Malaysia is preparing for one of the most extensive labor market reforms in the last decade. Effective June 1, 2026, minimum wage thresholds for foreign specialists working on Employment Pass (EP) permits have been sharply increased, and the RM1,700 minimum wage requirement will be enforced without a single exception—for the first time since its introduction. Both measures pursue the same goal: to make hiring Malaysians more profitable for employers and to protect the incomes of low- and middle-income workers.

The Employment Pass thresholds came into effect on June 1, 2026.

The revised salary policy was approved by the Cabinet on 17 October 2025, officially published by the Ministry of Home Affairs on 15 January 2026, and came into effect on 1 June 2026. This is the first revision to Malaysia's foreign employment regulations in nearly ten years, and the government explicitly aligns it with the goals of the Thirteenth Malaysia Plan (RMK-13) to reduce the economy's dependence on foreign labor and prioritize skilled local talent.

  • EP Category I: Minimum basic salary increased from RM10,000 to RM20,000 per month; permit valid for up to 10 years
  • EP Category II: The threshold has been increased from RM5,000–RM9,999 to RM10,000–RM19,999 per month; up to 10 years with a succession plan.
  • EP Category III: The minimum threshold has been raised from RM3,000–4,999 to RM5,000–9,999 per month (for the manufacturing services sector, from RM7,000); the permit is issued for up to 5 years with a succession plan.

An important detail, specifically emphasized by the authorities, is that the thresholds are calculated solely based on the base salary. Allowances, bonuses, commissions, and any in-kind compensation (such as housing or transportation) are not taken into account—according to consulting firms, this error most often leads to permit renewal denials. The new requirements apply not only to new applications but also to all renewals submitted from June 1, 2026, with no transition period for existing employees. The only specific exception is made by the Malaysian Digital Economy Corporation (MDEC): certain Category III positions in the Global Business Services (GBS) sector requiring native-level language proficiency will be assessed using the old thresholds until June 1, 2027.

Economic impact on Malaysian workers

Raising the thresholds makes hiring foreign specialists for mid- and senior-level positions significantly more expensive for employers, reducing the economic rationale for replacing local candidates with foreign ones. According to legal and consulting firms supporting companies in Malaysia, the cost of retaining expatriates in management positions effectively doubles, forcing businesses to proactively review personnel budgets and permit renewal plans. This creates a direct incentive to invest in increasing the salaries of local specialists and training them to replace foreign employees—this is how the authorities formulate the goal of the reform.

Significantly, the reform is taking place against the backdrop of a stable labor market: according to the Department of Statistics Malaysia (DOSM), the country's unemployment rate remains at a historically low 2.9-3.0%—the lowest since November 2014—and the labor force continues to grow. This means that the tightening of regulations for foreign specialists is taking place not amid a labor shortage, but amid stable employment, which reduces risks to the economy as a whole.

Key performance indicators

  • Category I EP threshold: RM20,000 per month (was RM10,000)
  • EP Category II threshold: RM10,000–RM19,999 per month (was RM5,000–RM9,999)
  • EP Category III threshold: RM5,000–9,999, from RM7,000+ in manufacturing services (was RM3,000–4,999)
  • Minimum wage in Malaysia (2026): RM1,700 per month, effective without exceptions from August 2025
  • Unemployment rate (March–April 2026): 9–3.0% – lowest since November 2014
  • Malaysia's labour force (Q1 2026): 23 million, labour force participation rate 70.9%
  • Vacancy rate: 1%
  • Youth unemployment (15–30 years): 3%

Minimum wage: Unconditional control and harsh penalties

The minimum wage requirement of RM1,700 per month was introduced by the Minimum Wages Order 2024. A transition period was in effect for micro-enterprises with fewer than five employees, ending on July 31, 2025. Effective August 1, 2025, the requirement applies to all employers in the country, regardless of company size or industry. In 2026, the Ministry of Human Resources and the Department of Taxation (LHDN) significantly intensified inspections, as, according to their own data, a significant portion of employers were still violating the rule—most often by including allowances and bonuses in the minimum wage rather than providing it as a base salary.

Failure to pay the minimum wage is an offence under the National Wage Advisory Council Act 2011. Penalties are substantial: for a first violation, employers face a fine of up to RM10,000 per employee, with an additional RM1,000 for each day of delay for continued violations. Repeat offenders face a fine of up to RM20,000 or imprisonment for up to five years. Employees whose wages do not meet the established minimum have the right to file a formal complaint with the Ministry of Human Resources.

Malaysia's labour market remains resilient

According to Malaysia's Chief Statistician, Mohd Uzir Mahidin, the country's robust labor market—with low unemployment and steady employment growth—serves as further evidence of the country's overall economic resilience. The agency expects the labor market to remain stable in the coming months, although growth may moderate due to external factors, particularly the dynamics of global energy prices. The service sector—hotels and restaurants, information technology and communications, and transportation and logistics—continues to contribute the most to employment growth, but employment is also growing in manufacturing, construction, and agriculture.

What employers and employees need to know

Employers hiring foreign specialists under the Employment Pass scheme are advised to conduct an audit of their existing employees by category in advance, identify salary gaps, and determine where contract or job description revisions are necessary—especially given that there is no transition period for existing employees. Employees whose salaries are close to the minimum level should ensure that their base salary—not their total income after bonuses, commissions, and allowances—meets the established minimum of RM1,700. If any irregularities are discovered, they can report them directly to the Ministry of Human Resources.