What does Malaysia Budget 2027 change for payroll?
Malaysia's Budget 2027, tabled on 9 October 2026, proposes three changes that land on payroll: a RM2,000 minimum wage from June 2027 for larger employers, a RM12,000 individual tax relief with lower rates for two middle-income bands from YA 2027, and salary tax deductions only for wages paid through bank channels by non-MSME companies. All three are proposals until the law catches up.
HR Forte, a payroll and HR compliance platform for Asia and Latin America, reads it like this: one change raises your costs, one lowers your employees' tax, and one quietly moves risk from payroll to your corporate tax return. Let's take them one at a time.
When does the RM2,000 minimum wage start, and who has to pay it?
The national minimum wage rises from RM1,700 to RM2,000 a month, effective June 2027. The government expects it to cover more than four million workers.
Here is the twist. Micro, small and medium enterprises (MSMEs) with annual sales below RM50 million are exempt. They stay at RM1,700 for now. The Treasury says the exemption exists to give smaller businesses time to adjust their operating models.
So from June 2027, Malaysia has two minimum wages in one country. If your group runs several Malaysian companies, some may sit above the RM50 million line and some below.
The budget also proposes a RM2,500 starting wage baseline for semi-skilled roles and fresh graduates. How that will be enforced, and from when, has not been published yet. We will update more in due course from the gazetted Order.
What it touches on your payroll:
- Every employee currently between RM1,700 and RM2,000 in a non-exempt company.
- Overtime, rest day and public holiday pay, because they are calculated from the ordinary rate of pay.
- EPF, SOCSO and EIS contributions, which are percentages of wages, so they rise with the base.
- Hourly and daily rates for part-time and daily-rated staff.
How do the new personal income tax rates work from YA 2027?
The basic individual relief rises from RM9,000 to RM12,000. That is the first change since 2010. Two middle-income bands also drop by one percentage point.
| Chargeable income (RM) |
Current rate |
YA 2027 proposal |
| 70,001 to 100,000 |
19% |
18% |
| 100,001 to 150,000 |
25% |
24% |
Tax advisers also report that the top 30% rate will start at RM1 million of chargeable income from 2027, down from RM2 million. [Confirm the full YA 2027 rate table against the MOF tax measures appendix before publishing.]
The government puts the gain at up to RM1,600 a year for around five million taxpayers.
For payroll, YA 2027 means income earned from January 2027. Your monthly tax deduction (PCB, or MTD) needs the new relief and bands loaded before the January 2027 run. [Confirm when LHDN publishes the 2027 MTD specification and calculator.] Get it wrong and nobody pays a penalty in January. They just get a surprise when they file in 2028.
What is the new bank channel rule for salary tax deductions?
Companies other than MSMEs will only be able to claim a tax deduction for salary expenses if wages are paid through bank accounts, using channels permitted under the Employment Act 1955. The stated aim is to close the gap that lets employers hire undocumented foreign workers. Only salary expenses are affected. Other deductions stay as they are.
This one is sneaky because it does not show up on the payslip. Pay someone in cash and payroll runs fine. The pain arrives later, when the salary cost is disallowed on the corporate tax return.
[Confirm the effective date. Early summaries do not state it. Check the Finance Bill before publishing.]
Where cash tends to hide:
- Site, plantation and shift workers paid weekly in cash
- Casual and daily-rated staff
- One-off bonuses, allowances and advances paid outside the payroll run
What should Malaysian employers do now?
- Sort your entities. List each Malaysian company and its annual sales against the RM50 million line.
- Find the affected headcount. Everyone below RM2,000 in a non-exempt entity, plus everyone whose overtime is pegged to the minimum.
- Budget the knock-on. Basic pay plus overtime plus EPF, SOCSO and EIS, not basic pay alone.
- Set the switch date, not the switch. The new rate applies from June 2027, not from the day you remember.
- Load YA 2027 tax tables for January. Relief, bands and the new top band.
- Audit every cash payout. Then talk to whoever owns the corporate tax return.
What is still unconfirmed?
- The gazetted Minimum Wages Order: exact start day, hourly and daily rates, and how the MSME exemption is tested.
- The RM2,500 baseline for semi-skilled roles and graduates: scope and timing.
- The effective date of the bank channel rule.
- LHDN's 2027 MTD specification.
We will update this post when each one lands.
Frequently asked questions
Is Malaysia's RM2,000 minimum wage confirmed?
It was announced in Budget 2027 on 9 October 2026, effective June 2027. It takes legal effect through a new Minimum Wages Order, so treat the details as proposed until that Order is gazetted. HR Forte recommends planning your budget now and switching rates only on the gazetted date.
Does the RM2,000 minimum wage apply to SMEs?
No, not for now. Micro, small and medium enterprises with annual sales below RM50 million are exempt and remain at RM1,700. Larger employers move to RM2,000 from June 2027.
When do the new Malaysian income tax rates apply to payroll?
They apply from year of assessment 2027, which covers income earned from January 2027. That means monthly tax deductions from the January 2027 payroll should use the RM12,000 relief and the reduced 18% and 24% bands, once LHDN issues the updated calculation rules.
Can a company in Malaysia still pay salaries in cash?
The budget measure does not ban cash. It removes the corporate tax deduction on salary costs for non-MSME companies that pay wages outside permitted bank channels. Separate Employment Act rules on how wages are paid still apply, so check both.
What is the RM2,500 minimum for graduates?
Budget 2027 proposes a RM2,500 monthly starting wage baseline for semi-skilled roles and fresh graduates. The government has not yet published how it will be applied or enforced, so it is a policy signal for now rather than a payroll rule.
Two minimum wages. One payroll run.
Tell us which Malaysian entities you run and how you pay people today. We will show you where Budget 2027 hits your payroll, and where it hits your tax return instead.
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