What foreign employers need to review when hiring, paying, managing, and ending employment in Malaysia.
For a foreign company, understanding employment law in Malaysia starts with knowing which rules apply to the employee and where the employee works.
Malaysia’s employment framework is not completely uniform across the country. The Employment Act 1955 applies to Peninsular Malaysia and the Federal Territory of Labuan, while Sabah and Sarawak operate under their respective labour ordinances. Malaysia’s Department of Labour explicitly distinguishes these jurisdictions.
The 2026 picture also includes several developments that directly affect employers, including the nationwide RM1,700 minimum wage, mandatory EPF contributions for eligible non-Malaysian employees, and revised Employment Pass salary thresholds effective 1 June 2026.
This guide focuses on what those rules mean operationally for foreign companies rather than treating Malaysian employment law as one long list of statutes.
First, Know Which Malaysian Employment Rules Apply
Before reviewing contracts, payroll, or benefits, establish the employee’s jurisdiction.
Peninsular Malaysia and Labuan
The Employment Act 1955 is the core employment statute for Peninsular Malaysia and has been extended to the Federal Territory of Labuan. The current framework covers matters including working hours, leave, flexible working arrangements, wages, foreign-worker employment, and various employee protections.
Sabah
Sabah uses the Labour Ordinance of Sabah rather than applying the Employment Act 1955 in the same way as Peninsular Malaysia. Sabah has also introduced recent amendments and 2026 rules affecting non-resident workers.
Sarawak
Sarawak operates under the Labour Ordinance of Sarawak. For example, Sarawak’s 2026 rules include a specific licensing framework for employing non-resident employees.
This geographic distinction is important for foreign companies with employees in more than one Malaysian state. A single headquarters policy may need local adjustments.
Malaysia Employment Law 2026: What Changed for Employers?
The most useful 2026 review is not “what laws exist?” but “what has changed in the employer’s actual workflow?”
Malaysia Employment Law 2026 and the RM1,700 Minimum Wage
The RM1,700 minimum wage was fully implemented nationwide for all employers from 1 August 2025, following the phased implementation that began earlier in 2025. The Ministry of Human Resources states that the minimum wage applies to basic salary and is not satisfied by allowances or other supplementary payments.
Minimum wage reference:
| Pay basis | Minimum |
|---|---|
| Monthly | RM1,700 |
| Daily — 6-day week | RM65.38 |
| Daily — 5-day week | RM78.46 |
| Hourly | RM8.72 |
These figures come from the Minimum Wage Order 2024 framework published by the Ministry of Human Resources.
Foreign Employees Now Affect EPF Planning
Eligible non-Malaysian employees holding valid work passes became subject to mandatory EPF registration and contributions from 1 October 2025. The EPF states that employers are responsible for registering eligible non-Malaysian citizen employees and making the required contributions.
This means foreign-worker payroll should no longer be treated as completely separate from Malaysian statutory contribution planning.
Employment Pass Salary Thresholds Changed in June 2026
From 1 June 2026, new and renewal Employment Pass applications must meet revised salary thresholds:
| Category | Minimum salary from 1 June 2026 |
|---|---|
| Category I | RM20,000+ |
| Category II | RM10,000–RM19,999 |
| Category III | RM5,000–RM9,999 |
The revised policy also introduces different maximum durations and succession-plan conditions for Categories II and III. The official Expatriate Services Division states that the new thresholds apply to applications submitted on or after 1 June 2026.
This is particularly relevant when foreign employees are approaching renewal dates.
What the Employment Relationship Needs to Cover
Once the jurisdiction and current regulatory changes are understood, the next question is what the employer needs to manage throughout the employment relationship.
A written employment arrangement should clearly establish the relevant terms of employment.
For employers in Peninsular Malaysia and Labuan, the Employment Act 1955 and related rules govern areas including wages, working time, leave, and employee protections.
A practical employment file should align:
Employment contract → payroll → working schedule → leave records → statutory contributions
When these records describe the same employment relationship, HR administration becomes easier to manage and review.
