Employment Contracts in Malaysia

In Malaysia, choosing the right form of employment relationship is crucial for both organisations and individuals. The Employment Act 1955 (“EA”) and related regulations set out the legal framework governing different contract types, their entitlements and termination procedures. However, the EA itself is not all encompassing and any gaps are usually addressed by way of case law. Below is a practical guide to help you distinguish between the various forms of employment contracts in Malaysia, so you can align expectations, ensure compliance and safeguard rights on both sides.

Contract of Service (“COS”) - 

There are several types of COS, however the one thing they have in common is that they attract Employer-Employee relationship.

1. Permanent (Indefinite) Employment Contracts: These are your typical full-time employment contracts that have no specified end date and it continues until the employee resigns, retires or is lawful termination. This type of contract entails full statutory benefits under the EA and greater job security and access to long‑term employer‑sponsored schemes (EPF, SOCSO). 

2. Fixed‑Term Employment Contracts: These would be contracts that specify employment for a defined period or for the duration of a specific project. It should clearly stated start and end dates (or project‑completion milestone) and it automatically terminates itself upon expiry—no notice required unless otherwise agreed. Employees under this contract enjoy the same protections as permanent staff for the contract duration. Multiple renewals may trigger constructive permanence; courts may deem long‑serving contractors as indefinite employees.

3. Apprenticeship/Internship/Training Contracts: Not to be confused with internship contracts, these are contracts that are provided to apprentices as defined under he EA, whereby the duration of this contract would be between 6–24 months. There is emphasis on skills development and may include reduced wages compared to full‑rate staff. These apprentices are entitled to basic protections (e.g. rest days, safety standards).

4. Part‑Time Employment Contracts: Employees whose average weekly hours are 30–70 percent of full‑time hours in comparable roles. These contracts are governed by both the EA and the Employment (Part‑Time Employees) Regulations 2010. Its benefits are specifically provided for in the regulations which covers overtime, public holidays, annual leave, sick leave and rest days.

5. Casual Employment (Verbal Contracts): These are short‑term engagements—often under one month—with no written agreement. Though these are recognised as a valid employment contract under the EA for periods less than 1 month, it may expose both parties to misunderstandings. Basic protections (e.g. rest days, occupational safety) still apply by law. 

Contract for Service (“CFS”) - 

These are contracts that are used to engage independent contractors and would (oftentimes) not attract any presumption of employment. It forms a client–contractor relationship rather than employer–employee, whereby the contractor supplies services on its own account but bears business risks. These contractors are therefore not covered by the EA—no statutory benefits (EPF, paid leave, etc.). When contractors are paid, it is treated as  business income rather than employment income. This contract has to a certain extent greater autonomy over how, when and where work is performed. With the introduction of the New Section 101C of the EA, in the absence of any CFS (though it may be intended to be so), the courts of law would look into certain factors listed in that provision to see whether there is any COS between parties.

Differences between Contract of Service vs. Contract for Service

Practical Distinctions & When to Use Each

By carefully distinguishing these contract types, employers can build compliant, cost‑effective workforce models, while individuals can better understand their entitlements and liabilities under Malaysian law.