Malaysia Employment Pass New Salary Rules Effective 1 June 2026: What Every Foreign Employer Must Do Now
By Horizon Hub Consulting / May 2026
2026 Edition: Revised salary thresholds, fixed employment durations, succession plans, Dependent Pass expansion, and what every foreign-owned company in Malaysia must do before 1 June 2026
Published: May 2026 · Last verified: May 2026 · By Horizon Hub Consulting
On 14 January 2026, the Ministry of Home Affairs (MOHA) issued a press release confirming the most significant overhaul of Malaysia’s Employment Pass (EP) framework since the policy was last set on 20 December 2016. The Cabinet approved the new policy on 17 October 2025, and the changes take effect for all new and renewal EP applications submitted on or after 1 June 2026.
The reform is structural, not cosmetic. Minimum salary thresholds have roughly doubled across all three EP categories. Fixed maximum employment durations now replace indefinite renewals. Succession plans (called “replacement plans” in MOHA documents) are mandatory for Category II and III holders. And for the first time, Category III Employment Pass holders will be allowed to bring dependents to Malaysia.
This guide covers everything foreign-owned companies and expatriates in Malaysia need to know: the exact new salary thresholds, what counts and what doesn’t, who is affected and who isn’t, the new duration framework, succession plan requirements, real cost scenarios, a 90-day action plan, and the honest impact on Sdn. Bhd. and Labuan structures.
| Key Employment Pass facts at a glance (2026) | |
|---|---|
| Effective date | 1 June 2026 (Cabinet approved 17 October 2025; MOHA press release 14 January 2026; ESD announcement 15 January 2026) |
| Applies to | All new and renewal EP applications submitted on or after 1 June 2026 |
| Category I new minimum | RM 20,000 basic salary and above (previously RM 10,000) |
| Category II new minimum | RM 10,000 to RM 19,999 basic salary (previously RM 5,000 to RM 9,999) |
| Category III new minimum | RM 5,000 to RM 9,999 basic salary (previously RM 3,000 to RM 4,999) |
| New duration framework | Category I: up to 10 years; Category II: up to 10 years with succession plan; Category III: up to 5 years with succession plan |
| Salary basis | Basic salary only — allowances, bonuses, commissions, and benefits-in-kind are excluded |
| Dependent Pass | Now extended to Category III holders (subject to salary, insurance, and immigration conditions) from 1 June 2026 |
| Retrospective? | No. Existing passes remain valid until expiry; new rules apply at renewal |
| Policy rationale | Aligned with Thirteenth Malaysia Plan (RMK-13) to reduce reliance on foreign labour and prioritise local talent |
1. What Changed on 1 June 2026: The Three Structural Reforms
The 1 June 2026 reform is not a routine update. It is the first comprehensive revision of Malaysia’s expatriate employment framework in nearly a decade. Three structural changes define the new policy:
One — Minimum salary thresholds have roughly doubled. Category I rises from RM 10,000 to RM 20,000 and above. Category II rises from RM 5,000 to RM 9,999 to a new range of RM 10,000 to RM 19,999. Category III rises from RM 3,000 to RM 4,999 to a new range of RM 5,000 to RM 9,999. All thresholds are calculated on basic salary only.
Two — Fixed maximum employment durations replace indefinite renewals. For the first time, Malaysia caps the total time an expatriate can hold an Employment Pass. Categories I and II are capped at 10 years; Category III at 5 years. Any extension is subject to case-by-case evaluation based on national interest.
