Business Alerts & Publications

Malaysia’s revised Employment Pass (EP) salary policy raises the minimum salary floors for EP Categories I–III and introduces a structured employment‑duration framework. The changes take effect for new and renewal EP applications submitted on or after 1 June 2026 and require employers to review budgets, renewals and hiring plans now.

At‑a‑glance comparison and impact

• EP I: 

  • Typical roles: Senior executives, specialised professionals, C‑level hires

  • Current salary band: more than RM10,000 per month

  • Revised band: more than RM20,000 per month

  • Minimum annual impact: RM120,000 and EP I duration limited to a maximum of 10 years 

• EP II

  • Typical roles: Mid‑level professionals, managers with experience

  • Current salary band: RM5,000 to RM9,999 per month

  • Revised band: RM10,000 to RM19,999 per month

  • Minimum annual impact: RM60,000 and EP II duration limited to a maximum of 10 years (with succession plan)

• EP III

  • Typical roles: Junior professionals, technical specialists

  • Current salary band: RM3,000 to RM4,999 per month

  • Revised band: RM5,000 to RM9,999 per month

  • Minimum annual impact: RM24,000 and EP III duration limited to a maximum of 5 years (with succession plan)

1. Introduction to Employment Pass in Malaysia

The Employment Pass (EP) is the primary work permit for foreign professionals who are employed in Malaysia by a local company. It authorises foreign nationals to live and work in Malaysia for the sponsoring employer and is issued in categories that reflect the seniority and salary of the foreign hire. 

The EP is distinct from other foreign worker permits and is intended for skilled and professional roles rather than low‑skilled labour.

2. EP Categories explained

EP Categories I, II and III classify expatriate roles by salary and seniority. EP I is for the highest paid and most senior professionals, EP II covers mid‑level professionals and managers, and EP III applies to junior professionals and technical staff. Each category carries different evidentiary expectations about qualifications, experience and the employer’s justification for hiring a foreign national.

3. Why and where an EP is required

An EP is required when a Malaysian employer needs to hire a foreign professional for a role that cannot be filled locally or requires specific expertise. Typical applicants include multinational corporations, professional services firms, technology companies and specialised manufacturing operations. 

The EP is used where the role is ongoing and integrated into the employer’s business, rather than for short visits or project‑based consultancy.

4. Current conditions and requirements

Before the revision, EP eligibility relied on salary thresholds, employer justification, and supporting documentation such as employment contracts, proof of qualifications and evidence of local hiring efforts. Immigration authorities also consider sectoral policies, the applicant’s credentials and whether the employer has complied with prior permit conditions.

5. Detailed discussion on the increased minimum salary threshold

The revised policy substantially raises the minimum salary floors: EP I increases to a minimum of RM20,000, EP II to RM10,000 to RM19,999, and EP III to RM5,000 to RM9,999. 

The change is designed to prioritise local talent and reduce reliance on expatriates by making lower‑paid foreign hires less attractive relative to local recruitment. Employers must therefore reassess compensation packages and the business case for each expatriate role.

6. When the change takes effect

The revised EP salary policy is effective for all new and renewal EP applications submitted on or after 1 June 2026. The policy was announced following Cabinet approval and industry consultations, and employers should treat 1 June 2026 as the operational cut‑off for the new rules.

7. Impact on businesses

Businesses will face higher direct labour costs for expatriate hires and may encounter timing risk for renewals. The policy increases the incentive to recruit locally, redesign roles, or regrade positions. 

Companies that rely on expatriates for critical skills may need to budget for salary uplifts or accelerate succession planning to avoid renewal issues.

8. What businesses should consider now

Employers should immediately inventory all EP holders, map renewal dates, and model the cost of meeting new thresholds. 

They should prioritise renewals due within the next 6 to12 months, evaluate local recruitment and upskilling options, and prepare stronger justifications and documentation for roles that remain critical to the business.

9. What EP holders should do now

EP holders should discuss renewal timing and compensation with their employers, ensure personal documentation is current, and be prepared for possible renegotiation of terms. Those in roles below the new thresholds should explore localisation plans, reskilling opportunities or alternative visa routes.

10. Risk and mitigation checklist for business

Key risks include increased payroll costs, renewal denials and operational disruption. Mitigations are early renewal submissions where feasible, cost modelling, role redesign, local hiring and engaging immigration specialists to prepare robust applications and supporting evidence. 

