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Payroll In Malta

Payroll in Malta: Comprehensive Guide to Payroll Management

Malta is suitable for foreign investment, offering stable and robust economic growth. The country has modern infrastructure, substantial tax benefits, various investment incentives, and an educated workforce. It was ranked 21st in the Global Innovation Index in 2022 and 88th in the 2020 Ease of Doing Business Index.

Companies aiming to establish and run a business in Malta must abide by the local rules and regulations defined by the Malta government. They must understand corporate tax laws, income tax, and social security for flawless company operations. 

A deep understanding of payroll tax in Malta and labor requirements helps you to establish perfect and compliant payroll. The below sections discuss all elements you must know about payroll in Malta.

How Is Payroll Calculated in Malta?

Malta’s payroll policies and procedures emphasize precisely calculating payroll. It tracks net salary by considering working hours, leaves and attendance. Furthermore, you should withdraw social security contributions and other applicable deductions by abiding by payroll rules and regulations in Malta.

The formula to calculate payroll is:

Net Salary = Gross Salary – Gross Deductions

here,

  •   Gross Salary = Basic Salary + HRA + All types of Allowances + Reimbursements + Arrears + Bonus
  •   Gross Deductions = Professional Tax + Income Tax + Loan repayments (if any) + Insurance + Leave adjustments

Important Elements of Salary Structure in Malta

The below section discusses the elements that constitute the salary structure in Malta:

Cost to Company (CTC)

An annual amount owed by a company when hiring an employee. It incorporates the employee’s net remuneration, payroll deductions in Malta, gross remuneration, supplementary benefits, etc.

Gross salary

Gross salary covers all aspects that assist an employer in designing an employee compensation package. These aspects are health insurance, social security contributions, total income before calculating payroll deductions in Malta, etc.

Net salary

It indicates the amount transferred to an employee’s bank accounts after calculating all deductions from the gross salary.

Basic salary

It shows the amount employees receive after the employer calculates all additions and deductions from the yearly salary package. Its amount depends on the employer’s job role and the business activities.

Allowances

All employees in Malta are entitled to several allowances (including travel, accommodation, coaching, etc.) regardless of the industry and the company. It denotes all the employment expenses that employers should pay to their employees. Moreover, it balances a proper work-life balance for the employees.

How to Set Up a Payroll in Malta

Make sure to follow the below steps to create payroll in Malta:

Step 1: Register a business in Malta with the Malta Business Registry.

Step 2: Register new employees with the Inland Revenue Department (through the submission of the FS4) and JOBSPLUS (the Employment and Training Department). Make sure to register the employees within 14 days of the joining date. 

Step 3: Collect all the vital employee information like their name, date of birth, postal address, family details, marital status, and others.

Step 4: Establish a legal entity to process a payroll in Malta. The country’s most common entity forms are Limited Liability Companies, General Partnerships, Single Proprietorships, and Overseas Companies.

Step 5: Get a Tax Identification Number (TIN) from the Registry of Companies (to fulfill mandatory annual tax returns) and get a trade license from the Trade Licensing Directorate (make sure to renew it annually).

Step 6: Register for the PE Number (Employment Number) online from the Malta Commissioner for Revenue’s website.

Step 7: Register for Social Security Contributions (SSC). The employer must submit a return (the FS5) form to the Commissioner of Inland Revenue every month. 

Step 8: Register for VAT.

Step 9: Open a Malta bank account with a local bank to distribute payroll payments to employees and legal bodies.

Step 10: Comply with General Data Protection Regulations (GDPR) to guard data.

Step 11: Create employment contracts, calculate monthly salary, and create pay slips.

Step 12: Create annual accounts, administration, and year-end statements.

Step 13: Finalize the employee payroll amount, your company’s payroll cycle, and the system.

Step 14: Pay all employees via a local entity ( which permits you to hire and pay employees lawfully) or utilize services from an Employer of Record (EOR) platform in Malta.

A Step-by-step Process of Payroll Processing in Malta

The details of the three stages of the processing of payroll in Malta are available here.

i. Pre-payroll stage

It focuses on Malta’s legal requirements to process payroll and payments. The information on the relevant mandatory components is here.

Statutory components

It indicates the existing and new statutory compensation laws and regulations that offer wage and leave benefits to employees.