Three — Succession plans are now mandatory. Category II and III applications must be accompanied by a documented replacement plan demonstrating how local employees will be developed to take over the role within the EP duration. This is enforceable: MOHA has confirmed that failure to implement the plan may affect future applications.
| Reform area | Before 1 June 2026 | From 1 June 2026 |
|---|---|---|
| Category I minimum salary | RM 10,000 and above | RM 20,000 and above |
| Category II minimum salary | RM 5,000 to RM 9,999 | RM 10,000 to RM 19,999 |
| Category III minimum salary | RM 3,000 to RM 4,999 | RM 5,000 to RM 9,999 |
| Maximum duration (Cat I) | No cap — indefinitely renewable | Up to 10 years |
| Maximum duration (Cat II) | No cap — indefinitely renewable | Up to 10 years (with succession plan) |
| Maximum duration (Cat III) | No cap — indefinitely renewable | Up to 5 years (with succession plan) |
| Succession plan | Not required | Mandatory for Categories II and III |
| Dependent Pass for Cat III | Not allowed (except MDEC MD Status companies) | Allowed across all categories |
2. The Official Salary Thresholds Explained
The table below is taken directly from the Expatriate Services Division (ESD) of the Immigration Department of Malaysia, announcement issued 15 January 2026.
| EP Category | Current Minimum Salary | Revised Minimum Salary (Effective 1 June 2026) | Maximum Employment Duration |
|---|---|---|---|
| Category I | RM 10,000 and above | RM 20,000 and above | Up to 10 years |
| Category II | RM 5,000 to RM 9,999 | RM 10,000 to RM 19,999 | Up to 10 years (with succession plan) |
| Category III | RM 3,000 to RM 4,999 | RM 5,000 to RM 9,999 | Up to 5 years (with succession plan) |
Three technical points employers often miss
- Basic salary only. The thresholds are calculated on basic salary. Allowances, bonuses, commissions, housing benefits, transport allowances, and benefits-in-kind do not count toward the minimum. This is the single most common mistake we see when companies try to “qualify” borderline employees.
- Applies to new applications and renewals. The new framework is not limited to new hires. Every renewal submitted on or after 1 June 2026 must meet the new floor for its category.
- No grandfathering announced. MOHA has stated the policy is forward-looking, with separate transitional regulations to be announced for existing pass holders. Until those are published, the safest assumption is that the new thresholds apply at the next renewal.
3. The New Employment Duration Framework
For the first time in Malaysia’s history, Employment Passes carry a hard maximum duration. Previously, Category I and II passes could be renewed indefinitely, and many senior expatriates have held their passes for 15 to 20 years. From 1 June 2026, that changes.
| Category | Maximum cumulative duration | Renewal conditions |
|---|---|---|
| Category I | Up to 10 years | Renewable within the 10-year cap; extension beyond 10 years is case-by-case based on national interest |
| Category II | Up to 10 years | Requires documented succession plan; renewable within the cap subject to compliance |
| Category III | Up to 5 years | Requires documented succession plan; renewable within the cap subject to compliance |
According to the official MOHA FAQ, any extension beyond the cumulative cap is subject to case-by-case evaluation based on national interest. Companies can no longer assume that a long-serving expatriate will be renewed forever, and long-term workforce planning is now essential.
4. Succession Plans: What Employers Must Prepare
The succession plan, officially called a “replacement plan” in MOHA documents, is the most operationally demanding element of the new policy. It is the mechanism by which the Government enforces the broader objective of the Thirteenth Malaysia Plan (RMK-13) to reduce reliance on foreign labour and develop local talent.
Per the official FAQ released by MOHA, a replacement plan is a structured and clearly defined plan to prepare the local workforce to replace the role of an expatriate within a specified employment period. It must include:
- Identification of positions and functions to be transferred to local employees
- Training, mentoring, and knowledge transfer from the expatriate to local workers
- A reasonable timeframe to ensure local employees are ready in terms of skills and competencies
- Operational continuity planning to ensure that the transition does not affect productivity or organisational performance
MOHA has confirmed that monitoring will happen through documentation requirements, periodic reporting, and assessments by relevant agencies. If an employer fails to implement the replacement plan, future applications may be affected or rejected.
| What a credible succession plan looks like in practice | |
|---|---|
| Identified successor | A named Malaysian employee currently in the company, or a planned hiring timeline if no internal candidate exists |
| Training pathway | Documented training programme, certifications, on-the-job mentoring schedule, and external courses where relevant |
| Milestones | Quarterly or annual milestones showing what knowledge and responsibility transfers over time |
| Timeline | Realistic completion date aligned with the EP duration cap (5 or 10 years) |
| Continuity safeguards | Plan for handover meetings, documentation of processes, and back-up arrangements |
5. Dependent Pass Eligibility: The One Piece of Good News
One genuinely positive change accompanies the new policy: Dependent Pass eligibility is being extended to Category III Employment Pass holders.
