As you begin to recruit new workers for your company you may find the right candidate living abroad. If so, then you can hire them as remote workers in countries such as Malaysia. Because of the prevalence of remote work many candidates may already have experience in specialized roles for foreign companies.
The next step is to decide how to hire them, either as an employee or as independent contractors. Many workers will want to be employees because it gives them benefits and entitlements in their own country. But for the hiring company, there are the cost and statutory obligations of employment to consider, especially for startups.
Hiring the Malaysian (or ex-pat) worker as an independent contractor is a natural choice if you have a sporadic workload to offer, or want to give them a trial period. If they prove valuable you can always hire them as an employee at a later date.
Here are some of the benefits of hiring contractors:
- No long-term financial/HR commitment by the company
- Cost-effective when compared to paying employee benefits and entitlements
- Contracting is a B2B relationship, outside of typical labour laws
- A good way to give a recruit a ‘probationary’ period before hiring
- Can hire for short projects or on a repeat basis
- More flexible to scale up or down, or if different skill sets are needed as the company grows
How to hire and pay remote contractors in Malaysia
Your company has several options for hiring and paying contractors in Malaysia, depending on the contractor’s preference or business structure.
Hire and pay them as a freelancer
Your Malaysian contractor may be used to offering their services as a freelancer, working for several clients at once. So, their availability should be confirmed before setting up the contract. The contractor would invoice you directly for time spent or project completion, and you just have to arrange a cross-border payment method.
It is a good practice to ask a new freelancer for references, especially from foreign clients they have worked for remotely. Otherwise, start with small milestones and payments until goodwill is established.
Pay them through their limited company
Experienced contractors may have their own limited company in Malaysia that they use for contracts and invoices. The advantage for your company is that this can signify their commitment and stability as a business entity duly registered. The limited company would issue the invoice in this case and lease out the contractor for agreed services. You would pay the limited company directly just as with any B2B relationship.
Use an umbrella company in Malaysia
A final option is where a contractor uses an umbrella company in Malaysia to handle their contracts, invoices and tax withholding. They are essentially an ‘employee of the umbrella company, and this is often appealing to new contractors. Your company would remit payment directly to the umbrella company, which would in turn issue a payslip to the contractor. This is a real advantage when you are hiring for the first time in Malaysia and want to have a way to ensure performance before payment. The umbrella company is an intermediary between you and the contractor, giving you both more certainty.
Compliance risks when hiring remote workers in Malaysia
You might expect that you would not have many compliance concerns as a foreign company with no physical presence in Malaysia. But there are two areas to pay attention to when you are hiring remote contractors.
Misclassification risk: Employee vs contractor
The first is misclassification where your contractor has deemed an employee under Malaysian labour laws. Governments are beginning to focus more on this issue, as contracting can deprive the worker of labour protections. It also affects revenue for social programs as there are no employer contributions.
The criteria usually revolve around how much control you exert over the contractor, as you would with an employee. For example, setting their work schedule and methods or giving them benchmarks for promotion and compensation. There is less risk of misclassification for remote contractors, and would only arise if the worker tried to claim employee status at some point.
Permanent establishment risk in Malaysia
The other area is a permanent establishment (PE), which can result in corporate taxation. PE is triggered when there is sufficient business activity in Malaysia that results in local revenue. Most remote positions such as IT developers, customer service and accounting will not trigger PE, but if you hire contractors for sales roles there is a risk.
The contractor would have to be concluding regular sales contracts for your company inside Malaysia (not just one or two). In that case, tax authorities might find that is enough of a nexus to levy corporate tax on the revenue.
How Contractor Taxation helps you hire remote workers in Malaysia
Contractor Taxation has a global network of umbrella companies, including in Malaysia. They are ready to hire the contractor and administer all the tasks related to taxes, payments and contributions. As a company looking to hire Malaysian contractors, you can recommend to the new hire that an umbrella company be used to assist with the relationship. There is a fee, but it could be shared as there are benefits for you both.
Most contractors will be open to this, as it reduces the risk of non-payment with a new client, and relieves them of the administrative burden of self-employment.
Please contact us if you are interested in hiring a Malaysian or ex-pat worker for your company as a contractor.
