Payroll in Malaysia runs on four monthly statutory schemes, each with its own rate, ceiling, and deadline. This guide sets out the 2026 contribution rates, tax brackets, and filing dates, and the three ways to run payroll once you have staff on the ground, whether you use your own entity or outsource it to AYP.
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Running payroll in Malaysia means handling four separate statutory schemes every month, each with its own rate, wage ceiling, and filing deadline. Employers deduct income tax through the Monthly Tax Deduction (PCB) system, contribute to the Employees Provident Fund (EPF), and register staff with the Social Security Organisation (SOCSO) and the Employment Insurance System (EIS). Miss a deadline or misclassify a wage component and the penalties land quickly, which is why payroll accuracy is one of the first things foreign employers get wrong when they hire in Malaysia.
This guide covers what employers are legally required to do: the contribution rates for 2026, the tax brackets, the filing calendar, the minimum wage, and the three ways to actually run payroll once you have staff on the ground. It sits alongside AYP's wider APAC payroll services and the full payroll country guides.
The table below is the quick reference most employers need. Rates and ceilings are current for 2026.
Three government bodies oversee Malaysian payroll. The Inland Revenue Board (LHDN) administers income tax and the PCB withholding system. The Employees Provident Fund (KWSP) manages retirement contributions. The Social Security Organisation (PERKESO) runs both SOCSO and EIS. A fourth body, HRD Corp, collects a training levy from employers in covered sectors.
Payroll is processed monthly. Under the Employment Act 1955, wages have to be paid within seven days of the end of the wage period, so most companies pay by the 7th of the following month. The tax year follows the calendar, and employers file their annual returns in the first quarter of the following year.
The rules come from several laws that a payroll team needs to know: the Employment Act 1955 for wages, working hours and leave; the Income Tax Act 1967 for taxation; the EPF Act 1991 for retirement contributions; and the Employees' Social Security Act 1969 for SOCSO. East Malaysia is governed by the Sabah Labour Ordinance and the Sarawak Labour Ordinance, which now sit closer to Peninsular rules after recent amendments but still carry small procedural differences.
Every compliant Malaysian payslip reflects the same set of deductions and employer contributions. Here is what each one requires in 2026.
Malaysia runs a pay-as-you-earn system called Potongan Cukai Bulanan (PCB), or Monthly Tax Deduction. Employers calculate the tax due on each salary, deduct it, and remit it to LHDN by the 15th of the following month. The aim is for the monthly deductions to closely match the employee's final annual tax bill, so there is little to settle at filing time.
Residents are taxed on a progressive scale. The current brackets are below.
Non-residents, meaning employees in Malaysia for fewer than 182 days in a calendar year, are generally taxed at a flat 30% with no personal reliefs. Getting residency status right matters, because it changes the PCB calculation for expatriate hires. Beyond the monthly remittance, employers issue Form EA to each employee by the last day of February and file the employer return, Form E, by 31 March.
EPF is Malaysia's mandatory retirement savings scheme. Both the employer and the employee contribute a percentage of monthly wages, and payment is due by the 15th of the following month.
The change worth flagging: foreign workers were previously exempt, but since 1 October 2025 EPF is mandatory for them at 2% from each side. Employers who assumed their expatriate and foreign staff sat outside EPF need to update their payroll setup. There is no upper wage ceiling on EPF, so contributions keep rising with salary.
SOCSO, run by PERKESO, covers workplace injury and invalidity. Contributions are shared and split by age, and both Malaysian and foreign employees have to be registered. The wage ceiling for SOCSO rose to RM6,000 in October 2024, so contributions for higher earners are capped at that level.
The Skim Kemalangan Bukan Bencana Kerja (SKBBK) is a voluntary scheme for local employees (mandatory for foreign workers), with contribution requirements introduced in phases and costs falling primarily with employees. This scheme expands SOCSO coverage for accidents that happen outside working hours, including personal, domestic, recreational, and other non-work related accidents.
EIS gives employees temporary income support if they lose their job. It applies to private-sector staff aged 18 to 60. The employer and the employee each pay 0.2% of monthly wages, capped at the same RM6,000 ceiling as SOCSO, and it is remitted through PERKESO by the 15th of the following month.
Employers in covered sectors register with HRD Corp and pay a training levy of 1% of each employee's monthly wages once they reach the size threshold for their industry. Smaller firms in some sectors can register at a reduced rate. The levy funds training grants that employers can claim back, so it is worth treating as a recoverable cost rather than a pure deduction.
