Business Finance

The How-to of Making Better Hiring Decisions

7 July 2023

Key takeaways:

  • Types of employees
  • Malaysian employment law
  • Statutory payments and contributions
  • Payroll and payslips

With the advent of cheap and quick onboarding cloud-based human resources (HR) and payroll software, hiring employees is easier than ever before. Still, it would be a good idea to talk to an HR professional before you get started. Here are a few details to keep in mind when structuring an employment contract:

What kind of employee do you need?

There are three types of employees in Malaysia: permanent, part-time, and fixed-term employment structures. According to the Bar Council Malaysia, once an employee is confirmed in their job in Malaysia, they enjoy the security of tenure (no sudden termination). The employee is thus viewed as being “permanent” and are referred to as full-time employees.

Another type of employment structure is part-time employment. The Employment Act 1955 defines part-time employees as those whose weekly working hours amount to 30% -70% of normal hours of work per week of a full-time employee employed in a similar capacity in the same enterprise. If this part-timer is your first employee and there is no barometer for what hours a full-time employee would pull, a rule of thumb is to assume it at 48 hours per week (8 hours per day).

Fixed-term employment, meanwhile, refers to employees hired on a contract basis with fixed terms i.e. 6-month project or 1-year retainer. The courts, however, might see contracts consistently renewed as permanent employment instead of being seasonal or temporary.

Key points of Malaysian labour law

While it is wise to talk to an employment lawyer or HR expert to iron out any details in an employment contract, there are a few key points and benefits all employers should be aware of with regards to Malaysian labour law, in particular the Employment Act 1955.

Point Description
Minimum wage The minimum wage is reviewed every two years through the Minimum Wage Order and the National Wages Consultative Council Act 2011. Companies with fewer than 5 workers have until July 1, 2023, to implement the new minimum wage.
Termination of employees In 2022, Parliament amended the Employment Act 1955 by passing the Employment Bill 2021. Under the Employment (Amendment) Act 2022 which takes effect on Jan 1, 2023, employers must now provide at least 98 days of paid maternity leave to female employees. Male employees who have been employed for at least 12 months are also entitled to 7 days of paid paternity to male employees.
Maternity protection & benefits The Employment Act 1955 stipulates that employers must provide at least 60 days of maternity leave to female employees. Female employees are also entitled to receive maternity allowance for the eligible period if she has been employed for a total period of 90 days over the 9 months leading up to her confinement period; and employed by her existing employer within the 4 months leading up to the confinement period.
Public holidays Section 60D of the Act outlines the public holidays on which employees will receive a paid holiday. There are 11 such holidays, 5 of which are set by law, and 6 left to the discretion of employers.
Overtime For overtime work outside normal hours of work, employees should be paid at least 1.5x times their hourly rate of pay. For overtime work carried out during a paid public holiday, employees should be paid at least 3x times their hourly rate of pay.
Annual leave Section 60E of the Act entitles employees to paid annual leave. If your employee is new (less than 2 years of service), they are entitled to 8 days of leave for every 12 months of continuous service. The number of leave days entitled will then increase to 12 days for every year of service for those employed between 2 to 5 years; and 6 days for every 12 months of continuous service for employees employed for 5 years or more.
Sick Leave Section 60F of the Act provides for employees to take up to 14 days sick leave a year (less than 2 years’ service) to 22 sick days a year (for those with at least 5 years of service).

Statutory payments and contributions

Not all employers and industries are obligated to make statutory contributions, so check with your legal expert to see which statutory bodies you need to register with and make payments to.

Statutory Body Payment/Contribution Amount
Employees Provident Fund (EPF)
  • Malaysian Employee: 11% of salary (employee share) and 12-13% of salary (employer share)
  • Non-Malaysians: 11% of salary (employee share) and RM5.00 (employer share).
Social Security Organisation (Socso)
  • Contribution to the Employment Injury Scheme and the Invalidity Scheme: 0.5% (employee share) and 1.75% (employer share).
  • Contributions to the Employment Insurance System (EIS): 0.2% (employee share) and 0.2% (employer share).
Inland Revenue Board (LHDN) Make a monthly tax deduction (MTD) from employee’s remuneration.
Human Resources Development Fund (HRDF) Employers with more than 10 Malaysian employees have to pay a 1% levy of the monthly wages (includes fixed allowance and basic salary) for each Malaysian employee.

Automating payroll and payslips

While there is no requirement for payroll to be automated or computerised, it can certainly make employers’ lives easier to use simple HR or payroll software such as those provided to Alliance Bank’s business customers in the BizSmart® Solution marketplace.

Through BizSmart® Solution, Alliance Bank BizSmart® or Alliance Digital SME customers can enjoy benefits such as 15% off SQL’s accounting and payroll software or claim up to RM5,000 off CentralHR services via the MDEC SME Digitalisation Grant.

Alliance Bank also provides value-added payroll services via alliance@work and on-site account opening for foreign employees with its Cash2Home app. Find out more at