Previously, Category III holders could not bring spouses or children to Malaysia on a Dependent Pass unless they were employed by an MDEC-registered Malaysia Digital (MD) Status company. From 1 June 2026 onward, dependents will be allowed across all EP categories, subject to:
- Meeting salary eligibility under the new framework
- Insurance coverage requirements
- Compliance with immigration regulations
Important caveat: This benefit applies only to EP III applications submitted on or after 1 June 2026. Existing Category III holders whose passes were issued before that date remain under the old rules, and their Dependent Pass options are not retroactively expanded.
For technology firms, consultancies, and SMEs relocating senior technical specialists from overseas, this is a meaningful improvement to the hiring proposition. Family relocation has long been a deciding factor in whether a foreign professional accepts an offer in Malaysia.
6. Who Is Affected and Who Is Not
| Group | Level of impact | Why |
|---|---|---|
| Foreign-owned Sdn. Bhd. companies hiring regional managers, finance leads, technical specialists (RM 5,000–15,000 range) | Most affected | Existing salaries below the new RM 10,000 Category II floor will require uplift at renewal |
| SMEs and tech startups using Category III (RM 3,000–4,999) hires | Most affected | Old Category III range no longer exists; minimum is now RM 5,000 |
| Multinationals with long-serving senior expatriates | Most affected | The new 10-year cumulative cap may cut off long-tenured pass holders |
| Manufacturing Related Services (MRS) sector companies | Partially affected | MOHA FAQ confirms a different salary threshold reflecting MRS sector technical and structural requirements |
| MDEC Malaysia Digital (MD) Status companies | Partially affected | MDEC has confirmed the same revised thresholds apply; Dependent Pass change is less material since MD companies could already sponsor dependents |
| Labuan company employees on Labuan Work Permit | Less affected (for now) | Labuan Work Permit operates under a separate regime via Labuan FSA, not ESD; the RM 10,000 Labuan minimum remains unchanged |
| Investor Pass holders | Less affected | Falls under a separate ESD category not covered by the 1 June 2026 revision |
7. Real Cost Impact: Three Scenarios from Our Clients
The following three scenarios are based on conversations Horizon Hub has had with foreign-owned companies since the policy was announced in January 2026.
Scenario A: Category II regional manager
- Before: Regional manager earning RM 8,500 basic salary, Category II EP, renewable indefinitely
- After 1 June 2026: Minimum is now RM 10,000 basic. The employer must either raise the basic salary by at least RM 1,500 per month (RM 18,000 per year), plus EPF and SOCSO uplift, or risk renewal rejection
- Annual cost increase: Approximately RM 19,000 to RM 21,000 per affected employee once statutory contributions are factored in
Scenario B: Category III junior developer
- Before: Junior developer at RM 4,500 basic salary, Category III EP, renewable
- After 1 June 2026: Minimum is now RM 5,000 basic. The role still qualifies, but the renewal will be capped at 5 years total and require a succession plan
- Strategic shift: The employer must now actively recruit and train a Malaysian counterpart within those 5 years, fundamentally changing how junior foreign hires fit into the company’s long-term plan
Scenario C: Long-serving Category I country manager
- Before: Country manager with 8 years of service in Malaysia on Category I EP, salary RM 18,000
- After 1 June 2026: Minimum is now RM 20,000. Both the salary increase and the 10-year cumulative cap come into play. The employer must decide whether to retain via salary uplift, transition to a local successor, or both
8. A 90-Day Action Plan for Foreign Employers
If your business has not begun preparing, the time to act is now. The following sequence is what Horizon Hub recommends to our clients.
