# Employee, gig worker or independent contractor?

> Malaysian worker classification is now a three-way question, because the Gig Workers Act 2025 created a statutory middle category that sits between employment and pure independent contracting.

- Category: employment
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/employment/employee-vs-contractor-malaysia

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Until 31 March 2026 this was a binary question in Malaysia: contract **of** service, or
contract **for** service. The Gig Workers Act 2025 changed the shape of the problem by
creating a third status with its own statute, its own tribunal and its own deduction —
and by defining that status **negatively**, so that the classification question you were
already getting wrong now has to be answered first.

## The three categories

| | Employee | Gig worker | Independent contractor |
| --- | --- | --- | --- |
| Instrument | contract of service | service agreement | contract for service |
| Governing statute | Employment Act 1955, Industrial Relations Act 1967 | Gig Workers Act 2025 (Act 872) | general contract law |
| Leave, hours, holidays | yes | no | no |
| Unfair dismissal under s.20 | yes | no | no |
| EPF, SOCSO, EIS on the engager | yes | no employer contribution; a deduction from the worker's earnings | no |
| Dispute forum | Labour Court, Industrial Court | Gig Workers Tribunal, Part V | civil courts |
| Nationality condition | none | Malaysian citizen or permanent resident | none |

Act 872 received assent on 16 December 2025, was gazetted on 31 December 2025 and came
into force on **31 March 2026**.

## Why Act 872 does not solve classification

Section 2 of Act 872 defines a *service agreement* by exclusion. It is an agreement that
is **not** a contract of service under the Employment Act 1955, the Sabah Labour
Ordinance, the Sarawak Labour Ordinance or OSHA 1994, and **not** a contract of
employment under the Industrial Relations Act 1967.

That drafting is deliberate and it has a practical consequence most commentary misses:
**the Act presupposes classification rather than deciding it.** You cannot reach for
Act 872 to establish that your riders are not employees. You have to establish that
first, on the ordinary tests, and only then does Act 872 tell you what you owe them.

Two other corrections worth making, because they circulate widely. Act 872 creates a
**Gig Workers Tribunal** in Part V and a **Consultative Council** in Part VI — not a
commission. And s.33(2) removes all Part VIII social-security matters and all offences
from the Tribunal's jurisdiction, so the Tribunal is narrower than it is usually
described.

## The test that actually decides it

Section 2 of the Employment Act defines a contract of service as *any agreement, whether
oral or in writing and whether express or implied, whereby one person agrees to employ
another as an employee and that other agrees to serve his employer as an employee*. The
definition is about the substance of the bargain. What decides the case in practice is a
multi-factor assessment:

**Control** — the central factor. Who decides what is done, when it is done, where, in
what order and by what method? An engager who sets shift rosters, requires attendance at
a workplace and directs the manner of work is describing employment.

**Integration** — is the person part of the organisation or accessory to it? Company
email, a title on the org chart, appraisal cycles, team meetings and a staff pass all
point inward.

**Provision of tools and equipment** — who supplies the laptop, the vehicle, the
software licences, the workspace?

**Substitution** — can the person send someone else to do the work? A genuine
unrestricted right of substitution is close to fatal to employment.

**Financial risk** — does the person stand to make a profit or suffer a loss on the
engagement? A contractor who quotes a fixed price bears risk; a person paid for time
does not.

**Exclusivity and duration** — an open-ended, full-time, sole engagement looks like
employment even when invoiced monthly.

**Treatment** — leave granted, bonuses paid, discipline applied, notice periods
observed. Employers who give a contractor annual leave have usually decided the case
against themselves.

No single factor is conclusive, and the written label is only one item of evidence among
many.

## What misclassification actually costs

It is not one penalty. It is five simultaneous exposures, each enforced by a different
agency on its own timetable:

- **EPF** — arrears of employer and employee shares, recoverable with dividend, plus the
  employer registration duty within 7 days of becoming liable
- **PERKESO** — SOCSO and EIS contributions against the RM6,000 insured-wage ceiling,
  with late interest
- **LHDN** — unremitted PCB, plus the CP22 commencement notification within 30 days that
  was never filed
- **JTKSM** — Employment Act offences for unpaid annual leave, sick leave, holidays,
  overtime and the s.61 register, with the s.99A general penalty of up to RM50,000 where
  no specific penalty is provided
- **the individual** — a s.20 representation for unfair dismissal, filed within 60 days
  of the engagement being ended

Because each agency assesses independently, a settlement with one does not close the
others.

## The duty that survives every classification

OSHA 1994 does not care how you labelled the relationship. Section 17 binds every
employer and self-employed person towards persons who are not their employees. Section
18A imposes duties on a **principal** towards contractors, subcontractors and persons
working under the principal's direction. Section 18B requires every employer,
self-employed person and principal to conduct a **risk assessment** and implement
controls. Since 1 June 2024 the Act applies to all places of work, with only domestic
employment, the armed forces and ships under the Merchant Shipping Ordinances outside it.

## Common mistakes

**Drafting your way out of it.** A clause reciting that the parties do not intend an
employment relationship does not displace the s.2 definition.

**Using invoices as proof.** Payment mechanics are one factor, and a weak one where the
invoice is generated by the engager's own system.

**Assuming Act 872 covers all freelancers.** It reaches platform-mediated work, and only
where the worker is a Malaysian citizen or permanent resident.

**Treating the 1.25 per cent as a settled statutory rate.** The Ministry's own wording is
*set for the time being*, and it is a deduction from the worker rather than a
contribution by the platform.

**Converting employees to contractors to cut cost.** Where duties, control and
integration do not change, the conversion is evidence rather than a defence.

## What's next

Take your three longest-running contractor engagements and score each against control,
integration, tools, substitution and risk. Where two or more point inward, price the
back-contribution exposure now. If the engagement is platform-mediated, read the
[Gig Workers Act 2025](/en/employment/gig-workers-act-2025) for the deduction and Tribunal mechanics.

## Sources

- Employment Act 1955 (Act 265), updated text as at 1 January 2023 — https://jtksm.mohr.gov.my/sites/default/files/2023-11/Akta%20Kerja%201955%20(Akta%20265)_0.pdf (Jabatan Tenaga Kerja Semenanjung Malaysia)
- Gig Workers Act 2025 (Act 872) — https://mohr.gov.my/aktapekerjagig2025/assets/documents/Act%20872.pdf (Ministry of Human Resources)
- Industrial Relations Act 1967 (Act 177), updated text as at 1 November 2021 — https://lom.agc.gov.my/ilims/upload/portal/akta/outputaktap/1690019_BI/010721_Act%20177_final.pdf (Attorney General's Chambers)
- Occupational Safety and Health Act 1994 (Act 514), updated text of reprint as at 1 June 2024 — https://dosh.gov.my/wp-content/uploads/2025/01/Occupational-Safety-and-Health-Act-1994-Act-514_Reprint-Version-1.6.2024_English.pdf (Department of Occupational Safety and Health)

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