One of the most challenging parts of expanding to a new country is figuring out the right compensation and benefits to offer employees. This process entails adhering to Malaysia’s compensation laws and distinguishing between statutory benefits and supplemental offerings.
Malaysia compensation laws
The government of Malaysia increased the country’s minimum wage to MYR 1,500 on Jan. 1, 2023. According to the government announcement, employers in all sectors, regardless of region, that employ 5 or more employees must adhere to the country’s minimum wage requirements.
Guaranteed benefits in Malaysia
Companies are responsible for ensuring that every employee receives the guaranteed benefits required by law, such as annual leave entitlements, public holidays, parental leave, provident fund contributions, sick leave, and severance benefits.
All employees are covered by Malaysia’s universal healthcare system, which is funded through both employee and employer taxes.
When it comes to maternity leave, pregnant workers get no less than 98 consecutive days and are entitled to a maternity allowance. Their leave can start anytime within 30 days before their expected due date. A non-birthing employee who is legally married and has completed no less than 12 months of continuous service will be entitled to 7 consecutive days of paid paternity leave on the day of birth or immediately after the child’s birth.
Malaysia benefits management
Part of employee benefits management is identifying any common benefits not required but often expected by employees. For example, a 13th-month bonus is not legally required, but employers in Malaysia commonly give one. Performance-based bonuses are also not mandated by law, but employees often expect them.
Many employees in Malaysia choose to pay higher premiums for private health insurance. Some employers offer group private health insurance, group life insurance, and group accident insurance as a monthly allowance for employees.
Restrictions for benefits and compensation
Another crucial part of Malaysia compensation laws is learning the restrictions for benefits and pay. Malaysia’s employment law falls under the Employment Act of 1955, so it’s essential to understand this law before designing your compensation and benefits package.
Malaysia employee benefits plans
While it is crucial that the provisions you offer meet the country’s labor regulations, they also serve as a way of showing your appreciation toward workers. A well-rounded benefits plan can improve employee morale, increase retention, and solidify your employer brand.
Possible supplemental benefits and perks include:
- Supplemental insurance
- Transportation allowance
- Flexible working opportunities
- Training and certification programs
- Holiday bonuses
- An Employee Assistance Program (EAP)
Required benefits
Employers are legally responsible for providing the benefits described in the country’s labor laws. In Malaysia, these requirements include:
- Paid annual leave
- Maternity leave
- Provident fund contributions
- Paid public holidays
- Sick leave and hospitalization leave
- Layoff and severance benefits
Paid annual leave
Annual leave provisions depend on the worker’s length of service:
- For less than 2 years of service: 8 days for each year of service.
- For more than 2 years but less than 5 years of service: 12 days for each year of service.
- For 5+ years of service: 16 days for each year of service.
Maternity leave
Pregnant employees are entitled to a maternity allowance, which is the employee’s regular monthly salary or an allocated statutory amount per day, whichever is higher, for 60 consecutive days. Employees are entitled to a maternity allowance if they meet the following criteria:
- The expectant mother was employed within the 4 months prior to her due date.
- The expectant mother was employed for at least 90 days in the 9 months prior to her due date.
Effective Sept. 2022, the following entitlements are owed:
- Pregnant workers get no less than 98 consecutive days of maternity leave.
- Non-birthing employees that are legally married and have completed no less than 12 months of continuous service are entitled to 7 consecutive days of paid paternity leave starting on the day of birth or immediately after the child’s birth.
Provident fund contributions
The Employment Provident Fund (EPF) covers pension funds and allows employees to withdraw their savings for specific purposes, such as buying a house or for medical reasons. It acts as a savings fund with contributions made by both employees and employers.
Employees contribute at the prevailing rate on gross worldwide income. While employers contribute:
- 12% of the gross monthly wages for employees earning above MYR 5,000 per month.
- 13% for employees earning less than MYR 5,000 per month.
This contribution is optional for international employees and mandatory for all people in Malaysia and permanent residents.
