Managing a payroll system in Malaysia can be complex due to local labor laws, statutory contributions, and tax requirements. Employers need to establish a consistent and accurate payroll process to make sure employees are paid correctly and on time while meeting legal obligations.

For companies operating from abroad or with limited local expertise in Malaysia, using Payoneer Workforce Management may help simplify the process. It also supports onboarding and payroll, helping businesses pay employees in Malaysia.

This guide outlines wages, leave entitlements, statutory contributions, and best practices to streamline your payroll system in Malaysia, plus how Payoneer Workforce Management can help.

Payroll in Malaysia: Wages and other payments

A consistent and accurate payroll system in Malaysia involves knowing the payment cycle, wage rules, statutory leave entitlements, and common bonus practices. Here’s what employers should know about running Malaysia payroll.

Payroll cycle

Most employers in Malaysia pay salaries monthly, typically on the 28th of the month.

Wages may be paid through a financial institution, meaning salaries are transferred directly to employees’ bank accounts.

Minimum wage and overtime

As of 2025, the minimum wage in Malaysia is MYR 1,700 per month. 

Overtime is paid at 1.5 times the hourly rate for work beyond normal hours on a regular working day, twice the rate for work on rest days, and 3 times the rate for work on public holidays.

Employees can work a maximum of 104 overtime hours per month.

Sick pay

When running payroll in Malaysia, paid sick leave depends on the employee’s length of service:

Length of employment	Paid sick days
Less than 2 years	14 days
2 to 5 years	18 days
More than 5 years	22 days

If hospitalization is required, employees are entitled to 60 days per year, inclusive of their standard allocation. 

Employers pay for sick leave, as long as absences are certified by a registered medical practitioner.

Maternity pay

Female employees are entitled to 98 consecutive days of maternity leave, which may begin up to 30 days before their expected delivery date. If the employee does not take her leave before the due date, it may start automatically on the day the child is born.

To qualify for maternity pay, the employee must have worked for their employer for at least 90 days. 

Employers pay maternity allowance at the employee’s ordinary daily wage or the current rate prescribed under Malaysian labor laws, whichever is higher.

Paternity pay

Married male employees are entitled to 7 consecutive days of paid paternity leave with pay.

To qualify, the employee may be required to have worked for the same employer for at least 12 months and may have to notify the employer of the pregnancy at least 30 days before the expected delivery date or as soon as possible after the birth.

Severance pay

When an employee’s contract is terminated without cause due to redundancy or company closure, statutory severance pay is based on the length of service:

• Less than 2 years: 10 days’ wages for each year of service
• 2 to 5 years: 15 days’ wages for each year of service
• More than 5 years: 20 days’ wages for each year of service

If either party ends the contract without notice, an indemnity equal to the wages for the notice period must be paid.

Bonus payments

Under the payroll system in Malaysia, bonuses are not mandatory. 

However, many employers offer an Annual Wage Supplement, commonly called a 13th-month salary. This is usually equal to 1 month’s wages and is typically paid at the end of the year.

Payroll taxes in Malaysia

Employers must account for income tax withholding and contributions to statutory funds when running payroll in Malaysia. These payments support retirement savings, social security protection, and other benefits.

Income tax

Employers in Malaysia are required to withhold Monthly Tax Deductions (MTD) from employee salaries and remit them to the Inland Revenue Board of Malaysia. 

The country uses a progressive income tax system from 0% to 30%.

Employee Provident Fund (EPF)

The EPF is Malaysia’s mandatory retirement savings plan, designed to help employees save for retirement through joint contributions from both employers and employees. 

The Employees Provident Fund Board, a government agency under the Ministry of Finance, manages the funds held in the EPF.

Here are the EPF contributions for employers and employees, based on employee age:

Employee age	Monthly wage	Employer contribution	Employee contribution
Below 60	MYR 5,000 and below	13%	11%
	Above MYR 5,000	12%	11%

Employers are responsible for:

• Registering employees with the EPF
• Calculating and deducting the correct contributions from salaries
• Submit contributions to the EPF by the deadline each month

Employees’ contributions are automatically deducted from their wages. 

Statutory insurance

In Malaysia, all employees must be registered with the Social Security Organization (PERKESO) for protection in case of work-related injury, illness, or death. 

Employees under 60 are covered by Employment Injury and Invalidity Schemes, while workers over the age of 60 fall under the Employment Injury Scheme.

Malaysia payroll compliance best practices

When managing payroll in Malaysia, businesses can reduce risks and avoid penalties by keeping up with changes to tax rates, labor laws, and contribution requirements. Conducting regular payroll audits helps catch errors early. It’s also important to stay updated on current and changing payroll regulations and laws.

For companies seeking to streamline their operations, partnering with a globally trusted platform that offers assistance with payroll services in Malaysia, such as Payoneer Workforce Management, may help support compliance efforts.

Your options for payroll services in Malaysia

There are three main ways for foreign companies to pay employees in Malaysia:

• Set up a local entity: This gives full control over employment, but involves complex registration, ongoing administration, and compliance with local labor and tax laws.
• Hire as independent contractors: This offers flexibility and lower administrative burden, but misclassification risks can lead to penalties or back-pay obligations.
• Use a workforce management platform: For instance, Payoneer Workforce Management assists with handling onboarding and payroll, and helps you manage payroll systems in Malaysia. 

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FAQs

1) What is the payroll process in Malaysia?

The process for running payroll in Malaysia involves calculating wages, deducting taxes (progressive rate of 0% to 30%) and statutory contributions, and paying employees. Employers then remit deductions to the relevant authorities.

2) What is the salary system in Malaysia?

Employees are typically paid monthly on the 28th of the month. For foreign companies, using payroll services in Malaysia through Payoneer Workforce Management offers a streamlined way to pay employees in Malaysia with compliance support.

3) Which is the best payroll software in Malaysia?

A good payroll software in Malaysia is one that allows you to manage payroll globally while offering guidance to stay compliant with labor laws. For instance, Payoneer Workforce Management offers payroll support along with onboarding and more for companies hiring in Malaysia.