Employment Law in Malaysia

Contracts

In Malaysia, employment contracts can be fixed-term or permanent, depending on the nature of the job and the agreement between the employer and employee. Permanent employment contracts must include benefits such as paid leave, contributions to the Employees Provident Fund (EPF), and protection against unjust dismissal. Fixed-term employees are entitled to the same benefits as permanent employees, and repeated renewals of fixed-term contracts without justification may be deemed as permanent employment.

Malaysia also has apprenticeship contracts, mainly for training, which are governed by the Employment Act of 1955. Employers engaging apprentices are required to:

• Provide structured training aligned with approved curricula
• Pay apprentices a stipend in line with government regulations
• Ensure apprentices work in a safe environment
• Adhere to regular working hours as defined by labor standards

Termination and notice periods

In Malaysia, labor laws generally require a written notice for termination, with periods varying based on the employee’s length of service: four weeks for less than two years, six weeks for two to five years, and eight weeks for more than five years. In most cases, terminated employees are entitled to a warning and a fair hearing. Just cause for a dismissal includes the following: 

• Theft
• Disorderly behavior
• Bribery
• Insubordination
• Habitual negligence of duty
• Lack of capability
• Financial irregularities 

Employees with at least one year of service are entitled to severance pay, calculated as 10 days’ wages for one to two years of service, 15 days’ wages for two to five years, and 20 days’ wages for more than five years. There is no statutory gratuity payment in Malaysia; however, additional compensation may be provided based on employment contracts or collective agreements. As your employer of record (EOR) in Malaysia, we can assist you in managing employee terminations by providing legal guidance and a personalized process to ensure compliance with labor laws and minimize legal risks.

Probation periods

In Malaysia, probation periods are not explicitly defined in statutory law but are commonly practiced, typically ranging from three to six months in the private sector, with similar durations applicable in government roles, as guided by the Employment Act of 1955.

Working hours and overtime

The standard working week in Malaysia typically consists of 45 hours, spread across five or six days, with a legal maximum of eight hours per day and 45 hours per week. Employees are entitled to a minimum of 30 minutes break after five consecutive hours of work and at least one full day off per week, typically including Sunday.

Any work beyond the standard working time is considered overtime. Malaysian law limits overtime to 104 hours per month. Overtime must be compensated at a rate of 1.5 times the regular wage on normal working days, two times on rest days, and three times on public holidays.

Taxes

In Malaysia, withholding tax is known as Potongan Cukai Bulanan (PCB) and is deducted by employers before paying salaries to employees. Employers must deduct PCB from employee salaries based on applicable income tax rates and submit it to the Inland Revenue Board of Malaysia (LHDN).

Employer payroll contributions

Malaysia’s social security system requires employer contributions that are dependent on the total number of employees, and these contributions cover pensions, medical care, disability insurance, and gratuity payments. In addition, workers’ compensation is financed by contributions from state governments, employers, and employees.