Paid public holidays
In Malaysia, there are 5 compulsory national holidays:
- The National Day
- The Birthday of the Yang di-Pertuan Agong
- The Birthday of the Ruler of the Yang di-Pertua Negeri
- Workers’ Day
- Malaysia Day
Employees may also be entitled to 6 elective public holidays as gazette for that year.
Sick leave and hospitalization leave
An employee is entitled to sick leave days that must be approved by a registered medical practitioner. The number of days is determined by the length of service:
- For workers employed for less than 2 years: 14 days of sick leave every year
- For workers employed 2-5 years: 18 days of sick leave every year
- For workers employed 5+ years: 22 days of sick leave every year
If the employee requires hospitalization, an additional 60 days will be provided. Employees are entitled to their regular pay rate for each day of sick leave.
Termination and severance benefits
Termination benefits are determined by the employee’s length of service. An employee covered by the Employment Act may be entitled to:
- 10 days’ wages for each year of employment if the employee has been employed for less than 2 years.
- 15 days’ wages for each year of employment if the employee has been employed for 2-5 years.
- 20 days’ wages for each year of employment if the employee has been employed for 5+ years.
Employers are required to pay the termination benefits to their employees no later than 7 days after the relevant date or payroll date. Note that these benefits apply to any termination, except in the case of dismissal for misconduct or resignation.
Designing employee benefits plans in Malaysia
Designing a benefits plan can be challenging because companies have to meet employees’ needs without overextending resources. However, by following the proper steps, you can strike a balance between your company’s budget and your workers’ needs.
1. Determine company budget and goals.
When you understand your income and expenses, you can determine how much to allocate to your benefits budget. Make sure to estimate payroll expenses, inventory requirements, and company taxes.
You should also consider your company goals and how your use of benefits can support them. For example, if you want to focus on retention, you might opt for a more robust offering and a smaller workforce.
2. Research employee needs and expectations.
Learning which benefits local jobseekers prioritize can help companies make more intentional decisions. You can research these needs by conducting surveys or interviewing employees in your area. It’s also helpful to examine other companies in your industry to see what fringe benefits they offer. Providing similar perks can make your business more competitive.
3. Create a plan.
The information you gather will help you find a balance between your resources and what employees need. Start by allocating funds to the statutory provisions, then spend your remaining resources on fringe benefits as you see fit.
The average cost of benefits
The cost of benefits changes from company to company based on size, budget, location, and industry. Companies should determine a budget based these unique factors.
How to calculate benefits
The required provisions described in the labor laws include some guidance on how to calculate the minimum benefits, including pension contributions.
Employees must contribute to the EPF at the prevailing rate on gross worldwide income. Employers must contribute 12% to 13% (depending on income), and the required employer contributions are subject to change.
How are employee benefits taxed in Malaysia?
The tax authority categorizes benefits as a type of employment income that is subject to taxation. The country uses a tax system called benefits-in-kind (BIK) to determine the value of noncash benefits.
The formula for BIK is the cost of the asset divided by the number of years the asset is expected to last. This formula creates the annual value for a benefit, and this is the amount employees must factor into their income for taxation.
All BIK are taxable; however, the Inland Revenue Board of Malaysia outlines the following exemptions:
- Dental benefit
- Childcare benefit
- Food and drink provided free of charge
- Free transportation between pickup points or home and work
- Obligatory insurance premiums for international workers in replacement of SOCSO
- Group insurance premium covering workers in the event of accidents
- Leave passage
- Benefits used by the employer to perform employment duties
- Discounted price for consumable business products or services of the employer
- Benefits and monthly bills for landline telephones, mobile phones, and broadband subscriptions
- Medicine and maternity
- Benefit on free gas, such as gas cards and bills (up to MYR 6,000)
Employee health benefits
Taxes fund healthcare in Malaysia, making most services free to citizens and permanent residents. Employers are not required to provide medical insurance for this reason; however, the free healthcare system does not extend to all types of services. Dental care is not covered, for example. Employers may provide a supplemental insurance scheme to fund this care as well as health visits to private facilities.
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