate guide.
Table of Contents
Table of Contents
Malaysia is a popular destination for business expansion due to its South-East Asian locale, which means it's well-positioned as a global business hub. With opportunities in major industries such as oil and gas, tourism, finance, and manufacturing, Malaysia thrives on low operational costs and a population bountiful with multilingual residents who can help create a seamless transition into a new country for any growing business.
Malaysia prides itself on its large workforce full of young, eager, and educated people and its forward-thinking business acumen, which has helped maintain a robust economy.
Whether you're considering setting up payroll operations in Malaysia or joining an established team there, you'll need to be across the basics of payroll compliance. Here's what you need to know.
Tax
Malaysia's financial year follows the calendar year, from 1 Jan until 31 Dec. Regardless of residency or citizenship, all workers based in Malaysia are required to pay tax, with the highest rate going 30% for income exceeding MYR 2,000,000.
Under the Malaysian tax law, non-residents are individuals who work in the country for more than 60 days, but less than 182 days in a year, which means that even if the individual holds Malaysian citizenship, they work between 60 to 182 days a year in Malaysia, they will be taxed the same rate as a non-resident, which is a flat rate of 30% of their income.
Leave
Leave entitlements in Malaysia are commensurate with the employee's organisational tenure. Employees with less than two years of service are entitled to eight days of leave per year. Employees who have worked more than two years, but less than five years of service are entitled to 12 days of leave, while those with more than five years of service are entitled to 16 days per year.
The structure is similar regarding sick leave, ranging from 14 days for less than two years of service, to 18 for more than two years and less than five years, to 22 days for five or more years. A separate hospitalisation leave adds 60 days to the paid sick leave when hospitalisation is necessary.
Leave balances start accruing after an employee has worked for the organisation for one year; however, paid leave may be taken pro-rata for part-time workers or those who have given less than one year of service.
Parental leave allowances are not aligned with tenure, however. As of 2023, women are afforded 90 consecutive paid days of leave. Fathers are provided with seven days of paid leave for the birth of each of their first five children, provided they meet the following conditions: the male employee must be married to the mother in question; the same employer must employ him for at least 12 months; and he must notify the employer at least 30 days from expected delivery or as early as possible.
Employers may also offer non-mandatory leaves, such as emergency leave, compassionate leave, disaster leave, childcare leave, marriage, birthday leave, and haji leave for Muslims to take time off from work to participate in the Hajj pilgrimage.
There are eleven public holidays throughout the year, all taken as paid leave.
Social Security and other deductions
Malaysia's Social Security Organisation provides insurance protection for injury due to employment. Employers make monthly contributions to the Social Security Organisation that administers the program. The Employment Injury Insurance Scheme and Invalidity Pension Scheme cover all citizens and permanent residents.
Employees working in the private sector will have contributions from their employer to their retirement plan, known as the Employees Provident Fund. A minimum of 12% of the employee's salary must be contributed to the fund by the employer, with a portion of the money becoming available to workers aged 50. Full access to the account is granted to the worker when they reach 55. Workers who become temporarily or permanently disabled are also eligible for access to the funds.
Other deductions may apply to employees, depending on different factors, such as Zakat, Tabung Haji, PTPN, ASB, HDRF, and other insurances. Muslim employees are also entitled to make optional contributions toward a fund for them to perform the hajj, the annual Islamic pilgrimage to Mecca in Saudi Arabia.
Reporting and compliance
Employers must ensure that their corporate tax returns, Social Security Organisation, and Employees Provident Fund forms are submitted correctly and on time.
When setting up a new business in Malaysia, the employment of foreign workers, non-residents, and secondees often end up paying taxes incorrectly. Employers should be vigilant to correctly enter the worker's details in the first instance to ensure that benefits and taxes are paid in line with their salary and working status.
The Human Resource Development (HRD) Levy applies to Manufacturing, Services, Mining, and Quarrying companies. In return for paying the levy, employers will receive financial assistance for the training and development of their local employees. Employers with ten or more Malaysian employees must register with the Human Resource Development Fund (HRDF), and optional for employers with 5 to 9 Malaysian employees.
Other things to note
As of 2023, Malaysia's standard maximum number of working hours has been lowered to 45 hours per week, excluding mealtimes. Working hours exceeding this range will be considered overtime and attract a higher pay rate.
The Employment Act of 1955 amendments also included Flexible Working Arrangements (FWA), where employees may apply to alter working hours, days, and employment locales. Employers must respond to the employee's request in writing within 60 days.
On 1 May 2022, the Minimum Wages Order of 2022 came into effect, where the monthly minimum wage was increased to RM1,500 nationwide for employers with five or more employees and employers who carry out professional activities classified under the Malaysia Standard Classification of Occupation (MASCO), regardless of the total headcount. The amendments do not apply to domestic servants.
On 1 July 2023, an amendment to the Minimum Wages Order of 2023 came into effect for micro-enterprises with less than five employees, where their minimum wage increased from RM1,200 to RM1,500 (hourly wage of RM7.21).
Section 34 of the Employment Act 1955 prevents women in Malaysia from working between 10 p.m. and 5 a.m. These are considered protection provisions for women and apply to those working in the industrial or agricultural sectors. It also prevents an employer from requiring their female workers to commence work for the day without having rested for 11 consecutive hours from such work.
Of course, these are just the basics of payroll compliance in Malaysia. As with any country's payroll, there are a lot more complexities you'll need to be across.
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