EOR vs Entity Setup: Which Is Better for Hiring in Malaysia?
Hiring in Malaysia can take different forms depending on a company’s goals, timelines, and resources. For many businesses — especially foreign companies or organisations expanding into Malaysia for the first time — the biggest decision is whether to hire through EOR services or set up a local legal entity.
Both options are widely used, but they come with different costs, compliance responsibilities, and operational requirements. Understanding the difference between an Employer of Record Malaysia (EOR) and a local entity setup is essential for choosing the right pathway.
This guide explains both models, compares their advantages, and helps you determine which approach best supports your hiring needs in Malaysia.
What Is an EOR (Employer of Record) in Malaysia?
An EOR provider acts as the legal employer on your behalf. Your company manages the employee’s day-to-day work, while the EOR handles:
- Employment contracts
- Payroll & statutory compliance (EPF, SOCSO, EIS, PCB)
- HR administration
- Leave & claims management
- Onboarding & offboarding
- Local labour law compliance
EOR is ideal for companies that want to hire swiftly without incorporating in Malaysia.
To understand how EOR services work, visit:
➡️ https://www.centralhr.my/employer-of-record-malaysia/
➡️ https://www.centralhr.my/eor-meaning-purpose-benefits/
What Is Entity Setup in Malaysia?
Entity setup means registering a local company, such as:
- Sdn Bhd (Private Limited Company)
- Representative Office
- Foreign-owned Sdn Bhd
This option requires full compliance with Malaysian business laws, taxation policies, HR regulations, and statutory employer responsibilities.
When choosing entity setup, companies must manage:
- Company incorporation
- Local directors (if required)
- Business licences (if applicable)
- Corporate tax filing
- HR policies & employment contracts
- Payroll and statutory contributions
- Employee relations and performance management
Entity setup is preferred by businesses planning long-term operations with local presence.
Comparing EOR vs Entity Setup in Malaysia
Here is a clear breakdown of the differences.
Note:
a. The obligation only applies if the employee receives wages in monetary form.
b. For certain passes (e.g., Student, Professional Visitor, Residence, Long-Term Visit), prior work permission from the Immigration Department is required.
Contribution Rates
The EPF contribution rate under the new policy is as follows:
- Employer: 2% of monthly wages
- Employee: 2% of monthly wages
These rates will take effect from October 2025 wages, and payments must be made by the 15th of the following month (i.e., 15 November 2025).
Contribution rates for non-Malaysian workers starting from October 2025 are as follows:
| Non-Malaysian citizen employee category | Contribution Rate starting from October 2025 | |
|---|---|---|
| Less than 60 years old | Has attained 60 years old | |
Non-Malaysian citizen employees who are permanent residents in Malaysia | Remain unchanged | Remain unchanged |
Non-Malaysia citizen employees who became EPF members before 1 August 1998 | Remain unchanged | Remain unchanged |
Non-Malaysian citizen employees who became EPF members after 1 August 1998 | Adjusted EM: 2%, EP: 2% | Adjusted EM: 2%, EP: 2% |
Note: EM – Employer Share, EP – Employee Share | ||
Employer Responsibilities
To comply with the new requirements, employers must take the following actions:
1. Register Non-Malaysian Employees with EPF
Employers can register eligible foreign employees using one of the following methods:
- Option A: Online via Employer i-Akaun
- Option B: Manual Registration at EPF Office
2. Deduct and Contribute EPF Monthly
From October 2025 onwards, ensure:
- 2% deduction from the employee’s monthly wages
- 2% contribution from the employer
- Payment is made through the usual Form A submission and paid by the 15th of the following month
3. Maintain Accurate Records
Employers must keep updated employee records, including:
- Nationality and passport details
- EPF membership numbers
- Employment start dates
- Wage details and contribution history
This documentation may be requested for audit or verification purposes by EPF authorities.
Frequently Asked Questions (FAQs)
1. Is EPF contribution now compulsory for all non-Malaysians?
Yes. Starting October 2025, all eligible non-Malaysian employees (excluding domestic workers) must be registered, and both employer and employee must contribute to EPF.
2. What is the contribution rate?
The contribution rate is 2% by the employer and 2% by the employee, based on the employee’s monthly wages.
3. Can the employee opt out of contributing?
No. The contribution is mandatory under the new policy. Opting out is not permitted.
4. Will the foreign employee be able to withdraw EPF savings?
Yes. Non-Malaysian employees may withdraw their savings upon permanent departure from Malaysia, subject to EPF rules.
5. In which situations can EPF contributions for non-Malaysian employees be stopped even if they are still employed?
EPF contributions must be stopped in the last two (2) months before the employee’s pass expires, even if the employee continues to be in service. This rule ensures compliance with EPF’s contribution liability, which is tied to valid immigration status.
6. What should non-Malaysian citizen employee do to maintain the 11% employee’s share contribution rate?
To maintain the 11% employee’s share contribution rate after the effective date, the employee must submit the relevant form to their employer.
The employer must then submit the application to contribute above the statutory rate via i-Akaun (Employer).
Download the form here: Application for Registration Form / Cancellation to Contribute Above the Statutory Rate (Employee Share) KWSP 17A/18A (AHL).
Preparing Ahead
With the deadline approaching, employers are strongly encouraged to:
- Begin the registration process early
- Update payroll systems to reflect the new 2% contribution deductions
- Review employment records and ensure accurate data is maintained
At CentralHR, we assist employers with end-to-end payroll and statutory compliance, including EPF registration, contribution filing, and employee record management. If your company employs foreign workers, we are here to help you prepare for this transition.
