Budget 2027: Key Highlights for HR and IR Practitioners

Budget 2027 was tabled in the Dewan Rakyat on 9 October 2026, and the first question in most HR teams was whether the RM2,000 minimum wage is confirmed, and from when. It is, from June 2027, subject to a significant exemption.

The minimum wage is not the only change. A little over a dozen of the Budget 2027 affect HR and IR practice. Some take effect in January 2027, and one applies only from the year of assessment 2028. The key measures, and what they mean for employers, are set out below in this article, you may read the full Budget Speech here Budget Speech 2027

1. Minimum wage: RM2,000 from June 2027, with an MSME exemption

   The minimum wage rises from RM1,700 to RM2,000 a month from June 2027. This is an increase of RM300, or 17.6%, and the Government expects more than 4 million workers to be covered.
   

   Micro, Small, and Medium Enterprises (MSMEs) with annual sales below RM50 million are exempted "to provide room for adjustment to business models". The speech does not state how long the exemption will last; the Cabinet had earlier described it as applying for the time being. Nor does it explain how the RM50 million is to be measured, or how a small subsidiary within a larger group is treated.
   

   Employers should therefore make no assumptions either way. The commencement date and the scope of the exemption will be set out in a new Minimum Wages Order under section 23 of the National Wages Consultative Council Act 2011. Until that Order is gazetted, RM1,700 remains the legal minimum.
   

   Our E2 companion guide, Budget 2027: The New Minimum Wage, covers the legal definition, the penalties and the steps to take now.
   

2. Workers Income Framework Reformation

   The Government will reform the "workers' income framework", beginning with a RM2,500 monthly minimum for semi-skilled workers and graduates. No start date, coverage or definition has been announced, and the Human Resources Ministry (KESUMA) has said the implementation mechanism will be explained shortly. Separately, GLICs and GLCs will raise their living wage benchmark from RM3,100 to RM3,400 a month for about 230,000 workers, and the Prime Minister urged private-sector employers to follow suit. RM3,400 is not a legal requirement, but employers should expect it to feature in union proposals.
   

3. Payroll and tax changes

   From year of assessment (YA) 2027, individual relief rises from RM9,000 to RM12,000, the RM70,001 to RM100,000 band falls from 19% to 18%, and a new RM100,001 to RM150,000 band is taxed at 24% instead of 25% (Tax Measures, Appendices 1 and 2). The 30% rate will apply to chargeable income above RM1 million instead of RM2 million. These measures remain proposals until the Finance Bill is passed. Once it is, the PCB schedules will change, so payroll teams should confirm with their vendors that the January 2027 payroll will use the new tables. Most employees will see a modest increase in take-home pay, although those with chargeable income well above RM1 million may pay more. Another notable change is from YA 2028, companies other than MSMEs may claim a tax deduction on salary costs only if wages are paid through a financial institution or a cashless payment instrument, which is already the default under section 25 of the Employment Act 1955. The stated aim is to curb the employment of undocumented foreign workers. As the annex refers to the method of payment rather than to whether the Labour Department approved it, cash wages paid under a section 25A arrangement appear to fall outside the deduction as well. Employers that still pay any part of their workforce in cash should move to bank or e-wallet payment during 2027. Three smaller measures are relevant to benefits:

   • Employers that repay PTPTN loans for full-time employees will receive a tax deduction on repayments made from 1 January 2027 to 31 December 2028, provided nothing is recovered from the employee and the employee is neither the owner nor a relative.
     

   • The MediAsas plan launches in January 2027, and SMEs with fewer than 75 employees will receive a RM200 subsidy per employee on the first-year premium, capped at 50 employees.
     

   • The income ceiling for the Disabled Workers Allowance also rises from RM1,700 to RM2,000, so OKU employees on the minimum wage will remain eligible once the new rate applies.
     

4. Gig workers, skills funding and Talent

   Gig workers have a dedicated section in the speech. The Gig Workers Consultative Council is negotiating a minimum income rate, an income formula and minimum social protection standards, which are expected to be finalised in early 2027. In the meantime, the Government and Grab will co-fund a RM160 million package that raises minimum rates and supports vehicle, insurance and SOCSO costs. SOCSO contributions for e-hailing and p-hailing workers will be matched at 35%, or 50% where the platform also contributes. Businesses that rely on riders and drivers should expect higher costs, and closer scrutiny of whether those workers are in fact employees. On skills, TVET allocations across ministries total RM8 billion, of which HRD Corp will fund 3 million training places with RM3 billion, including continuing professional development. Employers should plan their levy utilisation early and take account of HRD Corp's 14-day approval rule. Companies that run BAKAT MADANI training programmes may claim a tax deduction from 29 June 2026 to 31 December 2030. For expatriate hiring, spouses of Category I Employment Pass holders who hold a Dependant Pass may work in Malaysia from 1 January 2027, subject to conditions. This should make relocation offers easier to conclude.
   

   Finally, civil servants will be entitled to up to 98 days of maternity leave per childbirth. This does not affect the private sector, where employees have been entitled to 98 days under section 37 of the Employment Act 1955 since January 2023. On this point, the public service is catching up with the private sector.

What HR and IR teams should do now

In September, we suggested modelling three outcomes: no change, a moderate increase and a sharp increase. The Budget has now settled the question. Three (3) things matter this quarter:

1. Assess basic pay, not gross pay. The minimum wage is measured against basic wages only. Identify every employee whose basic wage is below RM2,000, including daily-rated, hourly and piece-rated staff, and cost the difference. Then cost the knock-on effects: supervisors whose pay differential narrows, overtime and rest-day rates that rise with wages, and the employer's share of EPF, SOCSO and EIS.
   

2. Prepare for discussions with the union. For employers covered by the new rate, any collective agreement wage scale that starts below RM2,000 will be substituted under section 24 of the NWCC Act once the new Order applies. Whether covered or not, expect unions to cite RM2,000, RM2,500 and RM3,400 in negotiations, and settle your position before their proposal arrives.
   

3. Review how wages are paid. Move any remaining cash payroll to bank or e-wallet payment well before year of assessment 2028, and update PCB settings for January 2027 once the Finance Bill is passed.
   

Key dates for the HR diary

A Budget measure takes effect only when it is gazetted. Wages, on the other hand, remain due within seven days of the end of each wage period.

References

• Ministry of Finance, Budget 2027 Speech (English translation), 9 October 2026, paras 32 to 35, 74, 77, 86, 126, 143, 153 to 155 and 191. The Bahasa Malaysia text prevails.
  

• Ministry of Finance, Budget 2027 Tax Measures, Appendices 1, 2, 14 and 30.