Salary and Wages in Malaysia

Salary vs Wage

While the terms "salary" and "wage" are often used interchangeably in casual conversation, Malaysian labour law makes important distinctions between these two forms of compensation, each with different calculation methods, payment frequencies, and legal entitlements.

Contributing Advisor

Quinn Lu

Senior Associate, International Business Advisory

What is a salary?

Under the Employment Act 1955, a salary typically refers to fixed periodic payments made to employees for services rendered, usually calculated on a monthly basis. Salaries are characteristic of salaried employees, such as office staff, managers, professionals, and administrative personnel. The amount is predetermined and does not fluctuate based on the number of hours worked per week or daily productivity.

Key characteristics of salaries include:

• Paid on a fixed schedule, typically monthly.
• Not directly tied to hourly rates or daily work output.
• Includes contractual allowances such as housing, transport, and other benefits.
• Provides predictability for both employer and employee.

What is a wage?

Wages, conversely, refer to compensation calculated on an hourly, daily, or piece-rate basis, commonly associated with workers in manual labour, construction, manufacturing, hospitality, and retail sectors. Wages are directly proportional to hours worked or output produced, making them variable in nature.

Characteristics of wages include:

• Calculated based on hourly rates, daily rates, or performance metrics.
• May increase with overtime or additional productivity.
• Commonly used for workers in physical labour or operational roles.
• Subject to minimum wage legislation.

Key differences

Expatriate and foreign worker salary and wage rules

Expatriates in Malaysia require an Employment Pass (EP) with tiered minimum monthly salary thresholds:

• Category I (RM 10,000+ for key posts, up to 5-year contracts);
• Category II (RM 5,000–RM 9,999 for managerial roles, up to 2 years); and,
• Category III (RM 3,000–RM 4,999 for mid-level, up to 12 months renewable twice).

General minimums start at RM 5,000, varying by sector like National Key Economic Areas (NKEA) or Multimedia Super Corridor (MSC) status, with paid-up capital rules (e.g., RM500,000 for 100% foreign-owned firms). These ensure roles cannot be filled by locals, per Immigration Department guidelines.

Foreign workers (non-citizens in low/semi-skilled roles under Temporary Employment Pass) receive the national minimum wage of RM 1,700 monthly (effective February 1, 2025; delayed to August 1 for firms with <5 employees), applying equally regardless of nationality under the Employment Act 1955. Employers pay sector-specific foreign worker levies (e.g., RM 1,850 unskilled in manufacturing/services, RM 1,250 semi-skilled, RM750 skilled), upfront annually per worker. Piece-rate or commission workers must still meet RM 1,700 equivalent; non-compliance risks RM 1,000–RM 20,000 fines or up to 5 years imprisonment.

Legal framework

The Employment Act 1955 remains the cornerstone of Malaysia's employment law, providing the legal foundation for salary and wage practices.

Payment frequency and methods

The standard practice in Malaysia is:

• Wage period: Usually one calendar month (e.g., 1st to 30th/31st).
• Payment deadline: Within 7 days after the wage period ends (e.g., by 7th of the following month).
• Payment methods: Cash, cheque, or bank transfer (bank transfer is now standard practice).
• Special cycles: Some sectors like construction may operate on weekly or bi-weekly payment cycles if clearly specified in employment contracts.

If salary payment dates coincide with public holidays or weekends, employers typically advance payment to the last working day before the holiday to ensure timely delivery.

Minimum Wage Order 2025

Malaysia has implemented significant changes to its minimum wage structure in 2025, representing a substantial policy shift aimed at improving living standards for lower-income workers:

The New Minimum Wage Rate: RM1,700 per month (increased from RM1,500)

Implementation timeline:

Phase 1 – February 1, 2025:

• Applies to employers with five or more employees.
• Applies to employers categorized under MASCO (Malaysia Standard Classification of Occupations) professional activities, regardless of company size.
• Estimated to directly affect 4.3 million workers.

Phase 2 – August 1, 2025:

• Applies to all employers, including those with fewer than five employees (excluding domestic servants).

This phased rollout provides smaller businesses with additional adjustment time while ensuring comprehensive coverage across the employment landscape.

Equivalent Hourly and Daily Rates (based on different work schedules):

• 6-day work week: RM65.38/day or RM8.72/hour.
• 5-day work week: RM78.46/day or RM8.72/hour.
• 4-day work week: RM98.08/day or RM8.72/hour.

The RM1,700 rate applies uniformly across all states, including Peninsular Malaysia, Sabah, Sarawak, and Labuan.

Allowances, EPF, SOCSO, and deductions

All employers are required to make specific deductions from employee salaries:

Malaysian income tax brackets include:

Applicable Tax Reliefs (for tax residents):

• Personal relief: RM9,000.
• Spouse relief: RM4,000 (if spouse is not working).
• Child relief: RM2,000 per child.
• EPF relief: Up to RM4,000 per year.
• Education insurance: Up to RM3,000.
• Lifestyle relief: Up to RM2,500.

Common allowances that may be provided alongside basic salary include:

• Housing allowance.
• Transportation allowance.
• Meal allowance.
• Performance or responsibility allowance.
• Cost of living adjustment.

These allowances are often negotiated during hiring and vary significantly by industry and position.

Average salary in Malaysia

Based on the latest DOSM data and industry projections, Malaysia's mean monthly salary stands at RM 3,652 in 2024 and is projected to reach approximately RM 5,200 in 2025. This figure represents the average across all employment sectors and encompasses both private and public sector workers. However, this national average masks significant variations across industries, experience levels, and geographic regions.

Malaysia's salary growth trajectory demonstrates steady upward momentum:

• 2023 to 2024: 6.1 percent increase.
• 2024 to 2025 projection: Average of 5 percent across all industries.
• Expected executive salary increase (2025): +5.5 percent.
• Expected non-executive salary increase (2025): +5.41 percent.

This growth outpaces inflation in many sectors, suggesting genuine improvement in real wages, though regional variations persist. Industries such as energy and shared services are leading salary increases with above-average adjustments. The gender pay gap in Malaysia remains a persistent challenge despite higher female university enrollment:

• Overall gap: Women earn approximately 7.9 percent less than men (2023)
• Gap trend: Widened from 4.9 percent in 2018 to 7.9 percent in 2023
• Managerial positions: 20.8 percent gap (males RM38.40/hour vs females RM 30.40/hour)
• Professional occupations: 14.1 percent gap (males RM37.70/hour vs females RM 32.40/hour)

The government through the Ministry of Human Resources (KESUMA) is examining efforts to tighten law enforcement, including introducing harsher penalties for employers found guilty of gender-based pay disparities.

Educational attainment significantly influences earning potential, with degree holders earning substantially more than those with diplomas or certificates. However, even among similarly educated individuals, women continue to earn less than their male counterparts, suggesting discrimination or structural barriers in higher-paying sectors.

Salary by location

Geographic location remains one of the most significant determinants of salary in Malaysia. Urban economic centres command substantially higher compensation than secondary cities or rural areas.

The urban-rural wage differential is substantial in Malaysia:

• Urban centres: Salaries typically 20-40 percent higher than rural equivalents.
• Job availability: Urban areas offer significantly more employment opportunities.
• Industry diversity: Urban centres have broader industry representation, enabling career mobility.
• Cost of living: While urban salaries are higher, expenses are also considerably elevated, sometimes negating real income advantages.