Attendance policy

It stipulates the rules defined for the employees’ attendance. It assists you in computing standard and special attendance, overtime, permissions, and more. Therefore, the policy streamlines payroll calculation and compliance.

Salary components

It focuses on various factors influencing salary calculation, including allowances, deductions, leave types, and payroll tax in Malta.

Payment schedule

It defines the day the employer should release the employees’ payments. It also mentions a fixed payment schedule to exclude payment delays. Using this component, the employees stay updated about when they will receive their monthly payments.

Employee details

You must collect professional and personal information about all your employees. Specifically, these details are employees’ names, job designations, nationalities, departments, compensation, salary details, benefits, etc.  

ii. Payroll calculation stage

  • In this stage, you should enter the data from the previous stage into the payroll system. 
  • You must calculate taxes and deductions and track working hours. Subsequently, you should calculate employees’ net salaries and print payslips to guarantee accurate payroll processing.
  • Make sure to calculate and maintain payroll records either automatically or manually. Afterwards, you can timely process payments.  

iii. Post-payroll stage

The components in this Malta payroll compliance checklist stage assist you in concluding the payroll process.

Statutory compliance

The payroll administrator must rigorously follow statutory compliances while processing payroll. Make various deductions like income tax, social security contributions (SSC), and N1 contributions. All these deductions will be sent to the relevant government agencies or bodies. 

Payroll accounting

It takes into account tracking payments and payroll-related expenses. It includes various compensations like gross pay, commission, and health insurance. You can use internal payroll accounting to limit such expenses. Alternatively, you may outsource it to a reliable external auditing service.

Payroll reporting and compliance

It considers preparing all statutory compliance and reporting forms to submit to local regulatory authorities. Also, it specifies all compensation, contributions, withholdings, and other details to be filled up in your compliance and reporting forms.

Payroll Contributions

Employees and employers have to mandatorily make social security contributions during payroll processing in Malta. These contributions are as follows:

Employer and Employee contributions

Social Security up to annual salaries of 25,986.00 EUR

10%

Social Security for annual salaries above 25,986 EUR (for the employee born on or after 1.1.1962)

49.97 EUR (flat rate per week)

Employee Income Tax

For Married Resident Employees

Annual tax base

Tax rates

Deduction

0 to 12,700 EUR

0%

0

12,201 to 21,200 EUR

15%

1,905 EUR

21,201 to 28,700 EUR

25%

4,025 EUR

28,701 to 60,000 EUR

25%

3,905 EUR

Above 60,001 EUR

35%

9,905 EUR

For Single Resident Employees

Annual tax base

Tax rates

Deduction

0 to 9,100 EUR

0%

0

9,101 to 14,500 EUR

15%

1,365 EUR

14,501 to 19,500 EUR

25%

2,815 EUR

19,501 to 60,000 EUR

25%

2,725 EUR

Above 60,001 EUR

35%

8,725 EUR

 For Parent Resident Employees

Annual tax base

Tax rates

Deduction

0 to 10,500 EUR

0%

0

10,501 to 15,800 EUR

15%

1,575 EUR

15,801 to 21,200 EUR

25%

3,155 EUR

21,201 to 60,000 EUR

25%

3,050 EUR

Above 60,001 EUR

35%

9,050 EUR

 Payroll Cycle

In Malta, employers pay employees every four weeks on standard payment schedules. Employers must ensure that they provide details regarding payroll schedules to employees for transparent payroll processing. 

Malta Payroll Options for Companies

The following section discusses different HR payroll Malta options.

  • Internal payroll: Larger firms with long-term contracts with Malta can run an internal payroll with experienced HR staff. This HR payroll in Malta is costly as the company should dedicate sufficient time and recruit an expert workforce experienced at establishing payroll.

  • Remote payroll: This HR payroll Malta option ensures that the parent company handles the payroll process. It is affordable, but the company should know various labor laws in Malta.

  • A Malta payroll processing company: It focuses on using a trustworthy payroll processing company experienced in establishing payroll and payroll rules and regulations in Malta.
  • Malta payroll outsourcing: This is well-known as a straightforward, cost-effective, and flexible option for managing payroll in Malta. It administers all the elements of the Malta payroll process and ascertains that the payroll processes conform to the Malta payroll requirements.  

