What Changed in Malaysian Payroll in 2025 & 2026

Malaysian payroll rules have changed significantly over 2024 and 2025, with ongoing implications in 2026. For businesses seeking reliable payroll services in Penang or considering payroll outsourcing in Malaysia, staying compliant is essential to avoid penalties and operational risks.

This article breaks down every major payroll change clearly and accurately, with sources, so you know exactly where your obligations stand today.

The following sections outline each regulatory change, including its legal basis and practical payroll implications for businesses in Malaysia.

Quick Summary: Key Payroll Changes (2025 – 2026)

Change 1: National Minimum Wage Raised to RM1,700

Overview

Malaysia increased the national minimum wage from RM1,500 to RM1,700 per month under the Minimum Wages Order 2024, which was gazetted by the Ministry of Human Resources (KESUMA) under the National Wages Consultative Council Act 2011. The rollout was phased:

• 1 February 2025 — applicable to employers with five or more employees, and to any employer engaged in professional activities under MASCO 2020 (Major Group 2: Professionals), regardless of company size.
• 1 August 2025 — the minimum wage became fully universal. All remaining employers, including micro-enterprises with fewer than five workers, were required to comply, as confirmed by CXC Global in January 2026.

As of early 2026, no further minimum wage increase has been announced. The RM1,700 rate remains in full effect for all covered employers nationwide.

What this means for payroll
Important Note: The RM1,700 refers strictly to basic pay.

• Allowances, bonuses, commissions, overtime, and benefits-in-kind cannot be used to meet this floor.
• An employee earning RM1,500 basic + RM200 transport allowance is NOT compliant.
• For part-time employees: minimum hourly rate = RM8.72/hour.

The rate applies equally to local and foreign workers in all covered sectors. Only domestic workers (live-in maids, personal drivers) and apprentices under specific training contracts are exempt.

Penalties for non-compliance
Under Section 43 of the National Wages Consultative Council Act 2011, non-compliant employers face fines and possible imprisonment, as outlined by KESUMA and confirmed by CXC Global.

Change 2: EPF Contributions Now Mandatory for Foreign Workers

Overview

Effective for October 2025 salaries (due by 15 November 2025), EPF contributions became mandatory for all non-Malaysian citizen employees who are below 75 years old, became EPF members after 1 August 1998, hold a valid work pass (Employment Pass, Professional Visit Pass, Residence Pass, or other valid employment passes), and are not domestic workers. This was formalized under the EPF (Amendment) Act 2025, which received Royal Assent on 1 October 2025, and highlighted on the KWSP official website. Previously, foreign workers could contribute voluntarily using Form KWSP 16B; contributions are now compulsory.

Contribution rates for foreign workers:

• Employee share: 2% of monthly wages
• Employer share: 2% of monthly wages

Practical steps for employers
Employers must ensure that all eligible foreign workers are registered with EPF and that payroll systems deduct 2% from employee wages and add the 2% employer contribution. These contributions must be included in monthly EPF submissions via i-Akaun Majikan or the KWSP portal from October 2025 payroll onwards. This adjustment has been reported by Foundingbird in January 2026.

Foreign workers are covered under the Employment Injury (EI) Scheme only, with a 1.25% employer contribution. The EIS scheme does not apply to foreign workers.

Change 3: SOCSO and EIS wage ceiling increased to RM6000 from 1 October 2024

Effective 1 October 2024, PERKESO increased the contribution wage ceiling from RM5,000 to RM6,000. This change applies to contributions under ACT 4 (SOCSO) and ACT 800 (EIS), 

For employees earning above RM6000 per month, contributions are calculated based on the RM6,000 ceiling.

Change 4: Employment Contract Stamp Duty (Malaysia) – What Employers Must Know (2025–2026)

4.1 Growing Focus on Employment Contract Stamping

Stamp duty on employment contracts is becoming a key compliance area for employers in Malaysia, especially with:

• Increased audit focus by LHDN
• Transition into a self-assessment regime from 1 January 2026
• End of the penalty grace period on 31 December 2025

This means employers can no longer treat this as a low-risk or “optional” compliance item.

4.2 Proposed Change: RM3,000 Exemption Threshold

During the Budget 2026 announcement, the government indicated a proposal to:

Increase the stamp duty exemption threshold from RM300 to RM3,000 (monthly wages)

This is intended to:

• Reflect current wage levels (minimum wage now RM1,700)
• Reduce administrative burden for employers hiring lower-income employees

However ⚠️

This exemption is based on a proposal and should not be treated as fully effective unless supported by clear gazetted legislation or confirmed LHDN guidelines.

4.3 Current Legal Position (Important)

Under the existing Stamp Act 1949:

• Only employment contracts with wages ≤ RM300/month are exempt
• All other employment contracts are generally subject to stamp duty (RM10)

This threshold is widely considered outdated, but remains the baseline legal position unless formally revised

4.4 Transitional Compliance Framework (2025–2026)

To support the shift into stricter enforcement, LHDN has introduced a transition period:

Important: What This Means for Employers

From a practical standpoint:

• Stamping is no longer optional — enforcement is increasing 
• Employers must ensure: 
  • All employment contracts are properly stamped 
  • Submission is done within the prescribed timeline 
• From 2026 onwards, failure to comply may result in: 
  • Penalties 
  • Audit exposure

Change 5: Employment Pass Salary Thresholds Revised (June 2026)

Overview

Effective 1 June 2026, Malaysia’s Ministry of Home Affairs (MOHA) revised minimum salary thresholds for all Employment Pass (EP) categories following Cabinet approval in October 2025. KPMG’s Flash Alert 2026-017 and Fragomen’s January 2026 update reported these changes.

