Ending an EOR Arrangement in Malaysia: An Employer of Record Services Offboarding and Compliance Checklist
Many regional businesses use Employer of Record services to hire staff in Malaysia without setting up a local entity.
Sooner or later, the arrangement ends. You may be setting up your own Sdn Bhd, restructuring the team or parting ways with an employee.
Whatever the reason, the exit must follow Malaysian employment and tax law. A rushed offboarding can lead to unfair dismissal claims or tax penalties.
This guide explains who is responsible for what, and provides a practical checklist for ending an EOR arrangement compliantly.
Sooner or later, the arrangement ends. You may be setting up your own Sdn Bhd, restructuring the team or parting ways with an employee.
Whatever the reason, the exit must follow Malaysian employment and tax law. A rushed offboarding can lead to unfair dismissal claims or tax penalties.
This guide explains who is responsible for what, and provides a practical checklist for ending an EOR arrangement compliantly.
How Employer of Record Services Work at the Point of Exit
Under an EOR model, the provider is the legal employer. It holds the employment contract, runs payroll and makes statutory contributions.
Your company directs the employee’s day-to-day work. It also usually decides when the relationship should end.
As Slasify explains, the client makes and communicates the termination decision, while the EOR handles notice, final pay, deregistration and filings.
That split means both parties need to coordinate closely. Your service agreement should state clearly who does what, and by when.
Your company directs the employee’s day-to-day work. It also usually decides when the relationship should end.
As Slasify explains, the client makes and communicates the termination decision, while the EOR handles notice, final pay, deregistration and filings.
That split means both parties need to coordinate closely. Your service agreement should state clearly who does what, and by when.
Common Scenarios for Ending an EOR Arrangement
- Resignation: the employee gives notice and leaves voluntarily.
- Termination: the employment ends for performance, misconduct or business reasons.
- Retrenchment: the role is no longer needed, for example when you scale down in Malaysia.
- Transfer: the employee moves from the EOR to your newly incorporated local entity.
Each scenario carries different legal steps. TSL Legal notes that the employment contract is the starting point, so review it before acting.
If you plan to transfer staff to your own entity, early market entry advisory helps you time incorporation and the handover.
Step 1: Confirm Notice Periods and Legal Grounds
Section 12 of the Employment Act 1955 sets minimum notice periods where the contract is silent, as summarised by Worksy:
Either party may pay wages in lieu of notice instead. A contract can provide a longer notice period than the Act, but not a shorter one.
Dismissal for misconduct requires a fair process, usually a domestic inquiry. Employees should be given a proper chance to respond.
Under the Industrial Relations Act 1967, a dismissed employee may file an unfair dismissal claim within 60 days of termination.
- Less than 2 years of service: 4 weeks.
- 2 to less than 5 years of service: 6 weeks.
- 5 years or more: 8 weeks.
Either party may pay wages in lieu of notice instead. A contract can provide a longer notice period than the Act, but not a shorter one.
Dismissal for misconduct requires a fair process, usually a domestic inquiry. Employees should be given a proper chance to respond.
Under the Industrial Relations Act 1967, a dismissed employee may file an unfair dismissal claim within 60 days of termination.
Step 2: Handle Retrenchment Correctly
If the role is being made redundant, use fair and documented selection criteria rather than ad hoc decisions.
Employers must notify the Labour Department using Form PK at least 30 days before the retrenchment takes effect.
Failing to file is an offence under the Employment Act, with fines of up to RM50,000.
A structured risk and governance advisory review can help you document decisions and reduce dispute risk.
Employers must notify the Labour Department using Form PK at least 30 days before the retrenchment takes effect.
Failing to file is an offence under the Employment Act, with fines of up to RM50,000.
A structured risk and governance advisory review can help you document decisions and reduce dispute risk.
Step 3: Calculate Final Pay and Termination Benefits
Final pay should include outstanding wages, payment for unused annual leave and any contractual bonuses or allowances.
