Malaysia’s New Employment Pass Rules (w.e.f. 1 June 2026)

Malaysia is set to overhaul its Employment Pass (EP) framework effective 1 June 2026, introducing the most significant changes to expatriate employment rules since 2016. Announced by the Ministry of Home Affairs following Cabinet approval on 17 October 2025, the revised New Expatriate Employment Policy (NEEP) introduces two sweeping changes that will directly affect thousands of foreign professionals and the companies that employ them: substantially higher minimum salary thresholds, and new hard limits on how long an expatriate can remain under the same Employment Pass.

Employers and HR teams should not wait until June to begin planning. Both new and renewal EP applications submitted on or after 1 June 2026 are subject to the new requirements — meaning renewals falling due in mid-2026 may already be affected.

Important — Transitional Applications:
A complete application submitted before 1 June 2026 will still be assessed under the previous policy. However, if an application is returned for incomplete documentation, it must be resubmitted within 90 days — and if that resubmission falls after 1 June 2026, the new policy applies.

Part 1: The New Salary Thresholds

The most immediate and impactful change is the sharp increase in minimum monthly salaries across all three EP categories. For many organisations, these figures represent a near-doubling of previous requirements.

Category II and III approvals require a formal succession (replacement) plan for Malaysian talent development.

Critical Clarification — Basic Salary Only
The salary thresholds apply to basic salary exclusively. Allowances, bonuses, and other payments are not counted towards the minimum.
This is a frequently misunderstood point. An expatriate earning RM 18,000 total compensation but only RM 9,000 in basic salary would not qualify for Category I under the new rules. Employers must review payroll structures with this distinction in mind.

Additional Structural Requirements Employers Should Note

Beyond salary adjustments, the updated Employment Pass framework introduces additional structural considerations that employers should plan for:

• Employment Duration Limits

Employment Pass validity continues to be tied to category levels, with higher-tier roles typically receiving longer durations, while lower tiers may face shorter approval periods and cumulative limits.

• Succession Planning Expectations

For mid- to lower-tier expatriate roles, employers may be expected to demonstrate a clear plan to transfer knowledge to local employees over time.

These changes require employers to move beyond salary compliance and start integrating long-term workforce localisation strategies into their hiring decisions.

What This Means in Practice

The doubling of the Category I threshold — from RM 10,000 to RM 20,000 in basic salary — is the headline figure. For Category III, the increase from a floor of RM 3,000 to RM 5,000 — and RM 7,000 in manufacturing and manufacturing-related services (MRS) sectors — will affect a larger volume of EP holders in shared services, business process outsourcing, and manufacturing environments.

The Ministry of Home Affairs has confirmed that the policy is not anti-investment, but rather aims to attract high-value, high-impact expertise — particularly for Category I roles that directly contribute to economic growth and technology transfer.

Compliance Actions for Employers

• Audit current EP holders against basic salary (not total package) — this distinction may reveal a larger number of affected employees than initially expected.
• Adjust salary structures where feasible for critical roles that fall below the new minimums.
• Assess role criticality: if a position cannot meet the new threshold and cannot be restructured, begin planning for localisation.
• Factor increased costs into workforce budgets — particularly for regional headquarters and shared services operations in Malaysia.
• Note for Manufacturing/MRS companies: your sector requires either a Manufacturing Licence or Manufacturing Exemption Confirmation Letter to qualify for the RM 7,000–RM 9,999 Category III band.

Part 2: Fixed Employment Duration — The End of Indefinite Renewals

The second major change is the introduction of a maximum cumulative employment period for each EP category. Prior to this reform, Category I and Category II passes could be renewed indefinitely. That era is now coming to an end.

Extensions beyond the maximum are possible but subject to case-by-case evaluation based on national interest.