Any EP renewal below the new threshold requires a salary revision or re-categorization. Combined with mandatory EPF for foreign workers (2%+2%), total costs for employing EP holders have increased. Employers should conduct an EP audit across all foreign staff before June 2026, as emphasized by Acclime Malaysia in February 2026.

Why this matters for payroll

• Any EP renewal where the employee's current salary falls below the new threshold will require a salary revision or re-categorisation.
• Category II and III EP holders who do not meet the new floor may not be eligible for renewal under the same category.
• Combined with mandatory EPF for foreign workers (2%+2%), the total cost of employing EP holders has increased substantially.
• Employers are advised to conduct an EP audit across all foreign staff and identify salary gaps before June 2026.

At a Glance: Current Statutory Contribution Rates (2026)

Statutory Contribution Overview (2026)

Key monthly deadlines

• EPF contributions: due by 15th of the following month
• SOCSO and EIS contributions: due by 15th of the following month
• PCB (Monthly Tax Deduction): due by 15th of the following month
• EA Form (Borang EA): must be provided to all employees by 28 February each year

Penalties at a glance

What These Changes Mean for Businesses Using Payroll Services in Penang

Penang's business landscape includes multinational manufacturers, tech companies, F&B operators, and professional services firms. Businesses relying on payroll services in Penang must ensure their providers are updated with the latest statutory requirements to avoid compliance risks, as each change affects organisations differently depending on their workforce profile:

Businesses relying on payroll services Penang must ensure their providers are updated with the latest statutory requirements to avoid compliance risks.

• Manufacturing & E&E: Foreign worker EPF (2%+2%) raises monthly employment costs directly.
• Professional / shared services: EP salary threshold revisions (June 2026) affect pass renewals.
• SMEs: The RM1,700 minimum wage grace period ended 1 August 2025. Full compliance is now required.
• Foreign-owned companies: Register with EPF, SOCSO, EIS, and LHDN within 30 days of first hire.

Why Businesses Choose Payroll Outsourcing in Malaysia

Managing payroll in Malaysia has become increasingly complex due to frequent regulatory updates, statutory contribution requirements, and evolving compliance obligations.

As a result, many companies are turning to payroll outsourcing Malaysia solutions to improve accuracy and reduce administrative burden.

Key benefits include:

• Compliance complexity: Payroll outsourcing Malaysia providers stay updated with EPF, SOCSO, EIS, and tax regulations, helping businesses remain fully compliant.
• Cost savings: Outsourcing reduces the need for in-house payroll staff, software, and ongoing training costs.
• Risk reduction: Professional providers minimise errors in calculations, late submissions, and regulatory breaches that may lead to penalties.

For SMEs and foreign-owned companies, payroll outsourcing Malaysia offers a reliable way to manage payroll efficiently while focusing on core business operations.

5 Common Payroll Mistakes to Avoid in 2026

1. Including allowances in the minimum wage calculation. The RM1,700 floor applies strictly to basic pay — transport, meal, and attendance allowances do not count.
2. Not updating EPF calculations for foreign workers. If your payroll software still shows zero EPF for foreign employees, it is non-compliant for salaries from October 2025 onwards.
3. Applying the wrong SOCSO ceiling. The ceiling changed to RM6,000 in October 2024. If your system caps at RM5,000, contributions for mid-to-high earners are understated.
4. Missing the 15th-of-the-month deadline. EPF, SOCSO, and EIS are all due on the same day. A single missed submission triggers interest and potential prosecution.
5. Failing to audit Employment Pass salary levels ahead of June 2026. If your foreign employees are below the new category minimums, their passes cannot be renewed without salary adjustments.

How Payroll Outsourcing in Malaysia Helps Ensure Compliance

With increasing regulatory complexity, relying on manual or outdated payroll systems can expose businesses to compliance risks.

Professional payroll outsourcing Malaysia providers help businesses:

• Stay updated with regulatory changes
• Ensure accurate statutory deductions and submissions
• Meet all monthly deadlines consistently
• Reduce the risk of penalties and audits

Conclusion

Malaysia’s payroll landscape has undergone significant changes between 2024 and 2026, with updates to minimum wage, EPF requirements for foreign workers, SOCSO contribution ceilings, and Employment Pass salary thresholds.

For businesses, these changes increase the complexity of payroll management and the risk of non-compliance if not handled correctly. Engaging reliable payroll services Penang or considering payroll outsourcing Malaysia can help ensure accurate processing, timely statutory submissions, and full compliance with current regulations.

Staying proactive and regularly reviewing your payroll processes is essential to avoid penalties and support smooth business operations in an evolving regulatory environment.

Need help managing payroll compliance in Penang?

Servecorp offers professional payroll outsourcing services — from statutory registration to monthly submissions and compliance advisory. Contact us at www.servecorp.com.my

Disclaimer: This article is for informational purposes only and reflects the law as understood in April 2026. Payroll regulations in Malaysia are subject to change. Always consult a qualified payroll professional or HR advisory firm for advice specific to your business.