The 45-Hour Working Week Matters More Than the Contract Says
One of the significant changes under the 2022 amendments to the Employment Act was the reduction of normal working hours from 48 to 45 hours per week, effective from 1 January 2023 for the covered jurisdiction. JTKSM states that employers must amend contractual working hours where necessary and may not reduce salary simply because working hours were reduced.
The same framework introduced or strengthened provisions concerning flexible working arrangements and employee protections.
Working Hours in Practice
Employers should ensure that:
- Normal working hours are clearly stated.
- Work schedules are reflected in the employment arrangement.
- Overtime is handled according to the applicable rules.
- Attendance records can support payroll calculations.
- Any flexible-work arrangement follows the required process.
A foreign company should therefore review its headquarters schedule before simply applying it to Malaysia.
Leave Is a Workforce Planning Issue, Not Just an HR Benefit
Malaysia’s employment framework includes specific statutory leave protections.
The Employment Act amendments increased maternity leave to 98 days and introduced 7 days of paternity leave for eligible employees under the applicable conditions. The amendments also separated hospitalisation leave from ordinary sick leave.
For employers, this means leave administration should connect:
Eligibility → Leave request → Approval → Attendance → Payroll
A global leave policy should therefore be reviewed before it becomes the operating policy for Malaysian employees.
Payroll in Malaysia Has Several Statutory Layers
Payroll is where many employment obligations become operational.
EPF
The EPF requires employer registration and contributions for eligible employees. For eligible non-Malaysian citizen employees with valid work passes, mandatory contributions apply from October 2025.
SOCSO
PERKESO administers employment-related social protection schemes and provides contribution requirements for covered employees. Foreign workers are also subject to mandatory protection and contribution arrangements under the applicable scheme.
EIS
The Employment Insurance System applies to eligible employees in the private sector, with contributions generally shared between employer and employee. PERKESO currently states a combined EIS contribution of 0.4%, with 0.2% paid by each side, subject to eligibility rules.
Payroll Records
For foreign employers, the practical requirement is consistency. Salary records, statutory deductions, employee status, leave, and working time should all be able to be reconciled.
Foreign Workers Add Another Compliance Layer
Foreign-worker employment is not simply a matter of issuing an offer letter.
For Peninsular Malaysia, the Employment Act framework includes a requirement for prior approval before employing foreign employees.
For expatriate positions covered by the Employment Pass system, the Immigration Department states that an Employment Pass allows an expatriate to work for the organisation named in the pass, and the relevant authorities must approve the foreign talent before the pass is issued.
The 2026 salary-threshold revision adds another review point before new or renewal applications are submitted.
For foreign employers, the practical order is:
Position → Employer eligibility → Required approval → Salary threshold → Pass application → Employment commencement
This should be handled before the expatriate begins work.
Malaysia Employment Law 2026 Is Not Only About Hiring
Employment compliance also becomes important when the company reduces headcount, restructures, or ends employment.
Malaysia has specific rules concerning retrenchment, lay-off, separation schemes, and pay cuts. JTKSM states that certain such actions must be notified to the Department of Labour using the prescribed notification process.
Retrenchment
JTKSM states that retrenchment and certain related actions require notification, with specified portions of the notification submitted before and after the action.
Termination Benefits
Where an employee qualifies for statutory termination benefits, JTKSM lists minimum rates of:
- 10 days’ wages for each year of service for less than 2 years
- 15 days’ wages for each year for 2 to less than 5 years
- 20 days’ wages for each year for 5 years or more
The applicable rules and eligibility conditions matter, so employers should not assume that every termination automatically triggers these payments.
Unfair-Dismissal Risk
Termination should also be supported by an appropriate legal and documentary basis. The company’s employment records should be able to explain why the employment relationship ended and how the process was handled.
