Whether you’re setting up a Sdn Bhd, a branch office, or hiring your first local employee in Malaysia — understanding Malaysia’s 2026 labor regulations is non-negotiable. This guide covers everything foreign employers need to know, including the universal RM1,700 minimum wage now in full force, mandatory EPF contributions for foreign workers effective October 2025, and the landmark Employment Pass salary revision taking effect June 1, 2026.
Why 2026 Is a Critical Year for HR Compliance in Malaysia
Malaysia’s employment landscape has seen three major regulatory shifts directly affecting foreign employers operating in the country.
The RM1,700 minimum wage is now fully enforced nationwide as of August 1, 2025. The phased implementation is complete — there are no remaining exemptions, grace periods, or sector-specific delays. Every employer must pay at least RM1,700 in basic salary to every non-exempt employee.
Mandatory EPF contributions for foreign workers took effect in October 2025 under the EPF Amendment Act 2025. Non-Malaysian employees holding valid work passes are now required to contribute:
- 2% employer
- 2% employee
Employers who have not updated payroll systems are already in non-compliance.
The revised Employment Pass (EP) salary thresholds take effect June 1, 2026 for all new and renewal applications.
The most significant change:
- EP Category I minimum salary increases from RM10,000 → RM20,000/month
This has major implications for foreign companies managing expatriate workforces in Malaysia.
1. Minimum Wage 2026
| Working Pattern | Minimum Rate |
| Monthly | RM 1,700 |
| Daily (6-day workweek) | RM 65.38 |
| Daily (5-day workweek) | RM 78.46 |
| Hourly | RM 8.72 |
The minimum wage applies equally to:
- Malaysian employees
- Foreign workers
There is no lower wage tier for foreign nationals.
The RM1,700 threshold applies to basic salary only.
The following cannot be used to offset minimum wage requirements:
- Housing allowance
- Transport allowance
- Meal allowance
- Other supplementary payments
Exempt Categories
The only exempt categories are:
- Domestic workers
- Formal apprentices under approved schemes
2. Statutory Contributions — EPF, SOCSO & EIS 2026
All employers must remit statutory contributions by the 15th of the following month.
EPF (Employees Provident Fund)
| Employee Category | Employer | Employee |
| Malaysian citizen / PR below age 60 | 12–13% | 11% |
| Malaysian citizen / PR age 60+ | 4% | 0% |
| Foreign worker with valid work pass (from Oct 2025) | 2% | 2% |
The October 2025 foreign worker EPF obligation applies to non-Malaysian employees:
- Below 75 years old
- Holding valid Employment Passes, Professional Visit Passes, or Residence Passes
Domestic workers are excluded.
Employers who have not yet:
- Registered foreign workers with EPF
- Begun deductions and remittances
…should rectify immediately.
SOCSO & EIS
| Contribution | Employer | Employee |
| SOCSO (below age 60, full coverage) | ~1.75% | ~0.5% |
| SOCSO (age 60+, injury scheme only) | 1.25% | 0% |
| EIS (Malaysian / PR age 18–60 only) | 0.2% | 0.2% |
The SOCSO wage ceiling increased to RM6,000/month effective October 2024.
EIS applies only to:
- Malaysian citizens
- Permanent residents
3. Employment Pass Salary Thresholds — Major Change June 1, 2026
All new and renewal Employment Pass applications submitted on or after June 1, 2026 must meet the revised salary thresholds.
| EP Category | Previous Minimum | New Minimum (from June 1, 2026) | Duration |
| Category I | RM10,000/month | RM20,000/month and above | Up to 10 years |
| Category II | RM5,000–9,999/month | RM10,000–19,999/month | Up to 5 years |
| Category III | RM3,000–4,999/month | RM5,000–9,999/month | Up to 2 years |
Any expatriate whose Employment Pass renewal falls after June 1, 2026 should be reviewed immediately.
If current salary levels fall below the new thresholds, employers should:
- Adjust salary levels before renewal, or
- Prepare for category downgrade implications
Do not wait until renewal deadlines approach.
