Expanding a business into Malaysia can open up new opportunities, but establishing a legal entity isn’t always practical or necessary. That’s where an Employer of Record (EOR) service comes in. An EOR allows companies to hire employees in Malaysia without setting up a local entity, simplifying compliance with local labor laws and HR requirements. Here are the top 11 questions answered about using an EOR in Malaysia.
1. What is an Employer of Record (EOR)?
An EOR is a third-party service provider that hires employees on behalf of a company, handling all legal and administrative responsibilities. It enables companies to manage employees and payroll in foreign countries without establishing a legal presence there. The EOR takes care of compliance, tax filings, and employee benefits while the client company oversees the employees' daily tasks.
2. How Does an EOR Differ From a Staffing Agency?
While staffing agencies find temporary workers, an EOR becomes the legal employer of the workforce on behalf of the client company. The EOR manages HR tasks such as onboarding, payroll, and compliance, whereas the client focuses on directing the employees' work. This model is ideal for long-term hires in foreign countries.
3. Why Use an EOR in Malaysia?
Using an EOR in Malaysia can save time and costs associated with setting up a local entity. It ensures compliance with local employment regulations, including tax contributions, statutory benefits, and employee protections. This is particularly useful for companies testing the Malaysian market or engaging in short-term projects.
4. What Are the Benefits of Hiring Through an EOR?
Speed of Hiring: An EOR can help you hire employees quickly without the need to establish a local subsidiary.
Legal Compliance: The EOR ensures compliance with Malaysia's labor laws and employment practices.
Cost Savings: It avoids the expenses related to entity setup, local administration, and legal fees.
Flexibility: Allows businesses to scale up or down easily in response to market needs.
Focus on Core Business: With HR tasks handled by the EOR, companies can concentrate on their main business operations.
5. What Are the Costs Involved in Using an EOR in Malaysia?
The costs of using an EOR typically include a monthly service fee per employee and statutory benefits contributions or any additional services. The service fee is charged per employee, which can be a flat rate or a percentage of the employee's salary. While these fees can add up, they are lower than the costs of setting up and maintaining a legal entity.
6. How Does an EOR Handle Payroll in Malaysia?
The EOR manages payroll processing, including salary payments, tax deductions, and social security contributions. They also ensure that payslips are compliant with Malaysian labor regulations and that all statutory requirements, such as the Employees Provident Fund (EPF) and Social Security Organization (SOCSO), are met.
7. Are Employees Hired Through an EOR Considered Permanent Employees?
Employees hired via an EOR are considered permanent employees under Malaysian law and receive the same statutory benefits as other workers. The key difference is that the EOR acts as the legal employer for administrative and compliance purposes, while the client company manages the employee's day-to-day work assignments.
8. How Does an EOR Help With Visa and Work Permit Requirements?
For foreign hires, an EOR can assist with securing the appropriate work permits and visas. They ensure that all immigration requirements are met, reducing the risk of legal issues and allowing the employee to work legally in Malaysia.
9. Can an EOR Help with Terminating an Employee in Malaysia?
Yes, an EOR can assist with employee terminations, ensuring compliance with local labor laws. In Malaysia, termination must follow specific regulations, including notice periods and severance pay, based on the employee's length of service. The EOR handles the legal requirements to minimize potential risks for the company.
10. What Are the Risks of Not Using an EOR When Hiring in Malaysia?
Without an EOR, companies may face legal and financial risks associated with non-compliance to local labor laws. Penalties may include fines for improper tax filing, non-contribution to statutory benefits, and legal disputes over employment terms. An EOR helps mitigate these risks by ensuring compliance with all local regulations.
11. How Do You Choose the Right EOR Provider in Malaysia?
Choosing the right EOR involves evaluating the provider's experience, reputation, and range of services. Consider factors such as:
Local Expertise: The provider should have a thorough understanding of Malaysian employment laws and practices.
Service Coverage: Look for a provider that offers comprehensive HR services, including payroll, tax compliance, and employee benefits.
Customer Support: Ensure they offer reliable support for handling HR issues and queries.
Transparency: Fees and contract terms should be clearly outlined to avoid hidden costs.
Conclusion
Employing without a legal entity in Malaysia is made easy with an EOR, allowing companies to hire and manage employees while staying compliant with local regulations. Whether you’re testing the market or looking to expand, an EOR simplifies the process, saves costs, and helps you focus on growing your business.
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