Employees with at least 12 months of continuous service may also be entitled to termination benefits under the 1980 regulations:
These statutory benefits generally apply to employees covered by the First Schedule, such as those earning up to RM4,000 a month.
They do not apply to resignations or dismissals for misconduct. Contracts may still offer more generous severance terms.
Employees with at least 12 months of continuous service may also be entitled to termination benefits under the 1980 regulations:
- Under 2 years of service: 10 days’ wages per year.
- 2 to 5 years of service: 15 days’ wages per year.
- More than 5 years of service: 20 days’ wages per year.
These statutory benefits generally apply to employees covered by the First Schedule, such as those earning up to RM4,000 a month.
They do not apply to resignations or dismissals for misconduct. Contracts may still offer more generous severance terms.
Step 4: Settle Tax and Statutory Contributions
Notify LHDN with Form CP22A
Employers generally must notify LHDN using Form CP22A at least 30 days before an employee leaves, unless an exemption applies.
Final payments may need to be withheld until LHDN issues a tax clearance letter or 90 days pass after notification.
Non-compliance can result in fines and liability for the employee’s unpaid tax, so involve tax advisory specialists early.
Final payments may need to be withheld until LHDN issues a tax clearance letter or 90 days pass after notification.
Non-compliance can result in fines and liability for the employee’s unpaid tax, so involve tax advisory specialists early.
Finalise EPF, SOCSO and EIS
Make the last contributions to EPF (KWSP), SOCSO (PERKESO) and the Employment Insurance System on the final wages.
Issue the employee’s EA form for the year so they can file their own tax return.
Issue the employee’s EA form for the year so they can file their own tax return.
Cancel work passes for foreign employees
If the employee holds an Employment Pass, the pass must be cancelled with the Immigration Department when employment ends.
Guidance from migration advisory specialists helps avoid problems with future pass applications.
Guidance from migration advisory specialists helps avoid problems with future pass applications.
Step 5: Recover Assets and Protect Data
- Collect laptops, access cards, phones and other company property.
- Revoke access to email, software and shared drives on the last day.
- Retain and dispose of personal data in line with the Personal Data Protection Act 2010.
- Issue a certificate of service and conduct an exit interview where appropriate.
Employer of Record Services Offboarding Checklist
- Review the employment contract and EOR service agreement.
- Confirm the reason for exit and follow the correct legal process.
- Agree the last working day and notice or payment in lieu.
- File Form PK for retrenchment and Form CP22A for tax.
- Calculate final wages, leave pay and termination benefits.
- Make final EPF, SOCSO and EIS contributions and issue the EA form.
- Cancel any work pass, recover assets and close system access.
An experienced BPO and business advisory partner can manage these payroll and compliance tasks on your behalf.
FAQ: Ending Employer of Record Services in Malaysia
1. Who terminates an employee under an EOR arrangement in Malaysia?
The client company usually makes the decision, but the EOR, as legal employer, issues the notice and handles final pay and filings.
2. What is the minimum notice period under the Employment Act 1955?
It ranges from 4 weeks for under 2 years of service to 8 weeks for 5 years or more, unless the contract provides longer.
3. Do I need to pay termination benefits when an EOR arrangement ends?
Eligible employees with at least 12 months of service who are terminated, not resigning or dismissed for misconduct, may be entitled to them.
4. When must Form CP22A be submitted to LHDN?
Generally at least 30 days before the employee’s last day, unless an exemption applies, such as certain cases where monthly tax deductions are already made.
5. Can an employee transfer from an EOR to my own Malaysian entity?
Yes. This usually involves ending the EOR contract and issuing a new one, so agree on service continuity and benefits in advance.
Conclusion
Ending Employer of Record services in Malaysia is about more than a final payslip. Notice, benefits, tax and data all need careful handling.
Clear roles between you and your EOR provider, plus a documented checklist, will keep the exit fair and compliant.
If you are planning an exit or transition, contact our advisory team for practical support.
Clear roles between you and your EOR provider, plus a documented checklist, will keep the exit fair and compliant.
If you are planning an exit or transition, contact our advisory team for practical support.