Key Implementation Details

Several important nuances have been confirmed in the official ESD FAQ (updated 12 February 2026):

• The clock begins from 1 June 2026, not from the original date of employment. For existing EP holders, the countdown starts afresh.
• The duration limit is tied to the employer, not the individual. An expatriate who changes employers begins a new employment period with the new company.
• A change of pass category (e.g., from EP III to EP II) triggers a reset, with the new duration starting from the date of the new pass issuance.
• Existing EP holders are not required to reapply solely due to the policy change. Passes that are still valid continue unchanged until expiry.
• Any renewal submitted on or after 1 June 2026 must comply with the new salary thresholds — without exception.
• Renewals may be filed up to three months before pass expiry.
• Companies may now apply for contracts of up to 60 months (five years) in a single EP application. 

The Succession Plan Requirement

For Category II and III passes, employers must provide a formal succession plan — officially defined by ESD as a structured plan to prepare local employees to replace expatriate roles within the stipulated employment period. According to the official FAQ, this plan must include:

• Identification of roles and responsibilities to be transitioned to local employees
• Training, mentoring, and knowledge transfer activities
• A timeline for ensuring local employees are ready with the required skills
• Operational continuity planning to avoid disruption during the transition

Failure to implement an approved succession plan may result in future EP applications being rejected. 

The Ministry of Home Affairs has confirmed that detailed Standard Operating Procedures (SOPs) will be issued, and stakeholder engagement sessions are planned ahead of the June implementation date.

Strategic Implications

The new framework repositions expatriate roles as time-bound, skills-transfer engagements rather than open-ended appointments. For EP Category III holders in particular — capped at five years — companies in sectors with mature local talent pipelines (shared services, IT, finance) will need to plan more deliberately for knowledge transfer and local succession from the outset of each hire.

What Employers Should Do Now

With less than two months until the June 2026 implementation date, the window for preparation is short. Link Compliance recommends the following immediate steps:

1. Map all current EP holders by category, basic salary, and renewal date to identify who is affected and when.
2. Check basic salary, not total package — verify each EP holder’s basic salary against the new thresholds, as allowances do not count.
3. Identify salary gaps and assess which roles can be adjusted versus those that may need to be localised.
4. Begin succession planning documentation for Category II and III roles, even before official templates are issued by the Ministry of Home Affairs.
5. Prioritise renewals due in mid-2026 — these are the most time-sensitive cases and must comply with the new thresholds upon submission.
6. Engage your immigration counsel early to navigate sector-specific provisions, particularly for manufacturing and MRS companies under MITI/MIDA.

The Ministry of Home Affairs has been explicit: this policy is not intended to restrict the employment of expatriates, but to ensure that foreign talent genuinely complements — rather than displaces — Malaysia’s local workforce. Compliance is not just a legal obligation; it is an opportunity to build more sustainable, locally-rooted talent strategies for the long term.

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About Link Compliance

At Link Compliance, we know that keeping up with regulatory changes — especially ones this significant — can be stressful and time-consuming. That’s why we’re here.

We work with businesses to navigate the full spectrum of workforce compliance: from Employment Pass and work pass advisory, to HR and payroll compliance, to broader immigration and regulatory requirements. Whether you’re a multinational managing a large expatriate workforce or an SME hiring your first foreign employee, we help you stay on the right side of the rules — without the headache.

The June 2026 EP changes are some of the most far-reaching in a decade. If you’re unsure how they affect your team, or you’d like a straightforward review of your current EP holders against the new requirements, we’d love to help.

Get in touch with us at info@linkcompliance.com — we’re happy to have a conversation and point you in the right direction.

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Official Sources

• Expatriate Services Division (ESD), Immigration Department of Malaysia — esd.imi.gov.my
• ESD Announcement: Revised Employment Pass Salary Policy Effective 1 June 2026 (15 January 2026)
• ESD Official FAQ: Revised Expatriate Salary Policy (updated 12 February 2026) — jointly issued by Ministry of Home Affairs, Immigration Dept, MIDA, MDEC, IRDA, ECERDC, BNM, SC & MYXpats
• Ministry of Home Affairs Official FAQ: New Expatriate Employment Policy (Effective 1 June 2026)