Employment and Industrial Relations Update: Budget 2027: Higher Minimum Wages and a New Tax Condition for Employers
Budget 2027 announces an increase in the monthly minimum wage from RM1,700 to RM2,000 effective from June 2027, with an exemption for micro, small and medium enterprises ("MSMEs") whose annual sales are below RM50 million. Minimum wage refers to basic pay and excludes allowances, incentives and other additional payments.
The Government has also announced a separate RM2,500 monthly minimum wage for semi-skilled workers and graduates, pending further details from the Ministry of Human Resources. Employers should review employee pay and assess the impact on salaries, overtime payments and statutory contributions while awaiting clarification on requirements and exemptions.
The Budget also proposes a new condition for claiming tax deductions on wage expenses from the 2028 year of assessment. Companies, other than MSMEs, would need to pay wages through financial institutions or cashless payment instruments permitted under the Employment Act 1955. Non-compliant payment methods may result in tax deductions being denied. Therefore, employers should review payroll arrangements, retain supporting records, and monitor relevant legislation and guidance.
The following are the relevant materials for ease of reference:
- The Bernama article dated 10 October 2026 on the minimum wage announcements.
- The Ministry of Finance’s tax measures document — Annex 14, page 20, sets out the proposed condition for deductions on wage expenses and its commencement from the 2028 year of assessment.
- The official Budget speech — pages 14-15, paragraphs 32–33, contain the relevant wage and wage-payment announcements.
For more information, please reach out to your usual contact from our Employment & Industrial Relations Practice Group.
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