The national minimum wage is RM1,700 per month in 2026, and it applies across Peninsular and East Malaysia to local and foreign workers. It covers basic pay only. Allowances, overtime, bonuses and benefits in kind cannot be counted toward it.
Leave entitlements scale with length of service and feed directly into payroll, since unused leave is often paid out on termination.
Malaysia's deadlines are the part that trips up new employers, because monthly and annual filings run to different agencies on different dates. The monthly ones all land on the 15th, which at least keeps them together.
Late payment carries real cost. SOCSO and EIS arrears attract interest at 6% per year, charged daily until settled. Late EPF payments face a dividend-linked late-payment charge plus, in serious cases, fines or imprisonment under the EPF Act. Payroll and tax records have to be kept for seven years and produced if LHDN or EPF audits the company.
Most payroll problems for foreign employers come from four recurring issues rather than the core calculations.
The first is foreign worker treatment. The 2025 change that made EPF mandatory for foreign workers caught a lot of companies out, and tax residency for expatriates still has to be assessed carefully because it decides whether PCB runs at resident rates or the flat non-resident rate.
The second is regional variation. A company operating in both Kuala Lumpur and Kota Kinabalu is working under the Employment Act in the Peninsula and the Sabah Labour Ordinance in the east. The two are closely aligned now, but applying Peninsular leave rules to Sabah or Sarawak staff still creates discrepancies that have to be unwound later.
The third is wage classification. Allowances, benefits in kind, commissions and bonuses are each treated differently for EPF, SOCSO and tax. EPF, for example, applies to bonuses and most allowances but not to overtime, service charges, gratuity or travel reimbursements. Classify a component wrongly and every downstream contribution is off.
The fourth is e-invoicing. LHDN's e-invoicing mandate is rolling out in phases through 2026, with the smallest businesses phased in last and a relaxation period in place. It sits outside payroll strictly speaking, but payroll-related expenses now have to reconcile with the e-invoicing system, so finance and payroll can no longer be run in separate silos.
Once you have people to pay, there are three practical ways to handle Malaysian payroll, and the right one depends on whether you already have a local entity and how many staff you expect to hire.
Building payroll in-house gives full control but needs local expertise, compliant software, and an entity already in place. A local provider takes the processing off your plate while you keep the employer relationship. Outsourced or managed payroll goes further, covering statutory calculations, filings and reporting as a single service.
If you have not set up a Malaysian entity yet, or you want to hire before you do, an Employer of Record is the usual route, since it lets you employ staff compliantly without your own local company. That is a broader hiring decision than payroll alone, so it is covered separately in AYP's Employer of Record Malaysia service and the guide to hiring in Malaysia. For a comparison of running payroll internally against outsourcing it, AYP's team has written on in-house versus outsourced payroll.
AYP handles Malaysian payroll for companies that would rather not build the compliance machinery themselves. The platform runs PCB, EPF, SOCSO, EIS and HRD levy calculations, files with LHDN and PERKESO on schedule, and gives employees a self-service portal for payslips and contribution records. Pricing is a predictable monthly fee, set out on the pricing page.
The same team supports payroll across 18 Asian markets, so a company scaling from Malaysia into the wider region keeps one provider rather than stitching together local vendors. To see how it maps to your headcount, speak to the AYP team. Employers new to the process can also read AYP's note on the common payroll mistakes businesses make.
Yes. Since 1 October 2025, EPF is mandatory for foreign workers, with the employer and the employee each contributing 2% of monthly wages. Before that date, foreign workers were exempt and could only contribute voluntarily.
PCB, EPF, SOCSO and EIS for a given month are all due by the 15th of the following month. For example, contributions for July are payable by 15 August.
The minimum wage is RM1,700 per month and applies nationwide to local and foreign workers. It covers basic pay only, so allowances, overtime and bonuses cannot be counted toward it.
Late SOCSO and EIS contributions attract interest at 6% per year, charged daily. Late EPF payments face a dividend-linked charge and, in serious cases, fines or imprisonment. Late salary payment itself can trigger action under the Employment Act 1955.
Outsourcing payroll ensures compliance, reduces administrative burden, and helps businesses manage salaries and statutory payments efficiently.Yes. All employers must register eligible employees, both Malaysian and foreign, with SOCSO. Employees under 60 are covered under the Employment Injury and Invalidity schemes, and those 60 and above are covered under the Employment Injury scheme.
With AYP’s expertise, businesses can navigate Malaysia payroll with ease and ensure seamless compliance. Contact us today to learn how we can support your outsource payroll services needs.