HKP Solutions can help run a rapid impact review, model costs and prepare renewal strategies to reduce disruption and compliance risk.

Do you know your cash runway, expected receipts, payable timing and access to short‑term finance? If not, begin with a simple rolling cashflow and a linked profit forecast and expand this into a full FP&A process that you update monthly and review quarterly to avoid surprises and support decisions.  

What FPA means for new entrepreneurs and SMEs  

Financial Planning & Analysis ("FP&A") is the integrated discipline that combines cashflow forecasting (i.e. when cash enters and leaves the business) with financial forecasting (i.e. projected profit & loss and balance sheet outcomes) to produce forward‑looking insight that management can act on. 

For an SME or entrepreneur, FP&A turns bookkeeping entries, i.e. sales invoices, supplier bills, payroll runs and bank transactions, into a living model that shows runway in days, funding needs by week or month, and the financial impact of strategic choices such as hiring, pricing or capital expenditure. 

FP&A is not a one‑off spreadsheet. Instead, it is a repeatable process that links actuals to assumptions, tracks variances, and is updated whenever material facts change.

Deconstructing the FP&A process

A practical FP&A program organises work by cadence so that effort is proportional to value. 

• Monthly: FP&A updates actuals, refreshes a rolling 3‑month cashflow, reconciles variances and produces a one‑page management pack showing closing cash, debtor and creditor days and key KPIs. 

• Quarterly: work extends the horizon to 12 months, runs scenario analysis (for example, a 20% sales shock or a 30‑day collection delay), and reviews margins by product or customer to inform pricing and collection strategies. 

• Half‑yearly: reviews test inventory valuation, receivable impairment indicators and supplier financing options, and are the right cadence to renegotiate terms or refinance. 

• Annual: planning produces a budget and multi‑year plan that supports funding rounds, lender covenants and tax planning; it also aligns forecasts with statutory reporting and strategic objectives.

Who benefits and why timely FP&A matters  

• Internal stakeholders, including shareholders, finance, operations and sales. All of these teams rely on FP&A to make hiring, inventory and pricing decisions with confidence

• External stakeholders, including banks, investors, suppliers and tax authorities use timely forecasts to assess creditworthiness, valuation and compliance. 

Ultimately, all stakeholders value timely FP&A because it reduces uncertainty, shortens due diligence, and demonstrates disciplined stewardship of cash, which in turn improves access to finance and commercial terms. 

In Malaysia, where many SMEs operate with limited cash reserves and face payment delays, proactive FP&A materially reduces the likelihood of emergency borrowing and operational disruption.

Risks, mitigation and the relationship with accounting and bookkeeping  

Regular bookkeeping underpins reliable FP&A by ensuring data completeness and reconciled balances. This reduces risks of liquidity shortfalls, misstated performance, tax errors and fraud. 

Resourcing: hire vs outsource  

Hiring a single junior bookkeeper often leaves gaps in technical depth and strategic insight, creates a single‑point failure and incurs hidden recruitment and training costs. 

For many SMEs and entrepreneurs, a blended model, where routine bookkeeping and FP&A work is outsourced while retaining an internal administrator for the more routine activities, may deliver better results at lower total cost.

How HKP Solutions can help  

HKP Solutions builds linked cashflow and profit models, automates actuals feeds, runs scenario workshops and prepares investor‑grade management packs tailored to SMEs and entrepreneurs. We draw on experience preparing forecasts for both listed and unlisted groups and translate those best practices into pragmatic, scalable processes that ask the right questions and produce actionable outputs.

Payroll obligations start the moment you hire someone and continue through employment and after exit. It is important that you get onboarding, monthly remittances and offboarding right to avoid penalties, employee claims and audit exposure.

SOCSO (PERKESO)

When you onboard an employee, you must register them with PERKESO and determine the correct contribution category and wage band so that both the employer and employee portions are calculated correctly. 

Contributions cover workplace injury protection and the Employment Insurance System (“EIS”) where applicable. It should be noted that the wage ceiling and contribution tables are set by PERKESO and have been updated recently, so employers must apply the current tables when calculating monthly contributions. 

During employment, employers must deduct the employee share, add the employer share each pay period, remit the combined amount on the prescribed schedule and retain contribution records for reconciliation and claims. 

