Understanding Payroll in Malaysia: What Global Companies Need to Know About Malaysia's Payroll System
May 2, 2017
As a producer of many important raw materials including palm oil, tin and rubber, Malaysia has been able to trade with advanced economies for a high-tech infrastructure that is great for new business. The country's 31.3 million people (as of 2015) represent an upwardly mobile group, although stagnation in the economy of China, Malaysia's largest trading partner, keeps that population from being fully First World. However, relatively lax visa regulations keep the opportunity for business in the country open. The opportunity for companies looking to expand into Malaysia is quite good, especially if you have a global payroll provider to help you out.
The process of starting a business in Malaysia begins with a registry at the Companies Commission of Malaysia (CCM) to reserve the company name. The application costs MYR 30($7; £5.40; €6,35) for each name to researched. The procedure can be conducted in full online. A company secretary is then required to post the necessary documents of incorporation and declare compliance with local law. This takes between 1-3 days and costs MYR 1,000 ($230; £211; €179). The incorporation documents are extensive and must be fully rendered in order to count as valid. A company has 3 months after a business name has been registered to complete the filing.
After the necessary documents are filed with the CCM, a company must pay a minimum registration fee of MYR 1,000($230; £211; €179). The registration fee is scaled according to nominal share capital and may be as much as MYR 70,000($16,252; £12,515; €14.796). There is also an MYR 200 ($46; £36; €42) stamp fee and a post incorporation package fee of MYR 75 ($17; £13; €16) due at this time. If the registration is completed online, an additional MYR 10 ($2.30; £1.80; €2,10) fee will also apply.
The company is then responsible for opening a bank account domestic to Malaysia before registering for the Goods and Services Tax. The tax is 6%, although this registration is free. Registration for income tax, PAYE and Employees Provident Fund will come next. Each of these registrations is free of charge. Finally, a company will register for social security through the Social Security Organisation, another free registration service.
Employment Laws & Employee Rights
The Employment Act, 1955 is the piece of legislation that regulates all matters of labor in Malaysia. The Act defines an employee as anyone making less than RM2000 ($423; £358; €461) per month. Special classes of employees are protected even if their monthly wages exceed this limit, including domestic servants, artisans and transport operators, among other types of employment.
No employee may work more than 8 hours in a day in Malaysia. 48 hours per week is the maximum. Children under the age of 14 are only allowed to work in a family business. Up until age 16, an employee in Malaysia cannot handle machinery.
All foreign workers must obtain a work permit from the government before being allowed to work in the country.
The Occupational Safety and Health Act 1994 and the Factories and Machinery Act 1967 outline employee rights for general safety and safety in factories, respectively.
Compensation, Bonuses & Severance Pay
A minimum wage was first implemented in Malaysia in 2013. The minimum wage does not include any additional allowances and depends on the geographical location of the worker as well as how many days he works per week. Minimum wage policy also applies even to employees who are paid on commission.
Employees have a right to overtime pay in Malaysia. On normal working days, they are paid 1.5 times their hourly rate. Rest days require the employer to pay 2X the normal hourly rate, while public holidays allow the employee to draw 3X that rate.
Tax Requirements, Collection & Withholding
Malaysia has a tax system that is similar to that of the United States; however, employees are taxed more like independent contractors, with no money withheld from paychecks. Employees are responsible for paying the full tax before the end of the year. Employees are taxed on an upward scale based on income. They also have the right to deduct expenses such as purchase of equipment, educational materials and investments and even a deduction for a personal computer.
Leave & Holiday Allowances
Employees in Malaysia may receive 60 days of paid maternity leave.
Malaysia keeps a minimum of 11 unofficial holidays, with 5 of those being official: Malaysia Day, National Day, Federal Territory Day, Labour Day and Birthday of the Yang Dipertuan Agong. All of these holidays are paid.
Employees with less than 2 years on the job receive 8 days of paid annual leave, with this number jumping to 16 days when an employee reaches 5 years of service from an employer. Sick leave is similarly tiered, with 14 days per calendar year the minimum for an employee with less than 2 years on the job and 22 days for 5+ year employees. These minimums are increased if the sick leave requires hospitalization - the employee will receive up to 60 days in that case.
|Date||Malaysia's Public Holiday Schedule|
|1st day of 1st Lunar Month||Chinese New Year|
|May 1st||Labor Day|
|Full Mon in May||Wesak Day - Birth of Buddha|
|Eid Al-Fitr||Hari Raya Aidilfitri|
|2nd day of Eid Al-Fitr||Hari Raya Aidilfitri|
|August 31st||National Day/Independence Day|
|September 1st||Hari Raya Haji/Festival of Sacrifice|
|2nd Saturday in September||Birthday of SPB Yang di Pertuan Agong|
|September 16th||Malaysia Day|
|September 22nd||Awal Muharram/Islamic New Year|
Your Payroll in Malaysia
Malaysia is more than happy to do business with the West; however, the global payroll process can be incredibly taxing for a company that is not used to a country that manages its foreign investors so closely. In order to ensure the correct format is followed for the many steps in properly registering a business in Malaysia, an established international payroll partner is usually the best option. If payroll regulations are not followed strictly, a company may find itself in a very unprofitable situation very quickly.
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.