Expanding to Malaysia? Here are Things You Need to Know About Their Law
Every country has their own set of employment laws to be followed. It is easier to stay compliant if the company focuses domestically but what about those who are looking to expand?
Business expansion is more than just about the cost of opening a new branch, it is also about identifying the laws of a country. Malaysia alone has an extensive employment act for companies to follow when it comes to recruitment, work hours, and leaves. Additionally, the ESG principles must be adhered to as well.
What Do Companies Need To Know?
The importance of Environmental, Social, and Governance (ESG) principles cannot be ignored. To remain relevant and comply with the law, business owners must understand the regulations around ESG practices.
ESG is especially important for publicly listed companies, as they face scrutiny from regulators, shareholders, and the public. The lack of unified ESG regulations has made it difficult for businesses to properly incorporate ESG into their operations, especially in Malaysia.
Relevant Legislation for ESG for Companies in Malaysia
Depending on the nature of a company’s business, the legislation below applies when considering the adoption and improvement of ESG practices in Malaysia:
Environmental
1. Environmental Quality Act 1974 (EQA)
The regulations control the discharge of pollutants into air, water, and land, as well as noise emissions. It provides a licensing framework and penalties to prevent and control pollution. Companies involved in activities with significant environmental impacts must appoint a qualified person to conduct an environmental impact assessment.
Social
2. Employment Act 1995 (EA)
The EA sets minimum standards for employment terms and conditions, including overtime pay, shift work allowances, and benefits related to termination or retirement for employees earning RM4,000 or less per month.
3. Laws on Statutory Contributions
Employers are required to make contributions to various employee benefit schemes, including:
– Employees Provident Fund (EPF) for retirement savings.
– SOCSO for workplace injury and occupational disease coverage.
– Employment Insurance System (EIS) for financial assistance and job placement.
– Human Resources Development Fund (HRDF) for training and skills development. Non-compliance can result in penalties.
These payrolls and mandatory contributions can be automated if companies adopted a HRMS software within Malaysia to ensure these laws are complied. Software such as HRX, can not only automate your employees’ payrolls, but also calculate the mandatory contributions for you.
4. Occupational Safety and Health Act 1994 (OSHA)
The OSHA ensures workplace safety and health. From 1 June 2024, key changes include:
– Expanding the scope to cover all workplaces in Malaysia, excluding domestic work and armed forces.
– Extending duties to ensure the safety of contractors, subcontractors, and their employees.
– Requiring employers with five or more employees to appoint a safety and health coordinator.
5. National Wages Consultative Council Act 2011
This Act established the National Wages Consultative Council to recommend minimum wage orders. The Minimum Wages Order 2022 sets the minimum wage employers must pay. Currently, a revised Minimum Wages Order 2024 has raised the minimum wage to RM1,700 from 1 February 2025 for larger employers, with a grace period for smaller businesses until 1 August 2025.
6. Anti-Trafficking in Persons and Anti-Smuggling of Migrants Act 2007
This Act addresses human trafficking and migrant smuggling, detailing relevant offences and penalties.
7. Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990
This Act, along with its regulations, sets minimum standards for housing, accommodation, and amenities provided by employers. Employers must obtain certification from the Department of Labour to confirm that their accommodations meet the required standards.
Governance
8. Companies Act 2016 (CA)
The CA governs company registration, administration, and dissolution, and outlines directors’ duties. Under section 213(1), directors must act in good faith in the company’s best interests. Directors may be seen as failing in their duties if they neglect to implement ESG practices in the company.
9. Malaysian Anti-Corruption Commission Act 2009 (MACCA)
The MACCA seeks to prevent corruption. Under section 17A, a company is liable if it or its associates engage in corrupt activities to gain or retain business advantages.
Foreign companies who are publicly listed in Malaysia are obligatory to comply with these ESG rules to open up shop in the country. Failure to comply can rake in penalties or land them in legal issues with the local government, especially if it involves labour. However, if companies opt for a software to handle their onboarding or recruitment, they can search for a HRMS software provider like IFCA to assist them. With our support on standby, the implementation will be smooth and ensure regulations are followed in a timely manner.
