Employer of Record (EOR) Malta

Employment Contracts in Malta

Employment contracts in Malta serve as essential frameworks for defining the rights and responsibilities of both employers and employees, establishing clear terms for workplace conduct, dispute resolution, and termination processes. These contracts provide security and clarity, detailing the fundamental rules and expectations of the employment relationship.

Key elements of an employment contract typically include:

• Terms of Employment: Specifics on job roles, responsibilities, and working hours.
• Compensation and Benefits: Clear information on salary, bonuses, and other benefits.
• Social Provisions: Details on sick pay, parental leave, and other entitlements.
• Contract Modifications: The procedures for altering contract terms if needed.
• Notice Periods: Defined timelines for either party to terminate the employment relationship.

Contracts may be established through verbal agreements, written negotiations, or collective bargaining agreements. Each contract provides a mutual understanding of the terms and any breaches that may occur.

If a contract breach arises, there are several options for resolution, ranging from informal discussions and mediation to formal arbitration and legal action. If necessary, disputes can be escalated to Malta’s civil courts.

Not all contracts in Malta involve traditional employment settings. Service contracts, often resulting from an expression of interest or tender process, are commonly used for contractors providing specific services. A service contract outlines the terms of service delivery, payment arrangements, and performance expectations. These contracts also define mechanisms for handling disputes, including penalties for unmet obligations, quality standards, and arbitration options for addressing conflicts.

Working Hours

Typically, the standard work week in Malta is set at 40 hours, excluding any overtime. However, certain legal provisions allow for normal working hours to extend beyond 40 hours, provided they do not exceed an average of 48 hours per week over a 17-week reference period. 

Probation Period

The initial employment period, or probation, is a valuable stage in establishing an employment relationship. It enables both parties to evaluate job compatibility, with the employer offering necessary support to assist the new employee’s transition. This period should be reasonably set to ensure adequate assessment time.

Probation for Open-Ended Contracts

For open-ended (indefinite) contracts, the standard probationary period is six months, though a shorter duration can be agreed upon by both parties.

Probation for Fixed-Term Employment

For fixed-term employment, the probation period is set proportionally based on the contract’s duration. Under updated laws, probation terms now incorporate proportionality guidelines to specify the duration of probation relative to contract length. Unless otherwise agreed upon, the following terms apply to standard fixed-term contracts:

For roles in technical, executive, administrative, or managerial capacities, specific probation terms may apply as detailed in the general conditions of employment.

13th Month Salary

Malta does not have a distinct law or regulation that requires the payment of a 13th month’s salary. Instead, employment conditions and benefits in Malta are primarily regulated by the Employment and Industrial Relations Act.

Termination, Severance Pay and Notice Period

Termination of Definite Contracts

Fixed-term contracts in Malta should not be ended before the agreed-upon expiration date. Under Maltese law, an employer’s premature termination of a fixed-term contract is considered an unfair dismissal. However, the natural expiration of a fixed-term contract is not viewed as termination.

If an employer ends a fixed-term contract early, they are required to pay the employee half of the wages that would have been earned for the remaining contract period. Similarly, if an employee leaves before the contract expires, they must pay the employer half of the wages that would have accrued. However, if there is a “good and sufficient cause” for either dismissal or resignation, either party may terminate the contract without facing financial penalties.

Termination of Indefinite Contracts by Employers

An employer may terminate an employment contract only under the following conditions:

• Presence of good and sufficient cause;
• Redundancy;
• Reaching the established retirement age.

If none of these conditions apply and an employee believes they were dismissed unfairly, they may file a complaint with the Industrial Tribunal within four months of the dismissal. Should the Tribunal determine that the dismissal was indeed unjustified, it may order the employee’s reinstatement, re-engagement, or award compensation.

Notice Period in Malta

If an employment contract is terminated within the first month of the probationary period, there is no obligation to pay severance or any remaining portion of the salary for the unelapsed period. However, once an employee has completed one month of service, a one-week notice period is required.

The notice period, as stipulated by Maltese law, is based on the length of an employee’s continuous service:

• Up to 1 month: No notice required
• More than 1 month and up to 6 months: 1 week
• More than 6 months and up to 2 years: 2 weeks
• More than 2 years and up to 4 years: 4 weeks
• More than 4 years and up to 7 years: 8 weeks
• More than 7 years and up to 8 years: 9 weeks
• More than 8 years and up to 9 years: 10 weeks
• More than 9 years and up to 10 years: 11 weeks
• More than 10 years: 12 weeks

While Maltese law does not mandate severance pay beyond the wages due for the notice period, employers or trade unions may often offer or negotiate severance payments in particular circumstances.

