Malaysia Budget 2027: What employers need to know about wages, skills training, and gig-worker protections

KUALA LUMPUR, 12 OCTOBER 2026 —

Malaysia’s Fifth MADANI Budget, tabled by Prime Minister and Finance Minister Anwar Ibrahim in the Dewan Rakyat on Friday, 9 October 2026, introduces a comprehensive overhaul of the nation’s labor market framework, anchored by a significant increase in the minimum wage to RM2,000 and a historic expansion of social protections for gig workers.

The most immediate impact on the private sector will be the statutory rise in the minimum wage from RM1,700 to RM2,000 per month, effective from June 2027. The government projects that this adjustment will directly benefit more than four million workers across the country.

To mitigate the financial strain on smaller businesses, micro, small, and medium-sized enterprises (MSMEs) with annual sales below RM50 million will be exempted from this new requirement, providing these firms with a buffer to adjust their operational models. Beyond the statutory minimum, the budget proposes a structural reform of the workers’ income framework, introducing a targeted minimum wage of RM2,500 per month specifically for semi-skilled workers and graduates.

This tiered approach aims to address skill-based wage disparities while ensuring a higher floor for the educated workforce.

In a move designed to elevate the standard of living for the middle-income bracket, the budget welcomes commitments from government-linked investment companies (GLICs) and government-linked companies (GLCs) to raise their internal living wage benchmark from RM3,100 to RM3,400 per month. This initiative is expected to improve the financial standing of approximately 230,000 workers within the government-linked ecosystem.

Prime Minister Anwar highlighted the broader economic context, noting that Malaysia’s labor compensation share of gross domestic product remains relatively low at 33.9%. He called on private-sector employers to play a proactive role in ensuring fairer remuneration, suggesting that the current wage structure does not fully reflect the value contributed by the workforce to the national economy.

Skills development emerges as a central pillar of the budget, with a total allocation of RM8 billion dedicated to technical and vocational education and training (TVET). Within this framework, the Human Resources Development Corporation (HRD Corp) has been allocated RM3 billion to facilitate three million training opportunities, including continuing professional development programs.

Additionally, the Skills Development Fund Corporation (PTPK) will receive RM500 million specifically for training financing, aiming to reduce the cost barrier for upskilling initiatives. Under the Bakat MADANI initiative, the government targets the creation of 30,000 new jobs in 2027, linking skills acquisition directly to employment generation. To incentivize corporate participation, tax deductions will be available for companies providing training between 29 June 2026 and 31 December 2030.

The budget also places a strong emphasis on digital literacy and artificial intelligence (AI) integration in the workforce. The Rakyat Digital program will provide free access to Coursera, covering more than 16,000 courses and professional certificates, alongside 100,000 free AI subscriptions, including ChatGPT. AI Malaysia Berhad is set to receive nearly RM15 million, with a specific target of developing 200,000 AI-skilled workers.

Concurrently, the Multimedia Development Corporation (MDEC) will allocate RM30 million to assist 4,000 MSMEs in adopting AI technologies and to train and certify 5,000 AI professionals. These measures reflect a strategic push to modernize the labor force and prepare Malaysian workers for an increasingly automated and digital economy.

A landmark development in the budget is the expanded protection for the estimated 600,000 e-hailing and p-hailing workers in Malaysia. The government and Grab Holdings Limited have agreed to share the cost of a RM160 million package, to be implemented from 2027, which includes increased minimum income rates, assistance with vehicle maintenance and insurance, and contributions to the Social Security Organisation (SOCSO).

Under this arrangement, the median net monthly income for e-hailing drivers is expected to rise by up to RM227, while p-hailing delivery workers may see an increase of up to RM100. To further incentivize social security participation, the government will introduce a 35% matching incentive for SOCSO contributions by these workers, which will increase to 50% if platform companies also contribute towards the workers’ share.

This social protection framework extends beyond platform workers to the broader self-employed sector. A 70% matching incentive for SOCSO contributions will be extended to 200,000 self-employed individuals across 17 sectors where coverage is not currently mandatory. The government is also working through a council to finalize a minimum income rate or formula and additional social protection measures, with the process expected to be completed in early 2027.

In a broader move to secure retirement savings, every Malaysian citizen will be automatically registered as an Employees Provident Fund (EPF) member upon turning 18, allowing retirement savings to begin earlier in life. This automatic enrollment aims to address the low participation rates in retirement savings among younger demographics.

Tax policy changes in the budget introduce new conditions for wage expenditure deductions, requiring companies other than MSMEs to pay wages through bank accounts in accordance with the Employment Act 1955 to claim these deductions. This condition does not apply to other types of expenditure. For individual taxpayers, the tax relief threshold will increase from RM9,000 to RM12,000.

Income tax rates will be reduced by one percentage point for those in the RM70,001-RM100,000 band, lowering the rate to 18%, and for the RM100,001-RM150,000 band, reducing it to 24%. The tax rate for income above RM1 million will be adjusted to 30%. Additional reliefs will cover postpartum care, care expenses for parents and grandparents, sports shoes, children’s tuition, all fields of study, AI subscriptions, and pet vaccination and adoption from registered shelters.

Collectively, these measures are expected to provide approximately five million taxpayers with additional disposable income of up to RM1,600.

Support for the public sector and household welfare is also a significant component of the budget. Civil servants in Grade Premier B and below, including contract appointees, will receive special financial assistance of RM1,500, while more than one million government retirees, including veterans, will receive RM750. These payments are scheduled to be made in two tranches: before Aidilfitri and ahead of the 70th anniversary of Independence.

The government will increase the total maternity leave entitlement over a civil servant’s service from 360 to 490 days, while retaining a maximum of 98 days for each childbirth. An allocation of RM20 million will be dedicated to childcare centers at government facilities. Furthermore, RM2.3 billion is allocated for government quarters, and one-off promotions will be granted to 12,000 management and professional officers who have been waiting for promotion due to limited posts.

The minimum pension will rise from RM1,000 to RM1,350, benefiting nearly 59,000 pensioners.

On the household purchasing power front, the government will allocate RM16 billion to Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA), an increase from RM15 billion. SARA support of up to RM150 per month, or RM1,800 per year, will be extended to all STR recipients, potentially reaching up to nine million people.

A separate SARA MADANI payment of RM100 on two occasions will be provided to Malaysians aged 18 and above who do not receive STR, ahead of Aidilfitri and National Day, potentially reaching up to 13 million people, including those in the M40 income group. Prime Minister Anwar noted that SARA can also be used to purchase fresh produce and perishables at 216 FAMA farmers’ markets and tamu.

The allocation for Jualan Rahmah and Agro programmes will rise from RM630 million to RM750 million, supporting 35,000 programmes, with fresh produce offered at prices up to 30% lower.

The budget’s wider economic support mechanisms include subsidies, assistance, and incentives exceeding RM80 billion, including RM40 billion in fuel subsidies and nearly RM3.3 billion for the Social Welfare Department. The total value of loan facilities and financing guarantees will increase from RM50 billion to RM57 billion in 2027. Bank Negara Malaysia will add RM5 billion to its financing facility for SMEs affected by the West Asia conflict, bringing the total facility to RM10 billion.

Meanwhile, MATRADE will allocate RM60 million to support trade initiatives, completing a package that aims to stabilize the economic environment in which employers operate.