| Phase | Action | Timeline |
|---|---|---|
| Phase 1: Audit | List every current EP holder by category, basic salary, renewal date, and years already worked in Malaysia. Flag every employee below the new threshold and every employee approaching the new duration cap | Weeks 1–2 |
| Phase 2: Cost modelling | Calculate the salary uplift required to keep each affected employee compliant. Include uplift on statutory contributions (EPF, SOCSO, EIS). Compare against the cost of localising the role | Weeks 3–4 |
| Phase 3: Succession plans | For every Category II and III holder you intend to retain, draft a documented replacement plan identifying the local successor, training pathway, milestones, and timeline. Begin recruitment of Malaysian successors where there are no internal candidates | Weeks 5–8 |
| Phase 4: Communicate and execute | Inform affected employees of salary adjustments or transition plans. Submit pending renewals before 1 June 2026 where possible to lock in the old rules for the current term. Engage your immigration consultant to validate documentation against the new ESD standards | Weeks 9–12 |
9. What Expatriates Currently in Malaysia Need to Know
If you are currently on an Employment Pass in Malaysia, here is what the official policy says about you:
- The policy is not retrospective. Per the MOHA FAQ, the policy is forward-looking in nature. Your current EP remains valid until its stated expiry date.
- Renewal is when the new rules apply. When your EP comes up for renewal on or after 1 June 2026, the new salary threshold and duration cap apply to that renewal.
- Transitional regulations are still being finalised. MOHA has stated that existing expatriates will be subject to transitional regulations that will be announced separately. Watch the ESD Announcements page closely.
- Your dependents are safe. Existing Dependent Passes remain valid until their stated expiry.
- Have the conversation with your employer. If your basic salary is below the new threshold for your category, ask whether the company intends to adjust your salary at renewal, transition you out, or apply for an exemption.
10. Common Mistakes to Avoid
Based on questions we have received from clients since January 2026, the most frequent misunderstandings are:
- Counting allowances toward the minimum salary. The threshold is calculated on basic salary only. Housing, transport, and bonus payments do not count.
- Assuming the policy only affects new hires. Renewals submitted on or after 1 June 2026 must also comply.
- Treating the succession plan as paperwork. MOHA has confirmed that monitoring will include periodic reporting and assessments. A boilerplate plan will not pass scrutiny if there is no real local-talent development behind it.
- Waiting for “official guidelines” before acting. Detailed Standard Operating Procedures will be issued, but the salary thresholds and the 1 June 2026 effective date are already final.
- Ignoring the Labuan option without analysis. The Labuan Work Permit (minimum RM 10,000 per month) remains unchanged by the 1 June 2026 revision. For some businesses, restructuring through a Labuan company can change the entire workforce-cost equation, provided the company has genuine substance. This is worth modelling case by case.
11. Labuan Work Permit: The Unaffected Alternative
The Labuan Work Permit operates under a separate regime administered by the Labuan Financial Services Authority (Labuan FSA), not ESD. Its minimum salary remains at RM 10,000 per month — half of the new ESD Category I threshold. For entrepreneurs who want to live in Malaysia but cannot meet the new RM 20,000 Category I floor, Labuan remains a viable pathway, with three important conditions:
- You must establish a real Labuan company with operational substance — a physical office in Labuan, at least two full-time employees, and minimum annual operating expenditure of approximately RM 50,000 to RM 100,000.
- The company must conduct genuine business — Labuan FSA actively scrutinises applications and renewals, and the rejection rate for shell entities has increased significantly.
- The minimum paid-up capital is RM 250,000 (or equivalent in foreign currency) for non-licensed entities.
