Employee, gig worker or independent contractor?

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 for the deduction and Tribunal mechanics.