Malaysia is a popular destination for foreign companies building remote or regional teams. It has a large English-speaking professional workforce, competitive salary levels, and a well-established statutory framework. But if you’re running payroll here for the first time, the contribution structure and compliance obligations can trip you up fast. This guide covers everything you need to know to pay employees in Malaysia correctly in 2026.
Payroll frequency and pay deadlines
Malaysian payroll runs on a monthly cycle. Under the Employment Act 1955, wages must be paid within seven days of the end of the wage period. So if your wage period ends on the last day of the month, employees must receive their pay no later than the 7th of the following month.
All salaries are paid in Malaysian Ringgit (MYR, symbol RM). You can’t substitute payment in foreign currency for local employees covered by the Employment Act.
There’s no statutory obligation to pay a 13th-month bonus. Any bonus is either discretionary or tied to the terms of the employment contract, so make sure your contracts are clear on this point.
Minimum wage and working hours
The national minimum wage in Malaysia is RM 1,700 per month as of 2026. This applies to all employees regardless of sector or employer size, so you can’t pay below this threshold even if a role is part-time or lower-skilled.
Standard working hours are 45 hours per week, eight hours per day, Monday through Friday. Hours beyond this threshold are treated as overtime and must be compensated at a higher rate under the Employment Act.
How malaysian payroll deductions work
When you run payroll in Malaysia, you’ll be withholding several statutory amounts from each employee’s gross salary before paying them. Here’s how those deductions break down.
Statutory contributions (epf, socso, eis)
Three funds require both employer and employee contributions each month.
The Employees Provident Fund (EPF) is Malaysia’s national retirement savings scheme. Employee contributions are 11% of gross salary for Malaysian nationals. Non-Malaysian employees contribute at 2% (a rate that took effect from October 2025). Both employer and employee portions are remitted to EPF together.
SOCSO (the Social Security Organisation) provides work injury and invalidity cover. Employees contribute 0.5% of salary, subject to a monthly salary ceiling of RM 6,000. This means contributions are capped at RM 30 per month from the employee side.
EIS (the Employment Insurance System) funds retraining and job-search support for retrenched workers. The employee contribution rate is 0.2%, also subject to the RM 6,000 monthly salary ceiling.
All three contributions, both employer and employee portions, are due to the respective agencies by the 15th of the following month.
Income tax withholding (pcb/mtd)
Malaysia uses a monthly tax deduction system called PCB (Potongan Cukai Bulanan) or MTD (Monthly Tax Deduction). As the employer, you’re required to calculate and withhold the correct amount of income tax from each employee’s salary every month and remit it to LHDN (the Inland Revenue Board) via the e-PCB system.
The 2026 resident individual tax brackets are:
| Chargeable income | Rate |
|---|---|
| First RM 5,000 | 0% |
| RM 5,001 to RM 20,000 | 1% |
| RM 20,001 to RM 35,000 | 3% |
| RM 35,001 to RM 50,000 | 6% |
| RM 50,001 to RM 70,000 | 11% |
| RM 70,001 to RM 100,000 | 19% |
| RM 100,001 to RM 400,000 | 25% |
| RM 400,001 to RM 600,000 | 26% |
| RM 600,001 to RM 2,000,000 | 28% |
| Above RM 2,000,000 | 30% |
Non-resident employees are taxed at a flat rate of 30% on their Malaysian-sourced income, with no personal reliefs applied.
PCB calculations take into account the employee’s tax residency status, marital status, and declared reliefs. The e-PCB system handles this automatically if it’s set up correctly.
Employer contributions and on-costs
On top of the gross salary you pay each employee, you’ll be contributing additional amounts to statutory funds. For Malaysian employees, these break down as follows.
EPF employer contribution is 13% for employees earning RM 5,000 or less per month, and 12% for those earning above RM 5,000. SOCSO adds 1.75%, capped at the RM 6,000 salary ceiling. EIS adds 0.2%, also capped at RM 6,000.
If your company has 10 or more Malaysian employees, you’re also required to contribute 1% of payroll to HRD Corp (the Human Resources Development Corporation), which funds employee training programmes.
In total, employer on-costs for a Malaysian employee sit at approximately 15.95% on top of gross salary. Budget for this when you’re costing headcount.
Non-malaysian employee payroll rules
The payroll treatment for non-Malaysian employees differs in a few key areas.
EPF contributions are 2% from the employer and 2% from the employee. These rates apply regardless of salary level.
SOCSO coverage for non-Malaysian employees is limited to the Employment Injury Scheme only. The contribution rates are lower than for Malaysian nationals, and the invalidity pension component doesn’t apply.
Income tax is withheld at the flat non-resident rate of 30% unless the employee qualifies as a tax resident (which generally requires being present in Malaysia for 182 days or more in a calendar year). If residency status changes during the year, the withholding rate needs to be updated accordingly.
Make sure your payroll system can distinguish between Malaysian and non-Malaysian employees and apply the correct rates for each group.
Running malaysian payroll as a foreign employer
Foreign companies can’t simply start paying employees in Malaysia without a local legal presence. To hire staff directly, you need a locally registered entity, an employer registration with the Employees Provident Fund, SOCSO, EIS, HRD Corp (if applicable), and LHDN. Each of these registrations has its own setup process and ongoing filing obligations.
If you’re not ready to set up a local entity, or if you only have a small number of hires in Malaysia, working through an Employer of Record (EOR) is the most practical route. The EOR employs your workers in Malaysia on your behalf, handles all registrations, runs payroll, files contributions, and manages statutory compliance. You pay the EOR, and they take care of the rest.
It’s worth understanding how an EOR works before committing to this model, but for most foreign companies entering Malaysia with a small team, it’s considerably faster and lower-risk than building a local entity from scratch. When you’re comparing providers, look at how they handle multi-currency payroll, contribution remittance timelines, and whether they offer in-country HR support. The quality of EOR services varies significantly between providers, so it’s worth evaluating carefully.
Book a demo to see how RemotePass handles Malaysian payroll and compliance end to end.
Frequently asked questions
When do employer statutory contributions need to be paid in malaysia?
EPF, SOCSO, and EIS contributions (both the employer and employee portions) must be remitted by the 15th of the month following the payroll period. Missing this deadline can result in penalties and interest charges.
Does malaysia require a 13th-month bonus?
No. Malaysia doesn’t have a statutory 13th-month pay requirement. Any bonus payments are either discretionary or governed by what’s written in the employment contract. If your contract includes a performance bonus or fixed year-end payment, you’re bound by those terms.
What’s the income tax rate for non-resident employees in malaysia?
Non-resident employees are subject to a flat 30% income tax rate on their Malaysian-sourced income. No personal reliefs or deductions are available at this rate. An employee generally becomes a tax resident after being present in Malaysia for 182 days or more in a calendar year.
Can a foreign company hire employees in malaysia without a local entity?
Not directly. You need a locally registered entity to hire employees and run statutory payroll in Malaysia. If you don’t have one, working through an Employer of Record is the standard alternative. The EOR acts as the legal employer on the ground, so you can onboard Malaysian staff without setting up your own entity.