At offboarding, final contributions must reflect terminal payments such as unpaid wages and leave encashment, and employers should provide employees with contribution statements where required. 

Failure to register, under‑declare wages, omit contributions or remit late can trigger administrative penalties, interest and potential liability for employee claims that PERKESO may pursue. These outcomes increase enforcement risk and can lead to retrospective assessments.

EPF (KWSP) 

Employers must register employees for EPF, deduct the statutory employee share from wages, calculate the employer share and remit total contributions by the statutory deadline (typically the 15th of the following month). Employers are also required to report salary changes, unpaid leave and other events that affect contribution amounts, and to reconcile payroll records to KWSP statements regularly. 

Late remittances attract interest and penalties, and persistent non‑payment can result in enforcement action and legal claims by employees for unpaid retirement savings. Common errors include using incorrect wage definitions (omitting contributable allowances or bonuses) and failing to reconcile employer records to KWSP statements. 

PCB (Monthly Tax Deduction)

Employers are responsible for calculating monthly tax deductions (PCB) using the LHDN methodology, applying correct reliefs and exemptions, submitting returns through the e‑services channel and remitting payments by the prescribed deadlines. 

Employers must also issue annual statements and reconcile total PCB withheld to employees’ year‑end tax positions. 

Incorrect PCB calculations or late remittances can lead to penalties and interest, and may leave employees with unexpected tax liabilities. 

Stamping of employment agreements

Employment contracts and certain related instruments must be stamped within the prescribed period. Under the evolving self‑assessment regime and the Stamp Duty Audit Framework, enforcement and retrospective audits have increased. 

Recent guidance from the IRB confirms employment contracts attract duty from year 2026 and that unstamped agreements may be subject to penalties and could be inadmissible in court, exposing employers to legal and fiscal risk.

Common pitfalls, risks and mitigation  

The root causes of payroll non‑compliance are manual processes, outdated tables, poor onboarding data and weak reconciliations. These lead to under‑ or over‑deductions, missed remittances and inconsistent records across payroll, HR and statutory portals. 

Mitigations include:-

• automated payroll systems with live contribution and tax tables; 

• documented onboarding checklists capturing NRIC, tax file numbers and wage components; two‑person payroll sign‑off and exception workflows; 

• monthly reconciliations to bank, EPF, SOCSO and PCB statements; and 

• periodic forensic payroll reviews where historical issues are suspected.

Malaysia offers a broad set of SME‑focused grants, matching funds and tax incentives for digitalisation, automation, training, capex and reinvestment. To unlock these benefits, SMEs should prepare a concise project brief, confirm eligibility early, and document costs and outcomes to maximise approval chances.

Key considerations, questions and decision points

Before applying, clarify the project objective, total budget and any co‑funding you can commit as many grant and incentive programmes require the applicant to pay a portion of costs upfront. In addition, you should also confirm your SME status (e.g. ownership, turnover and operating history) because eligibility often depends on these thresholds. 

Decide the time horizon (i.e. pilot vs full rollout), the desired outcome metrics (e.g., % productivity gain, export revenue), and whether you need cash grants or tax reliefs (which affect timing and compliance). 

Finally, identify the approving agency (e.g. SME Corp, MDEC, MIDA, state agencies, banks or HRD Corp) and the typical documentation they require (e.g. this may include project brief, vendor quotes, financial statements and implementation timeline).

What is available for SMEs

1. Digitalisation grants

2. Automation and capex incentives

3. Training and HR grants

4. Export and market access support

5. Bank and central‑bank facilities 

Risks and mitigation

1. Ineligible spend or weak documentation

2. Co‑funding shortfall

3. Outcome non‑compliance or clawback

4. Long approval timelines

5. Overlapping claims or double‑dipping

How HKP Solutions can help

HKP Solutions has more than 20+ years’ experience supporting businesses to secure incentives and grants. We prepare compelling applications, conduct initial feasibility studies, layer agency expectations into business and investment plans, and liaise with approving authorities to pitch projects. 

We approach incentives and grants with practical pragmatism by scoping eligible costs, drafting evidence‑based KPIs, preparing vendor and financial schedules, and managing post‑award reporting to minimise clawback risk. 

Note: This summary is a general guide. Specific eligibility and application advice should be scoped as a project.