Entitlement and Termination Terms

Entitlement terms in Malta

The employees in Malta are entitled to the following benefits.

  • Full-time employees working 40 hours per week can receive up to 224 hours of paid annual leave.
  • The paid annual leave consists of 192 hours of basic leave entitlement and 32 hours for four public holidays on weekends. 
  • Any allowances can’t replace at least four weeks of paid annual leave, except if the employment is terminated.

Sick leave

  • Full-time employees in Malta are entitled to 2 weeks of sick leave.
  • The employer pays the initial three consecutive days of a sick leave period.
  • The sick leave entitlement is computed pro-rata for part-time employees working less than 40 hours per week.
  • The Wage Regulation Order (WRO) regulates sick leave entitlement.
  • When the WRO doesn’t cover an employee, the duration of sick leave entitlement is two weeks per year. Social Security pays the sickness benefit after two weeks.
  • Typically, an employee on sick leave must present a medical certificate.

 Maternity leave

  • Pregnant female employees are eligible for 18 weeks of maternity leave in Malta.
  • It begins four weeks before the expected delivery date.
  • The employee should take at least six weeks of maternity leave after the birth.
  • The employer pays the maternity benefit at 100% of the standard salary rate for the initial 14 weeks. Afterwards, Social Security pays the employees. 

Parental leave

  • The parents are entitled to 4 months of paid leave for events like the child’s birth, child’s adoption, fostering, or general care until the child’s age is eight years.
  • Employees should complete at least one year to be eligible for parental leave entitlement.

Public holidays

  •   The employees in Malta get 14 public holidays per year. 

1 Jan

New Year’s Day

10 Feb

Feast of St Paul’s Shipwreck

19 Mar

Feast of St Joseph

31 Mar

Freedom Day

7 Apr      

Good Friday

1 May    

Workers’ Day

7 Jun

Sette Giugno

29 Jun

Feast of St Peter and St Paul

15 Aug

Feast of the Assumption

8 Sep

Victory Day

21 Sep

Independence Day

8 Dec

Immaculate Conception

13 Dec

Republic Day

25 Dec

Christmas Day

 Termination terms in Malta

  • Factors like the termination cause, type of contract, and the Employment Agreement or the Collective Agreement determine the termination process in Malta.
  • The employer can also terminate an employee based on factors like redundancy, cause, or retirement age. If the employee wants to terminate the contract, they must provide a reason.
  • Employers can terminate a fixed-term contract based on reasons related to personal, business, or worker misconduct.
  • The termination requires a written explanation and notice.
  • After the termination, an employee can claim financial compensation for any outstanding leave yet to be paid.
  • The following table shows the notice period based on employment duration in Malta:

Duration of employment

Notice period

1 – 6 months

1 week

6 months – 2 years

2 weeks

2 – 4 years

4 weeks

4 – 7 years

8 weeks

7-8 years

9 weeks

8-9 years

10 weeks

9-10 years

11 weeks

More than 10 years

12 weeks

 Malta Payroll Processing Company

If foreign investors want to oversee timely, error-free, and compliant payroll in Malta, they must thoroughly understand local tax, reporting, and employment and compensation requirements. Besides, they should know compliance with Malta Labor and local employment laws before creating payroll in Malta. You can utilize various services from an international PEO company like Multiplier to attain the ideal benefits of payroll rules and regulations in Malta.

How Multiplier Can Help with Global Payroll?

Multiplier is an international PEO platform that can easily complete the payroll process in more than 150 countries. We provide EOR solutions that manage payroll calculation, payroll processing, payroll contributions, employee recruitment, and other significant tasks. Our team of experts ensures hassle-free payroll solutions for global teams with payments sent in local currency.

Frequently Asked Questions

According to the Wage Regulation Orders, the standard working hours in Malta are 40 hours per week or up to an average of 48 hours a week over 17 weeks.

The Wage Regulation Order (WRO) regulates overtime work. If the WRO doesn’t cover an employee, overtime compensation is calculated at 150% of the employee’s standard work pay rate.

In Malta, the minimum wage for full-time employees aged 18 and above is 192.73 EUR per week. It is 185.95 EUR per week for employees aged 17 and 183.11 EUR per week for those below 17.

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