Payroll Calculation Malaysia: Guide to Employee Payroll & Deductions

PUBLISHED: Oct 13, 2026UPDATED: Oct 13, 20268 min read
Payroll Calculation Malaysia Guide to Employee Payroll & Deductions

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Most payroll mistakes in Malaysia don’t come from EPF or SOCSO rates. Those are published, and most systems get them right. The trouble usually starts earlier, with the gross pay figure itself: a daily rate worked out the wrong way, public holiday work underpaid, or a mid-month joiner paid for a full month. This guide covers the parts of payroll calculation that sit around the statutory deductions.

That includes how the Employment Act 1955 defines a day’s pay, what rest day and public holiday work should cost, how to handle incomplete months, and the deadlines that catch employers out.

Who Do the Employment Act Pay Rules Apply To?

Since the Employment (Amendment) Act 2022 took effect on 1 January 2023, the Employment Act covers every employee in Peninsular Malaysia and Labuan, whatever they earn. Sabah and Sarawak have their own labour ordinances.

What’s the catch? Some of the money provisions only apply to employees earning RM4,000 a month or less, plus manual workers and a few other groups regardless of pay. For this group, the law sets minimums for:

  • Overtime pay
  • Pay for work on rest days
  • Pay for work on public holidays
  • Termination and lay-off benefits
For staff earning above RM4,000, these items come down to the employment contract. Many employers still follow the statutory rates for everyone, but it’s worth knowing which of your employees the law actually protects before you build your pay rules. 
Read more: Employment Act 1955 – Summary

How Do You Calculate an Employee’s Daily and Hourly Rate?

For monthly-paid staff, the Employment Act uses a fixed divisor of 26, no matter how many days are in the month. The result is called the ordinary rate of pay (ORP), and almost every other calculation in this guide builds on it.

  • Daily rate (ORP) = Monthly salary ÷ 26
  • Hourly rate = ORP ÷ Normal working hours per day
Take an employee earning RM3,640 a month who works 8 hours a day:
  • Daily rate: RM3,640 ÷ 26 = RM140
  • Hourly rate: RM140 ÷ 8 = RM17.50 (contracted hours may differ)
Use the employee’s normal contracted hours as the second divisor, not a flat 8. Someone on a 9-hour day has a lower hourly rate than someone on 7.5 hours, even at the same salary. Normal working hours are capped at 45 a week, down from 48 before 2023. 
Check out: Overtime Calculation Malaysia Rules & Eligibility

How Do You Calculate Pay for Rest Days, Public Holidays and Partial Months?

Any day that falls outside the normal monthly pattern needs its own calculation. Some of these build on the daily rate above, and some don’t.

Rest days and public holidays

When a monthly-paid employee works their normal hours on a day off, they’re owed extra pay on top of their salary. At a RM140 daily rate:

Situation What the law requires Extra pay at RM140/day
Rest day, up to half the normal hours Half a day’s wages RM70
Rest day, more than half up to full hours One day’s wages RM140
Public holiday, normal hours Two days’ wages RM280
Employees get 11 paid public holidays a year. Five are fixed by law: National Day, the Yang di-Pertuan Agong’s Birthday, the state Ruler’s Birthday (or Federal Territory Day), Workers’ Day and Malaysia Day. If a holiday falls on a rest day, the next working day becomes a paid holiday.

Partial months

When someone joins or leaves mid-month, the 26-day divisor no longer applies. Pay is prorated by the calendar days in that month: Partial month pay = (Monthly salary ÷ Days in the month) × Days employed An employee on RM3,640 who starts on 11 September (a 30-day month) is employed for 20 days: RM3,640 ÷ 30 × 20 = RM2,426.67.

Unpaid leave

The Act doesn’t set one formula for unpaid leave. Most employers deduct one day’s ORP for each unpaid day, while some use calendar days instead. Whichever you choose, put it in the contract and apply it consistently. Pulling approved leave from Leave Management Software and days worked from Time Attendance Software keeps these deductions accurate without manual checks. 
Also read: Payroll Calculation Formula Malaysia 2026 | EPF, SOCSO & PCB

What is the Minimum Wage, And How Does It Affect Payroll?

