Malaysia payroll and benefits guide

What global businesses need to know about payroll in Malaysia

Malaysia has enjoyed sustained economic growth in recent years, with GDP increasing by 40% between 2015 and 2024. But if you think you’ve missed out on a major foreign investment opportunity, think again: S&P Global research projects GDP will rise from around US$420 billion in 2025 to as much as US$780 billion by 2032.

Why so much growth? Simply because Malaysia has a lot going for it. A landscape with plenty of natural resources including rubber and timber. A well-educated workforce that is more cost-effective to employ than in Western countries. Strong trade links as a member of the ASEAN group and of the Commonwealth. And a proactive, encouraging approach to foreign investment, with initiatives from the Malaysia Digital Economy Corporation (MDEC) designed to attract organizations from overseas.

From a payroll and employment perspective, Malaysia has a mix of different ethnic groups and religions, although nearly two-thirds of the population is Muslim. This means there are some key cultural considerations to take into account, alongside the fact that there have been recent changes to legislation around minimum wage and social security contributions. This guide covers all the key facts around running payroll in Malaysia.

Getting Started

Foreign companies setting up in Malaysia can register either as a locally-owned company or as a foreign-owned one. In either case, private limited companies or representative offices are the most popular options (different rules apply for companies setting up in Malaysia’s tax haven territory of Labuan).

There are some industries where foreign ownership of private limited companies is limited to a maximum shareholding of 50%, including agriculture, energy, banking and education. The minimum share capital needed to establish a company is a nominal RM1.

There are a number of registrations and processes to go through in the setup process:

Company name reservation with the Companies Commission of Malaysia (SSM)
Obtaining business licenses and permits as appropriate
Submission of incorporation documents for company registration, a process that usually takes 1-3 days
Minor payments for registration fees, stamp fees and post-incorporation package fees
Registering for Goods and Services Tax, income tax, PAYE, Employees Provident Fund, and with the Social Security Organisation (all of which are free).

Employment Considerations in Malaysia

It’s worth familiarizing yourself with the key information within the Employment Act 1955, which enshrines many of Malaysia’s employment rights within law.

The most common working arrangement in Malaysia is to work five eight-hour shifts for a total of 40 hours, although the statutory maximum is 45 hours per week. Anything above this counts as overtime, which is paid at 150% of the normal rate, rising to 200% for work on rest days and at weekends, and 300% on public holidays.

All foreign workers must obtain a work permit from the government before being allowed to work in the country. The range of different work permits and visas, and the restrictions in place on foreign workers from some neighboring countries, is complicated. It may be worth seeking out expert advice if you plan to hire non-Malaysians, as enforcement of foreign working laws is strict.

Notice periods for termination are four weeks for employees with less than two years’ service, rising to six weeks at two years, and eight weeks at five years. Payments in lieu of notice are permitted. Probation periods normally run for between one and three months, and the Employment Act makes clear that employees on probation are entitled to the same rights as employees who have already passed their probationary period.

Compensation and Severance

Malaysia has increased the national minimum wage over two phases in 2025, starting with larger businesses on February 1 and extending across the country on August 1. The new rate is RM 1,700 per month (approx. £315; $410; €355), and applies to local and foreign workers. This is the sixth time the rate has been increased in the space of ten years, so further increases can’t be ruled out in the future.

Awarding the ‘13^th-month bonus’, which is popular in many Asian countries, is fairly commonplace but is not required by law. If paid, it’s normally distributed towards the end of the calendar year.

Severance pay is ten days’ pay per year of service, increasing to 15 days per year after two years of service, and 20 days per year after five years of service. These payments should be prorated to the nearest month of service.

Tax and social security in Malaysia

Companies in Malaysia should withhold income tax payments at source from employees under a Pay-As-You-Earn (PAYE) system, although employees are still required to complete self-assessments each year

Malaysia currently has ten progressively increasing bands of income tax rates. The first RM 5,000 (approx. £920; $1,210; €1,050) made each year is fully exempt, although the next three bands above this are only 1%, 3%, and 6%. The highest band of 30% is applied to all earnings in excess of RM 2 million (approx. £370,000; $485,000; €420,000). Non-residents are taxed at a flat rate of 30% on all their earnings in Malaysia.

The general corporate income tax rate is 24%. Malaysia also has a standard Sales Tax of 10%, and a Service Tax that was increased from 6% to 8% for most services on July 1 2025.

There are four different types of social security contributions in Malaysia, the largest of which is the Employees Provident Fund. On October 1 2025, new legislation took effect that requires EPF contributions to be made for foreign workers. This means that the current EPF rates are as follows:

Standard contribution on first RM 6,000 earned per month: 13% employer, 11% employee
Standard contribution on monthly earnings over RM 6,000 per month: 12% employer, 11% employee
Contributions for Malaysian employees aged 60 and over: 4% employer
Contributions for permanent resident employees aged 60 and over: 6.5% employer, 5.5% employee
Contributions for foreign employees: 2% employer, 2% employee

The other contributions currently in place in Malaysia are:

Social security (SOSCO): 1.75% employer, 0.5% employee
Employment insurance: 0.2% employer, 0.2% employee
Human Resource Development Fund: 1% employer

Holidays and Leave in Malaysia

Malaysian workers are paid for 11 days of public holidays each year. Five are the main official ones: Malaysia Day, National Day, Federal Territory Day, Workers’ Day and Birthday of the Yang di-Pertuan Agong. Employers can choose which other six national or state-level holidays their employees can have paid time off for (there are dozens spread throughout the year, with different ones observed in different parts of the country). Public holidays that fall at the weekends are generally moved to a working day instead.

Initial paid leave entitlement is eight days per year, rising to 12 days after two years of service and 16 days after five years. However, offering more than the statutory minimum is common, and many employees receive at least 12 days right from the start of their employment. There is no statutory entitlement to carry over unused paid leave, although some companies choose to offer this in contracts as an added benefit to employees (with fixed timeframes for using the spare days).

The same three lengths of service are used as the bandings for paid sick leave, with 14, 18, and 22 days permitted per year for each band respectively. In any case requiring hospitalization, the paid entitlement increases to 60 days.

Paid maternity leave entitlement is 98 days on full pay. The leave can commence at any time in the 30 days prior to the due date. Mothers should receive full salary from their employer throughout this period, and should not have any annual leave deducted pro-rata.

Paid paternity leave has now been established in Malaysia for the first time: as of the start of 2023, fathers with at least a year of service can take seven consecutive days off, following the birth. However, only married fathers are able to take this leave.

Payroll in Malaysia: a summary

Malaysia is a welcoming country for foreign investment, but as this guide demonstrates, the rules around payroll and employment are complex—especially when hiring non-Malaysian workers. For this reason, getting the latest information and advice from Malaysian payroll specialists is crucial. Partnering with a global payroll provider can give you access to this local expertise, not only in Malaysia, but in all the countries in which you operate.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.