For foreign founders who plan to run an international business from Malaysia and would otherwise have been constrained by the new ESD thresholds, the Labuan pathway is worth a serious feasibility analysis. We cover this in detail in our companion guide: Labuan Offshore Zone: The Complete Guide for Foreign Entrepreneurs 2026.
12. How Horizon Hub Consulting Can Help
At Horizon Hub Consulting, we work with foreign founders, regional headquarters, and SMEs to keep their expatriate workforce compliant through every Malaysian policy shift. For the 1 June 2026 transition, our team supports clients with:
- EP audits — a full review of your current pass holders against the new thresholds
- Workforce cost modelling — clear numbers on what compliance will cost and where to optimise
- Succession plan drafting — structured, documented plans that satisfy MOHA’s monitoring criteria
- EP renewals and new applications — submitted through the correct ESD or MDEC channel
- Dependent Pass and Long-Term Social Visit Pass applications
- Structural advice — whether a Labuan company, MD Status, or restructured Sdn. Bhd. better suits your hiring plans
13. Frequently Asked Questions
When exactly does the new Employment Pass salary policy take effect in Malaysia?
1 June 2026. All new and renewal EP applications submitted on or after that date must comply with the revised thresholds.
What is the new minimum salary for Category I Employment Pass in Malaysia?
RM 20,000 and above, calculated on basic salary only.
What is the new minimum salary for Category II Employment Pass?
RM 10,000 to RM 19,999 basic salary.
What is the new minimum salary for Category III Employment Pass?
RM 5,000 to RM 9,999 basic salary.
How long can an Employment Pass holder now work in Malaysia?
Up to 10 years for Categories I and II, and up to 5 years for Category III. Extensions beyond the cap are evaluated case by case based on national interest.
Are existing Employment Pass holders affected?
The policy is not retrospective. Existing passes remain valid until expiry. However, renewals submitted on or after 1 June 2026 must meet the new requirements.
Can Category III holders now bring dependents?
Yes. From 1 June 2026, Dependent Pass eligibility extends to Category III holders, subject to salary, insurance, and immigration conditions. Existing pre-1 June 2026 EP III holders remain under the old rules.
Does this policy apply to Labuan companies?
Labuan companies operate under a separate Labuan FSA work permit regime, and the Labuan Work Permit minimum remains RM 10,000 per month. Employers using Labuan structures to second staff to Peninsular Malaysia should still review their arrangements carefully.
Does the salary include allowances and bonuses?
No. The minimum threshold is calculated on basic salary only. Allowances, commissions, bonuses, and benefits-in-kind are excluded.
What happens if my company cannot meet the new salary thresholds?
Future EP applications may be rejected. Employers should consider raising basic salaries, restructuring roles, accelerating localisation through succession planning, or evaluating alternative structures such as Labuan.
Where can I find the official policy documents?
The MOHA press release dated 14 January 2026 and the ESD announcement dated 15 January 2026 are the official sources. Links are in the References section below.
References & Sources
[8] Thirteenth Malaysia Plan (RMK-13, 2026–2030) — National policy framework cited by MOHA as the rationale for the new EP rules
| Disclaimer |
|---|
| This guide is for general informational purposes only and does not constitute legal, tax, or immigration advice. Policies and implementation details may evolve as MOHA issues further Standard Operating Procedures. All figures are indicative. Always consult a licensed professional before making any structural or workforce decisions. Last verified: May 2026. Horizon Hub Consulting | info@horizonhubconsulting.com | +603-27393551 |
Affected by the 1 June 2026 changes? Let’s review your situation before the deadline.
Horizon Hub Consulting advises foreign employers on EP audits, workforce cost modelling, succession plan drafting, EP renewals, Dependent Pass applications, and structural alternatives including Labuan, MDEC MD Status, and restructured Sdn. Bhd. arrangements.
WhatsApp: +6011-37730699 · Office: +603-27393551 · info@horizonhubconsulting.com
C10-5 Plaza Mont Kiara, Jalan Kiara, 50480 Kuala Lumpur