What Foreign Companies Should Localize From Their Headquarters
A global HR policy can remain the foundation, but several parts need a Malaysia-specific review.
| Global HR policy | Malaysia review |
|---|---|
| Employment contract | Local statutory terms and jurisdiction |
| Salary | RM1,700 minimum wage and applicable compensation |
| Working hours | 45-hour framework and overtime |
| Leave | Malaysian statutory entitlements |
| Payroll | EPF, SOCSO, EIS and other applicable items |
| Foreign workers | Approval and Employment Pass requirements |
| Flexible work | Malaysia-specific FWA process |
| Retrenchment | Local notification and termination procedures |
This is particularly important for companies that operate the same HR system across multiple Southeast Asian countries.
Three Questions to Ask Before Hiring in Malaysia
Rather than starting with a long compliance checklist, foreign employers can begin with three practical questions.
Where will the employee work?
This determines which labour framework needs to be reviewed.
Is the employee Malaysian or foreign?
Nationality can change EPF, immigration, work-permit, and social-protection requirements.
What will payroll actually need to process?
The answer should include not only salary, but also statutory contributions, leave, working time, and any foreign-worker requirements.
Once these questions are clear, the remaining HR requirements become much easier to map.
Frequently Asked Questions
What is Malaysia Employment Law 2026?
It is the employment framework applicable to employers and employees in Malaysia in 2026, including employment contracts, working hours, wages, leave, statutory contributions, foreign-worker requirements, and termination.
Does the Employment Act 1955 apply throughout Malaysia?
Not in the same way. The Employment Act 1955 applies to Peninsular Malaysia and has been extended to Labuan. Sabah and Sarawak have their own labour ordinances.
What is the minimum wage in Malaysia in 2026?
The current minimum wage is RM1,700 per month, with corresponding daily and hourly rates under the Minimum Wage Order framework. Full nationwide implementation took effect on 1 August 2025.
What are the standard working hours in Malaysia?
For employees covered by the Employment Act 1955 in Peninsular Malaysia and Labuan, the normal working week was reduced to 45 hours under the 2022 amendments.
Do foreign workers need EPF contributions?
Eligible non-Malaysian citizen employees with valid work passes became subject to mandatory EPF contributions from 1 October 2025.
What changed for Employment Pass applications in 2026?
From 1 June 2026, revised salary thresholds apply to new and renewal Employment Pass applications: RM20,000+ for Category I, RM10,000–RM19,999 for Category II, and RM5,000–RM9,999 for Category III.
Does Malaysia require a 13th-month salary?
There is no general statutory requirement for a 13th-month salary under the sources reviewed for this article. Whether a bonus becomes contractually binding can depend on the employment terms and how it has been treated historically.
Can foreign companies hire employees in Malaysia without setting up a local entity?
The employment structure should be reviewed based on the company’s circumstances, including legal, tax, immigration, and employment requirements. An EOR may be one possible structure, but the arrangement should be assessed before hiring.
Conclusion
Malaysia Employment Law 2026 is easier to manage when employers start with the employee’s actual situation rather than trying to apply one generic Malaysia-wide checklist.
First determine where the employee works, then identify whether the employee is Malaysian or foreign, and finally connect the employment terms to payroll, working time, leave, statutory contributions, and any required immigration or termination process.
For 2026, foreign employers should pay particular attention to the fully implemented RM1,700 minimum wage, mandatory EPF administration for eligible foreign employees, and the revised Employment Pass salary thresholds.
For companies operating across Peninsular Malaysia, Sabah, and Sarawak, the jurisdictional distinction is equally important because the underlying labour frameworks are not identical.
Supporting Your Malaysia Workforce
BigFish Global Consulting can support international companies with cross-border workforce and HR requirements, including:
- Employer of Record
- Payroll administration
- Recruitment
- HR support
- Employment compliance
- Immigration and work-pass support
For companies expanding across Southeast Asia, Malaysia-specific employment requirements should be reviewed alongside the wider regional workforce strategy.
Contact BigFish Global Consulting to discuss your Malaysia workforce requirements.