The national minimum wage is RM1,700 a month under the Minimum Wages Order 2024. It took effect on 1 February 2025, and employers with fewer than five staff had until 1 August 2025 to comply. That’s a 13.3% jump from the previous RM1,500. For staff paid daily or hourly, the Order sets equivalent rates:

Pay basis Minimum rate
Monthly RM1,700
Daily, 6-day week RM65.38
Daily, 5-day week RM78.46
Daily, 4-day week RM98.08
Hourly RM8.72
The minimum applies to basic wages, so allowances can’t be counted to top someone up to RM1,700. Check part-timers and hourly staff carefully, since they’re the ones most likely to fall below the line after a rate change.
Malayasia Minimum Wage 2026
Malaysia Minimum Wage 2026
Read also: Average Salary in Malaysia (2026): Latest Pay Guide & Insights

How Do Leave Entitlements and Termination Benefits Affect Payroll?

Paid leave is built into the monthly salary, but entitlements grow with length of service, so payroll needs to track each person’s tenure.

Length of service Annual leave Sick leave (no hospitalisation)
Less than 2 years 8 days 14 days
2 to 5 years 12 days 18 days
More than 5 years 16 days 22 days

On top of this, employees get up to 60 days of hospitalisation leave a year (sick leave counts towards it), 98 days of maternity leave and 7 days of paternity leave. Termination benefits are paid when an employer ends the contract, for example through redundancy. They apply to employees with at least 12 months of continuous service and are based on the ORP:

  • Under 2 years of service: 10 days’ wages per year
  • 2 to 5 years: 15 days’ wages per year
  • Over 5 years: 20 days’ wages per year

So an employee with 4 years of service and a RM140 daily rate is owed at least 4 × 15 × RM140 = RM8,400. Incomplete years are prorated to the nearest month.

Similar reads: Payroll Calculation Formula

What Payroll Deadlines Do Malaysian Employers Need to Meet?

Getting the numbers right is half the job. The other half is getting them paid and filed on time.
What Deadline
Salary payment Within 7 days after the end of the wage period
Overtime, rest day and public holiday pay By the last day of the next wage period
EPF contributions (KWSP i-Akaun) 15th of the following month
SOCSO and EIS contributions (PERKESO ASSIST) 15th of the following month
Monthly tax deduction (LHDN e-PCB) 15th of the following month
Form EA to each employee 28 February
Form E to LHDN 31 March
Every employee must also receive a payslip each month showing gross pay, each deduction and net pay. Payroll records should be kept for at least six years under the Employment Regulations. 
Also check: Malaysian Salary Management Checklist to Avoid Fines & Audits

Should You Run Payroll In-House or Outsource It?

It depends on your headcount and how much time your team can give it. Small and medium businesses make up 96.1% of all business establishments in Malaysia, according to the Department of Statistics Malaysia’s Economic Census 2023, and many of them don’t have a dedicated payroll person.
  In-house Outsourced
Control Full control over pay rules and timing Less hands-on, managed through reports
Compliance Your team tracks every rule change Provider handles updates and filings
Effort Needs trained staff and good software Frees up HR for other work
Works best for Companies with an established HR team SMEs and new market entrants
If you keep it in-house, Payroll Software that handles the ORP, overtime multipliers and prorating automatically removes most of the manual risk. Connecting it to Claims Management Software means approved allowances and reimbursements land in the right pay run, and a full HRMS Software suite keeps attendance, leave and payroll in one place.

Get the daily rate right, apply the correct multipliers and keep an eye on the 15th, and most payroll headaches never show up.

Payroll Calculation Malaysia FAQs

Is salary calculated 26 days or 30 days in Malaysia?

Payroll calculation is done on 26 days basis, for a full-time time monthly-paid employee.

Net pay = (Basic salary + Allowances + Overtime + Other payments − Unpaid leave) − (Employee EPF + SOCSO + EIS + PCB + Other deductions).

Overtime pay = (Monthly salary ÷ 26 ÷ Normal daily hours) × Multiplier × Overtime hours. The multiplier is 1.5× on normal working days, 2× on rest days and 3× on public holidays, and these rates are mandatory for employees earning RM4,000 a month or less.

Calculate gross pay, subtract the statutory deductions (EPF, SOCSO, EIS, PCB) to get net pay, then pay employees and remit contributions by the 15th of the following month.