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Published:
January 13, 2026
Last updated:
January 13, 2026
Thinking of expanding into Malaysia? Understanding the country's evolving employment law framework is essential for compliant hiring and payroll management.
Malaysia represents a strategic APAC market with competitive labor costs, multicultural workforce, strong English proficiency, and proximity to Singapore and other Southeast Asian economies. However, recent significant amendments to the Employment Act (2023, 2025) have expanded employee protections and introduced new compliance obligations.
Organizations managing several employees across multiple APAC markets benefit from Malaysia's relatively business-friendly environment. However, understanding recent regulatory changes—particularly expanded coverage to all employees regardless of wage level, reduced maximum working hours, and flexible work arrangement requirements—becomes critical for compliance.
Malaysia's employment environment is governed by comprehensive legislation ensuring fair labor practices. The Ministry of Human Resources (MOHR) serves as the primary regulator of employment standards and enforcement.
Recent landmark amendments:
2023 Employment Act Amendments (effective January 1, 2023): Expanded Employment Act coverage to all employees regardless of salary level (previously limited to employees earning RM2,000/month or below).
2025 Employment Act Amendments (effective February 1, 2025): Introduced flexible work arrangements as statutory right, reduced maximum working hours from 48 to 45 hours weekly, strengthened sexual harassment protections, and enhanced paternity leave.
These amendments represent the most significant changes to Malaysian employment law in decades, requiring employers to review and update contracts, HR policies, and payroll practices.
Employment Act 1955 (EA): Comprehensive legislation governing employment relationships. Post-2023 amendments, covers all employees (except domestic workers and certain public sector employees).
Industrial Relations Act 1967: Governs employer-employee relations, collective bargaining, and unfair dismissal claims. Employees may file complaints within 60 days of termination.
Minimum Wages Order 2024: Establishes national minimum wage—RM1,700/month for Peninsular Malaysia (effective February 1, 2025, increased from RM1,500).
Occupational Safety and Health Act 1994: Establishes workplace safety standards and employer duties.
Employees Provident Fund Act 1991: Mandates retirement savings contributions (EPF).
Employees' Social Security Act 1969: Requires social security contributions (SOCSO).
Employment Insurance System Act 2017: Establishes unemployment insurance (EIS).
Department of Labour: Enforces Employment Act through inspections, investigations, and prosecutions.
Industrial Relations Department: Mediates and adjudicates industrial disputes and unfair dismissal claims.
Employees Provident Fund (EPF/KWSP): Administers mandatory retirement savings.
Social Security Organisation (SOCSO/PERKESO): Administers occupational injury insurance (SOCSO) and unemployment insurance (EIS).
Immigration Department: Regulates foreign worker employment.
Employers must provide written employment contracts to employees employed for more than one month.
Mandatory provisions: Job title and duties, salary and benefits, working hours, leave entitlements, probation period, notice periods, termination conditions, EPF/SOCSO/EIS contributions.
Statutory right: Employees may request flexible work arrangements regarding working hours, working days, or work location.
Employer obligations:
For organizations hiring in Malaysia, using updated contract templates reflecting 2023/2025 amendments and clearly documenting flexible work arrangement policies prevents compliance issues.
2025 Amendment: Maximum working hours reduced from 48 to 45 hours per week.
Daily limits:
Rest periods: Minimum 30-minute break for every 5 consecutive working hours; minimum 1 rest day per week.
Overtime compensation: 1.5× regular hourly rate. Higher rates (2× or 3×) for rest days or public holidays.
Overtime caps: Maximum 104 hours overtime per month. Exceeding this limit violates Employment Act.
Working hour violations: Fines up to RM50,000 for requiring work beyond 12 hours/day, exceeding 104-hour monthly cap, failing to pay overtime premiums, or not maintaining accurate records.
For organizations managing Malaysia operations, implementing time tracking systems that ensure compliance with 45-hour weekly limit and 104-hour monthly overtime cap becomes operationally critical.
Learn more about common payroll compliance challenges.
Peninsular Malaysia: RM1,700/month (effective February 1, 2025)Sabah, Sarawak, and Labuan: Verify current rates as these adjust periodically
Payment timing: Wages must be paid no later than 7th day after end of wage period.
Payslip requirements: Itemized statements showing basic salary, allowances, overtime, deductions (EPF, SOCSO, EIS, tax, authorized deductions), net salary, and payment date.
Wage deductions: Only lawful deductions permitted—statutory contributions, court orders, employee-authorized deductions for specific purposes.
Wage records, attendance records, leave records must be maintained minimum 6 years.
Penalties: Late payment, unlawful deductions, or inadequate records may result in administrative fines, employee complaints, Labour Court claims, and reputational damage.
Explore payroll compliance across APAC markets.
EPF is Malaysia's retirement savings scheme:
SOCSO covers work-related injuries and occupational diseases:
EIS provides unemployment benefits:
Learn more about Malaysia's EIS requirements.
Combined employer contributions: Approximately 14-15% of employee's monthly salary.
Example - RM5,000/month employee:
Late payment penalties: 6% per annum interest on outstanding contributions.
Prior approval required: Obtain approval from MOHR and Immigration Department before hiring foreign workers.
Quota allocations: Most industries subject to quotas limiting percentage of foreign workers (typical ratios 10-70% depending on sector).
Housing standards: Provide accommodation meeting minimum standards including proper space, sanitation, ventilation, and safety.
Levy payments: Pay monthly foreign worker levies (amounts vary by sector, skill level, nationality).
Repatriation obligations: Responsible for repatriation costs upon contract completion or termination.
Illegal employment: Fines up to RM100,000 per illegal worker; imprisonment up to 5 years; potential whipping; blacklisting from foreign worker hiring.
Statutory minimums:
Probation: Shorter notice during probation (typically 1 week).
Summary dismissal permitted for serious misconduct (willful disobedience, misconduct, criminal breach of trust, habitual absence).
Critical requirement: Must conduct domestic inquiry before dismissal. Failure may result in unfair dismissal finding even if misconduct occurred.
File with Industrial Relations Department within 60 days of termination. Remedies include reinstatement, back wages, or compensation (typically 6-24 months' salary).
LIFO principle: "Last In, First Out" generally applies.
Notification: Notify Department of Labour before mass retrenchment.
Retrenchment benefits: No statutory requirement, but contracts or company policies may specify severance (market practice often 1 month per year of service).
Learn more about employee termination challenges across APAC.
Department of Labour inspections verify wage payment, working hours, statutory contributions, employment contracts, foreign worker documentation, and occupational safety.
Enforcement actions: Compound fines, suspension of hiring privileges, court prosecutions, and Labour Court claims.
Best practices: Maintain updated contracts, implement accurate time tracking, ensure timely payslips and contributions, conduct regular self-audits, respond promptly to inspections.
By partnering with AYP's EOR services, your organization enters Malaysia confidently while we manage evolving regulatory requirements and ensure continuous compliance.
Explore AYP's EOR services across APAC markets, or learn about compliance challenges when hiring across Asia.
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