Employees vs Independent Contractors

One significant risk is misclassification, where Maltese authorities may determine that a contractor is actually functioning as an employee. This assessment is based on the nature of the working relationship, particularly the level of control the business exerts over the contractor. Indicators of employee status include managing the contractor’s work schedule, setting specific work methods, or providing a fixed, regular monthly payment that resembles a salary.

While the government does not routinely audit contractor relationships, this issue may arise if the contractor seeks employee status. To reduce this risk, it is essential to have a clear contract in place and ensure that invoices reflect the contractor’s self-employed status.

Social Security in Malta

In Malta, social security contributions are categorized based on the nature of employment or source of income, impacting eligibility and benefits. These distinctions ensure alignment with Malta’s social security obligations for employed, self-employed, and passive income earners.

Class Types of Social Security Contributions

Class 1 Contributions – Employed Individuals

• Who it Covers: Employees working under a traditional employment arrangement.
• Structure: Contributions are divided equally between employer and employee. The employer deducts the employee’s portion directly from their wages.
• Categories Within Class 1:
  • A, B, C, D – Categorized by income level and age, affecting the rate each person pays.
• Special Case – Part-Time Workers:
  • Those earning less than the national minimum wage can contribute based on 10% of their earnings rather than the standard rate.
  • However, employers must still pay their part based on the minimum wage.

Class 2 Contributions – Self-Employed (Self-Occupied) Individuals

• Who it Covers: Self-employed individuals with income from active trade or professional services, where earnings exceed a set threshold.
• Calculation: Based on the net income from trade or business from the previous tax year.
• Frequency: Payments are made quarterly to the Commissioner of Inland Revenue.
• Categories:
  • SA, SB, SC – Reflect different levels of earnings and are adjusted based on income brackets.
• First-Year Flexibility: For new self-employed individuals, contributions are based on the lowest rate since prior income data is unavailable.

Class 3 Contributions – Self-Employed with Passive Income

• Who it Covers: Individuals whose income derives solely from passive sources like rents or investments, with no active trade or profession.
• Eligibility: Specific criteria apply, such as prior contribution history (Class 2 contributions made before 2004), participation in certain government schemes, or specific civil status (such as single).
• Purpose: Limited to supporting pension benefits without extending to short-term benefits.

Malta’s Class 1 social security contributions are divided into specific categories, each tailored to different groups based on age, employment status, and income levels. This structure aims to balance contributions fairly across various employment types, including youth workers and students in specific programs.

Categories of Class 1 Contributions

Category A

• Applies to: Employees under 18 years earning up to €213.54 weekly.
• Contribution Rate: Employees pay €6.62 weekly, matched by employers, totaling €13.24. A small maternity contribution of €0.20 is also required.

Category B

• Applies to: Employees aged 18 or older earning up to €213.54 weekly.
• Contribution Options:
  • Fixed Rate: €21.35 each from employer and employee, totaling €42.70, with an additional maternity contribution of €0.64.
  • Pro-Rata Option: Employees may opt to contribute 10% of their basic weekly wage, which qualifies them for prorated contributory benefits.

Category C

• Applies to:
  • Born up to December 31, 1961: Employees earning €213.55 to €423.07 weekly.
  • Born January 1, 1962, and after: Employees earning €213.55 to €532.28 weekly.
  • Contribution Rate: 10% of the basic weekly wage paid by both employer and employee. A maternity contribution of 0.30% also applies.

Category D

• Applies to:
  • Born up to December 31, 1961: Employees with earnings of €423.08 or higher weekly.
  • Born January 1, 1962, and after: Employees with earnings of €532.29 or higher weekly.
  • Contribution Rate: €42.31 each from employer and employee for older cohorts, or €53.23 each for younger cohorts, with respective maternity contributions of €1.27 and €1.60.

Student-Specific Categories (E and F)

• Category E: For students under 18, enrolled in full-time courses or approved programs, with contributions capped at 10% of the weekly wage up to €4.38. An additional 0.3% is contributed towards maternity, up to €0.13.
• Category F: For students 18 and older, also enrolled in full-time studies or similar approved schemes. The contribution is 10% of weekly income, capped at €7.94, with a maternity contribution of up to €0.24.