4. Severance & Termination
Malaysian employment law is highly employee-protective.
Dismissal must be supported by:
- Just cause
- Lawful excuse
The burden of proof rests on the employer.
The Industrial Court may order:
- Employee reinstatement, or
- Compensation of up to 24 months’ back wages for unfair dismissal
Statutory Notice Periods
| Length of Service | Minimum Notice |
| Less than 2 years | 4 weeks |
| 2 years – under 5 years | 6 weeks |
| 5 years or more | 8 weeks |
Severance Entitlement
(Employees with 1+ year of service terminated for non-misconduct reasons)
| Length of Service | Severance |
| 1 year – under 2 years | 10 days’ wages per year |
| 2 years – under 5 years | 15 days’ wages per year |
| 5 years or more | 20 days’ wages per year |
Retrenchment Priority Rules
In retrenchment exercises:
- Local employees must generally be retrenched before foreign employees in the same category
Employers must also notify the Director General of Labour through the HR Connect system before retrenchment exercises proceed.
FAQ
Do Malaysia’s labor laws apply fully to foreign-owned companies?
Yes — fully and without exception.
The Employment Act, minimum wage rules, EPF, SOCSO, EIS, and termination protections apply equally to foreign-owned and Malaysian-owned businesses.
Can we hire in Malaysia without setting up a local entity?
Yes, through an Employer of Record (EOR).
The EOR becomes the legal employer of record, handling:
- Employment contracts
- Payroll
- Statutory contributions
…while employees operate directly for your business.
Our expatriate’s Employment Pass is due for renewal after June 1, 2026. What should we do?
Review salary levels immediately against the revised thresholds:
- Category I: RM20,000+
- Category II: RM10,000–19,999
- Category III: RM5,000–9,999
Salary adjustments or category restructuring may be required before renewal submission.
We have foreign workers. Do we need to deduct EPF?
Yes.
From October 2025 onward:
- Employer contribution: 2%
- Employee contribution: 2%
This applies to eligible foreign workers holding valid work passes.
Domestic workers are excluded.
Is a 13th-month bonus mandatory in Malaysia?
No.
Malaysia does not legally require a 13th-month salary payment.
However, if bonuses are consistently paid over multiple years, labor courts may interpret them as contractual entitlements.
Employers should clearly document bonuses as discretionary where appropriate.
2026 HR Compliance Checklist for Foreign Employers in Malaysia
- Confirm all employees receive at least RM1,700 basic salary — allowances do not count toward the minimum wage
- Register all eligible foreign workers with EPF and implement 2% employer + 2% employee contributions
- Verify SOCSO and EIS calculations against the updated RM6,000 wage ceiling
- Review all Employment Pass renewals scheduled after June 1, 2026 against revised salary thresholds
- Ensure all employment contracts are written and compliant with the Employment Act 1955
- Audit overtime records — employees earning RM4,000 or below remain entitled to statutory overtime rates
- Confirm the 104-hour monthly overtime cap is not exceeded
- Implement a formal process for Flexible Work Arrangement (FWA) requests within the statutory 60-day response period
- Review contractor and gig worker arrangements in light of the Gig Workers Bill 2025
- Notify retrenchment exercises through the HR Connect system before implementation
How Big Fish Global Can Help
Big Fish Global has supported 1,000+ international enterprises in expanding compliantly into Malaysia since 2018.
Our multilingual team (English, Bahasa Indonesia, Mandarin) covers:
- Employer of Record (EOR) — hire in Malaysia without a local entity
- Payroll & Statutory Contributions — EPF, SOCSO, and EIS management including the October 2025 foreign worker EPF update
- HR Consulting — contract structuring, FWA policy design, compliance audits, and retrenchment risk management
- Work Pass & Immigration — Employment Pass applications and renewals under the revised June 2026 salary thresholds
- Legal Services — Sdn Bhd registration, company amendments, and regulatory filings
