There is a moment that catches out a lot of companies expanding into Malaysia. You have found the person. They want the job. And then someone asks how you are going to pay them, and the answer turns out to be a three to six month incorporation project you had not budgeted for.
There are two honest routes, and the right one depends on why you are hiring here at all.
Route one: incorporate
A Sdn. Bhd. of your own, registered with the Companies Commission of Malaysia. You become the employer, you carry every statutory obligation directly, and you own the entity permanently.
This is the right answer when Malaysia is a long-term market for you, when you will hire more than a handful of people, or when you need the entity for reasons beyond employment, such as invoicing local customers, holding a licence or bidding for local work.
It is the wrong answer when you need someone to start next month, or when you are testing whether the market works at all before committing.
One thing to check before you assume incorporation solves your problem. If the hire is a foreign national who needs an Employment Pass, incorporating is necessary but not sufficient. The Expatriate Services Division sets minimum paid-up capital before a company can sponsor an expatriate:
| Ownership | Minimum paid-up capital |
|---|---|
| 100 percent locally owned | RM250,000 |
| Joint venture, minimum 30 percent foreign equity | RM350,000 |
| 100 percent foreign owned | RM500,000 |
| Foreign owned at 51 percent or more, in wholesale, retail or trade | RM1,000,000 |
A freshly incorporated company with nominal capital cannot sponsor a pass. Wholesale, retail and trade at 51 percent or more foreign equity also needs a valid WRT licence, and foreign-owned companies at that level in unregulated services need separate approval from the Ministry of Domestic Trade and Cost of Living.
So “we will just set up a company” can quietly mean “we will capitalise a company at half a million ringgit and obtain a licence.” Worth knowing at the planning stage.
Route two: employer of record
Someone else who already has a Malaysian entity employs the person on your behalf. They hold the employment contract, run payroll, make the statutory contributions and carry the compliance obligations. You direct the work.
This fits three situations in particular:
You are testing the market. One or two hires, and you would rather not commit to an entity until you know the market works.
You need someone to start now. The candidate is ready and incorporation is not.
Your incorporation is in progress. The entity is coming but is not live yet, and you do not want to lose the candidate to the gap. The hire can start on a compliant Malaysian contract and transfer across once your registrations are complete.
Employer of record is for local hires: Malaysian citizens and permanent residents. If the person needs an Employment Pass, the pass attaches to the company that sponsors them, which takes you back to route one.
It is the wrong answer when you are building a large local team, when you need the entity for non-employment reasons, or when you are already committed to Malaysia for the long term. At that point you are paying a per-employee fee for something you should own.
What you are actually handing over
This is the part worth understanding properly, because employer of record is a legal undertaking rather than a payroll convenience.
On paper, your hire becomes the provider’s employee. Every obligation attaching to a Malaysian employment relationship moves with that:
- EPF, at 13 percent employer share for employees earning RM5,000 and below, 12 percent above that, from the first payroll run
- SOCSO, at 1.75 percent employer share for employees under 60
- EIS, at 0.2 percent employer share
- Monthly tax deductions remitted to LHDN, and the annual form each employee needs to file their own return
- The HRD Corp levy, where the employer meets the registration threshold
- Statutory leave and the wider obligations of the Employment Act
One detail that catches people out. SOCSO and EIS are calculated on wages up to a ceiling that rose to RM6,000 per month from 1 October 2024.
Malaysia’s Employment Act now reaches a considerably wider band of employees than it once did, which regularly surprises employers who assume a salaried professional sits outside it.
The question that decides it
Not cost. People reach for the cost comparison first, and it is the least useful lens, because the two options are priced differently in kind. Employer of record is a recurring per-employee fee. Incorporation is a large upfront cost, a permanent compliance overhead, and an asset you keep.
The question that actually decides it is what Malaysia is to you.
If it is a market you are committed to, incorporate, and treat employer of record as a bridge to cover the gap rather than a destination. If it is a market you are testing, or a single strategic hire, or a team of two that may stay a team of two, an entity is a lot of permanent structure to carry.
The mistake is drifting. Companies that intended employer of record as a six-month bridge and are still on it four years and eleven employees later are paying for flexibility they stopped needing a long time ago.
What to settle before you sign either way
If incorporating: confirm the paid-up capital position against what you will need for pass sponsorship, not just what is needed to register. Confirm whether your sector needs a licence. Budget the statutory employer layer at roughly 15 percent on top of salary.
If using an employer of record: understand who holds the employment relationship and therefore who carries termination exposure. Understand what happens when you do incorporate and want to move people across. Confirm the provider’s own entity is real and locally incorporated rather than a contractual arrangement layered over someone else’s.
Where this sits in our work
Our employer of record practice runs through People Profilers (Services) Sdn. Bhd., incorporated in April 2023 with the specific mandate to provide manpower contracting and payroll services, inside a group with locally incorporated entities in five Southeast Asian markets.
If you are weighing the two routes, our employer of record service in Malaysia sets out how we handle it, including the transfer across when your own entity goes live. If you already have an entity and only need the statutory calculation and filing handled, payroll outsourcing is the narrower answer.
Sources
Verified September 2026. Rates, ceilings and capital requirements change, so confirm before relying on them.
- Minimum paid-up capital by ownership structure, WRT licence requirement, ministry approval for foreign-owned unregulated services, and eligible registering entity types: ESD Online Guidebook
- EPF employer and employee rates: KWSP, Employer Mandatory Contribution
- SOCSO and EIS employer and employee percentages: PERKESO, Contributions
- Wage ceiling increase to RM6,000 effective 1 October 2024: PERKESO, Contribution Rate