Types of Contributions by Eligibility and Circumstance

UN – Underage Contributions

• Who it Applies To: Persons under the age of 18.
• Purpose: While tracked in the contribution record, underage contributions are set apart due to differing benefit access for young workers.

ST – Standard Contributions

• Who it Applies To: Individuals aged 18 and above, in line with full contribution requirements.
• Purpose: Covers full social security benefits, including both pension and short-term benefits.
• Frequency: Recorded weekly, contributing to an annual total of 52 or 53 contributions based on the number of Mondays in the year.

5C – Contributions for Maltese Residents Employed Abroad

• Who it Applies To: Maltese residents working abroad under foreign employment contracts, yet maintaining their residency in Malta.
• Conditions: No contribution is required from the foreign employer; contributions are handled directly by the Maltese resident.
• Payment Schedule: Paid quarterly like self-employed contributions.

Payroll in Malta

• Minimum Wages: As of January 1, 2024, Malta’s minimum wage has been updated. For individuals aged 18 and older, the minimum weekly wage has increased from €192.73 to €213.54.
• Payroll Cycle: Payments are made every four weeks, resulting in a total of thirteen payrolls throughout the calendar year. The final payroll will account for the salary owed up until the year’s end.
• Overtime Pay: Minimum overtime rates for most sectors are determined by the relevant Wage Regulation Order (WRO) that governs their operations. For employees not covered by a specific Wages Council Wage Regulation Order, overtime will be compensated at a rate of one and a half times their standard pay for hours worked beyond 40 in a week, averaged over a four-week period or according to the employer’s shift cycle preferences.

Mercans’ payroll capabilities

• Payroll Cycle: At Mercans, we prioritize a seamless payroll cycle that ensures timely and accurate payments for both employees and contractors in the local currency, Euro (€). Our approach guarantees that payroll is processed smoothly, allowing for a localized experience that meets the unique needs of your business.
• Payroll Setup, Processing, and Administration: Our services go well beyond conventional payroll solutions. We offer complete payroll setup, precise processing, and efficient administration. With a strong commitment to accuracy and compliance, we meticulously manage each step of the payroll process. This means you can focus on your core business functions while we take care of the complexities of payroll management.
• Statutory Filings and Payments: Stay compliant with Malta’s regulatory requirements effortlessly with Mercans by your side. Our dedicated team handles all statutory filings and payments, ensuring your business meets all legal obligations without hassle. You can rely on us for accurate and timely submissions, providing you with the peace of mind you need to concentrate on your business growth.
• Pay Employees and Contractors in the Local Currency: At Mercans, we understand the importance of a streamlined payroll process that caters to the specific needs of your business. That’s why we ensure timely and accurate payments to both employees and contractors in the local currency, Euro (€). This commitment to local currency processing not only simplifies financial management but also enhances employee satisfaction, as they receive their payments in a familiar and accessible currency. Trust Mercans to facilitate seamless transactions, making payroll a hassle-free experience for your organization.

Personal Income Tax in Malta

Malta’s Taxation System

Malta’s taxation framework is well-designed and efficient, making it an attractive destination for investors and businesses. With a network of over 70 double tax treaties, investors can achieve considerable fiscal advantages through careful planning and structuring.

Personal Income Tax Overview

In Malta, personal tax liability is determined by an individual’s residence, ordinary residence, and domicile status. The country employs a progressive tax system with rates ranging from 0% to 35%—the higher the income, the higher the tax rate.

Tax Rates for Residents: For individuals opting for single taxation, the personal income tax rates are as follows:

Married couples can opt for joint taxation, aggregating their incomes and applying the following rates:

Tax is assessed in the year following its accrual, known as the basis year. For example, income earned by December 31, 2022, is assessed in 2023.

Temporary Residents

Individuals who are temporary residents in Malta only pay tax on income earned within the country, exempting them from taxes on income and capital gains from outside Malta.

Employment and Business Income

Tax on employment income is handled through the Final Settlement System (FSS), with employers deducting taxes directly from employees’ wages. For self-employed individuals, income is taxable after legitimate business expenses have been deducted. Employment-related expenses are only deductible if incurred strictly for job performance. Fringe benefits are also subject to taxation.

