What is unique about payroll in Malta ?

Payroll in Malta has some unique characteristics that are shaped by the country’s labor laws, tax system, and social security framework. These distinct features include:

1. Tax System

Malta uses a progressive tax system for individuals, where tax rates vary depending on one’s income level. Employers must deduct these taxes directly from employees’ salaries using the Final Settlement System (FSS) and then pay this amount to the tax authorities on behalf of their employees.

2. Social Security Contributions (SSC)

In Malta, the government mandates that both employers and employees contribute to social security, calculated as a percentage of the employee’s gross salary. The contribution rates and thresholds can change, as the government determines them. These contributions support a range of social benefits, such as pensions, unemployment benefits, and health services.

3. Fringe Benefits

Malta’s tax system is designed in a way that encourages the provision of fringe benefits to employees, making it an attractive option for both employers and employees due to its tax efficiency. These fringe benefits can range from the use of company cars and health insurance to various other non-monetary perks. For employers, offering such benefits can be a cost-effective way to enhance their compensation package, potentially leading to tax savings. For employees, these benefits add substantial value to their overall employment package, often without increasing their taxable income. This setup not only fosters a positive work environment but also supports the well-being of employees by providing them with valuable services and conveniences.

4. Special Tax Statuses

Malta offers special tax statuses to certain categories of individuals, such as the Highly Qualified Persons (HQP) scheme, which allows professionals in specific sectors to benefit from a reduced tax rate on their income. This can have implications for payroll processing for such individuals.

5. Annual Leave and Public Holidays

In Malta, the law sets clear guidelines for annual leave and public holidays. Employers must carefully follow these guidelines in their payroll management. This ensures that employees are properly compensated for their entitled days off, including both their vacation time and the public holidays recognized by the country. Employers are responsible for accurately calculating this paid time off and integrating it into their payroll systems. This process not only guarantees that employees enjoy their rightful breaks for rest and relaxation but also aligns with Malta’s commitment to work-life balance. By adhering to these regulations, companies contribute to a positive work environment where employees feel valued and respected.

6. Maternity and Parental Leave

Malta provides for maternity leave and, in recent years, has introduced parental leave entitlements that employers must manage within their payroll systems, including the provision for paid leave in certain circumstances.

7. Bonus and Cost of Living Adjustments

The Maltese government annually determines a cost of living adjustment (COLA), which is a mandatory increase in salaries to mitigate inflation. Additionally, employers might need to process bonus payments, including a statutory bonus that is paid to employees at specific times of the year.

8. Payroll Reporting and Compliance

Employers in Malta are required to adhere to strict reporting and compliance regulations. This  includes the submission of annual employee earnings reports and ensuring that all deductions and contributions are accurately calculated and remitted.

These features underline the importance for employers in Malta to stay informed about local labor laws, tax regulations, and social security requirements to ensure compliance and efficient payroll management.

 

If you are looking for a fully-featured Payroll System for Malta, take a look at our cloud-based Payroll Solution. It is fully integrated with our Leave Management System, our Time and Attendance System with biometric devices and our HR Management System for a complete and seamless solution.

The Commissioner for Revenue and the DIER website are good reference sites.