Malta Payroll Explained: FSS Tax, Social Security and Bonuses

Running payroll in Malta means calculating gross pay, withholding income tax and Class 1 social security under the Final Settlement System (FSS), and paying both to the Malta Tax and Customs Administration (MTCA) every month. The MTCA, formerly the Commissioner for Revenue, collects the tax and the contributions together, while the Department of Social Security pays out benefits.

The employer carries the legal duty. It registers for a PE number, works out each deduction, issues payslips, and files the monthly and annual FSS returns. Social security is calculated on weekly wages even when salaries are paid monthly, which shapes how the numbers are worked out.

A foreign company without a Maltese entity cannot simply open an FSS account and start paying staff. It either registers its own company or uses Employer of Record Malta, where our own Maltese company is the employer and the FSS obligations sit with us.

• Gross pay, including COLA and the statutory bonuses
• FSS income tax, withheld at the employee’s tax status rates
• Class 1 social security, 10% from the employee and 10% from the employer, capped
• The employer-only Maternity Leave Trust Fund levy
• Monthly FS5 payments, plus FS3 and FS7 after the year ends

Income tax in Malta is withheld from each payslip under the FSS using progressive rate tables, and the table used depends on the employee’s status. For 2026, Budget measures raised the tax-free band in the single computation to €12,000. Earnings from €12,001 to €16,000 are taxed at 15%, earnings from €16,001 to €60,000 at 25%, and anything above €60,000 at 35%.

The married computation is more generous at the lower end, with a 0% band up to €15,000 and a 15% band up to €23,000. The parent computation sits between the two, with 0% up to €13,000. From 2026 there are also new family computations for parents of children under 18, or under 23 in full-time education, which widen the lower bands further and are being phased in over three years. The 35% rate still starts above €60,000 in every computation.

A few special rates change the picture for specific pay. Qualifying overtime is taxed at 15% on the first €10,000, and part-time income can be taxed at 10% within limits. Senior hires may qualify for the Highly Skilled Individuals rules that replaced the old HQP scheme on 1 January 2026, with a flat 15% rate on qualifying income for roles paying at least €65,000 in eligible sectors.

Non-residents are taxed only on Maltese-source income and use a separate table. Whether an employee is resident is a factual question, and cross-border cases are worth checking with a tax adviser. The official tables are published on the MTCA website.

Class 1 social security in Malta is 10% of the employee’s basic weekly wage, paid by the employee, with a matching 10% paid by the employer. Both amounts are capped. The categories that apply depend on the weekly wage and, for the cap, on the employee’s year of birth.

For employees born on or after 1 January 1962, Category C covers weekly wages from €229.45 to €559.30 at 10% each side. Above that, Category D applies and each side pays a fixed €55.93 a week. The cap therefore bites at a salary of roughly €29,084 a year. For employees born up to 31 December 1961 the cap is lower, at €49.04 a week each.

Lower earners fall into Categories A and B. An employee aged 18 or over earning up to €229.44 a week pays €22.94, with the employer matching it, unless the employee opts to pay 10% of the wage. Students have their own Categories E and F with small maximums.

The employer also pays the Maternity Leave Trust Fund levy of 0.3% of basic weekly wage, which is capped too. For a Category D employee born in 1962 or later it comes to €1.68 a week. The fund reimburses employers for maternity and paternity leave pay, so it is a small levy with a practical purpose.

Gross pay in Malta is basic salary plus the cost of living adjustment (COLA), the statutory bonuses and any overtime, allowances or benefits the contract provides. The statutory elements are paid to every employee, full-time or part-time, on a pro-rata basis where needed.

For 2026, COLA is €4.66 a week, or €242.32 over the year. The statutory bonus of €135.10 is paid twice, at the end of June and between 15 and 23 December. A separate weekly allowance of €121.16 is paid at the end of March and the end of September. Together the bonuses come to €512.52 a year, and all of them are taxable and subject to social security.

Many Maltese contracts express salary as an annual figure that already includes the statutory bonuses and COLA. Payroll then pays the bonus amounts in the right months and spreads the rest across the regular payslips. If the contract is silent, employees may expect the bonuses on top, so say which approach applies when you make the offer.

Overtime rates come from the sector’s Wage Regulation Order, and most set time and a half. There is no single statutory overtime rate for all employees, and senior contracts often treat overtime as covered by salary. Check the relevant order before the first pay run.

A simple case shows how the numbers fit together. Assume an employee on €20,000 a year, taxed under the single computation, born in 1962 or later, with statutory bonuses and COLA included in the salary and 52 contribution weeks in 2026.

The weekly wage is about €384.62, which falls in Category C, so the employee pays 10% social security, about €2,000 over the year, and the employer pays the same. Income tax under the single computation is 0% on the first €12,000, 15% on the next €4,000 (€600) and 25% on the last €4,000 (€1,000), giving €1,600 for the year. Employee social security is not deducted before tax is worked out.

Net pay is therefore roughly €16,400 a year. The employer’s cost is the €20,000 salary plus €2,000 in social security plus a small Maternity Leave Trust Fund levy. For a higher salary, where the contribution cap changes the result, see our full breakdown of the cost of hiring in Malta.

The FSS runs on four forms, and each has a fixed deadline. Missing one makes year-end reconciliation harder and can lead to penalties, so most payroll teams build them into a standing calendar.

• FS4: filed when an employee is engaged, after the employer has its PE number
• FS5: the monthly return and payment of tax, social security and the Trust Fund levy, due by the end of the month after the wages were paid
• FS3: the annual statement given to each employee, due by 15 February
• FS7: the employer’s annual reconciliation, also due by 15 February

Quarterly filing is not allowed. An employer that pays January salaries on 28 January has until the end of February to file and pay that month’s FS5. The FS3 matters to employees too, because it records their gross pay and the tax and contributions withheld for the year.

Separately from FSS, every new starter must be reported to Jobsplus within four working days. Our step-by-step guide on how to hire an employee in Malta covers that form alongside the contract rules.

Running Maltese payroll in-house makes sense once you have your own Maltese company, a local accountant and enough staff to justify the set-up. For a handful of employees, the registrations, audit and monthly filings usually cost more in time than the payroll itself.

An Employer of Record takes on the whole cycle, from FS4 to FS7, under its own PE number. You approve salary changes and expenses, and the EOR produces the payslips and makes the payments. Our Malta EOR services include payroll, contracts and leave tracking for a flat fee, and the pricing page lists what that covers.

Whichever route you choose, keep an eye on the Budget. The 2027 figures for tax bands, COLA and the contribution limits are normally announced in October or November, and payroll should be updated from 1 January.