Dividends and Tax Credits

Malta operates under a full imputation system for dividends. Dividends paid by a resident company carry a tax credit equivalent to the tax already paid by the company. Shareholders are taxed on gross dividends at applicable rates but can deduct this tax credit from their overall tax liability, often treating it as a final tax option.

Malta Employee Hiring Cost

If the salary of an employee is EUR 100,000, the total annual cost of employing them in Malta is calculated as follows:

Explanation:

• Gross Annual Salary: This is the salary agreed upon for the employee, which amounts to EUR 100,000.
• Annual Employer Costs: This includes various contributions and taxes that the employer must pay, which in this case totals EUR 3,144.00.
• Total Annual Cost: The overall financial obligation for the employer, combining both the gross salary and employer costs, equals EUR 103,144.00.

Employee Benefits in Malta

In Malta, the framework for employee benefits is structured to ensure both mandatory protections and supplementary enhancements, providing a holistic approach to worker welfare.

Mandatory Benefits

Malta’s legal framework guarantees a range of mandatory benefits designed to promote fair treatment and financial security for employees. Key components include:

Paid Leave

Malta offers a robust paid leave system, encompassing:

• Annual Leave: Employees working a standard 40-hour week are entitled to 224 hours (28 working days) of paid annual leave. This includes:
  • 192 hours of base entitlement
  • An additional 32 hours to compensate for public holidays that fall on weekends (in 2024, 6 out of 14 public holidays fall on weekends)
• Sick Leave: Employees are entitled to 2 weeks (10 working days) of paid sick leave annually under the Wage Regulation Order (WRO). If further leave is required, employees can access sickness benefits from Social Security upon providing a valid medical certificate.
• Public Holidays: Malta recognizes 14 public holidays each year, providing paid leave for these occasions.

Parental Leave

Supporting families, Malta offers dedicated parental leave:

• Maternity Leave: Expecting mothers are entitled to 18 weeks of paid maternity leave, beginning four weeks prior to the expected due date.
• Paternity Leave: Fathers receive two weeks of paid leave following the birth of their child.

Other Mandatory Benefits

• Probationary Period: Employment contracts may include a negotiable probationary period.
• Notice Period: A minimum notice period is required for termination, varying based on length of service.
• Severance Pay: Employees may receive severance pay in cases of redundancy or unjust dismissal.
• Overtime Pay: Employees working beyond their standard hours are entitled to premium overtime rates.
• Social Security: Employers contribute to a social security system that provides unemployment benefits and pensions.

Supplementary Benefits

Many employers in Malta enhance their benefits offerings to attract and retain talent. These supplementary benefits may include:

Health and Wellness Initiatives

• Private Health Insurance: Companies often provide health insurance that exceeds public healthcare coverage.
• Wellness Programs: Employers may support gym memberships, fitness classes, or on-site wellness activities to encourage healthy lifestyles.

Work-Life Balance and Flexibility

• Flexible Work Arrangements: Options such as remote work and flexible hours help improve work-life balance.
• Additional Paid Leave: Some employers offer extra vacation days beyond the legal minimum.

Financial and Professional Development

• Performance Bonuses: Bonuses tied to individual or company performance serve as incentives.
• Profit Sharing: Companies may distribute a portion of profits to employees to foster engagement.
• Training and Development: Investment in employee growth through training programs and educational stipends is common.

Lifestyle and Leisure Benefits

• Company Discounts: Employees may receive discounts on products and services such as gym memberships and travel.
• On-Site Amenities: Providing free or subsidized meals, laundry services, or childcare facilities enhances convenience for employees.

Health Insurance Requirements

Malta operates a dual healthcare system, consisting of a public National Health Service (NHS) and a private healthcare sector. Health insurance requirements vary based on nationality:

EU/EEA Citizens and Maltese Nationals

These individuals automatically access the NHS by registering for a Maltese social security card, covering services such as emergency care and hospital stays. They can opt for private health insurance for quicker access and greater choice in services.

Non-EU/EEA Citizens

Access to the NHS for non-EU/EEA citizens depends on their national insurance contributions. If their employer provides health insurance, they can utilize NHS services. Without insurance, upfront payment for NHS treatment is necessary, making private health insurance advisable.

Retirement Plans

Malta’s retirement planning combines a mandatory state pension with optional private plans:

State Pension Scheme

This mandatory system provides basic retirement benefits funded by national insurance contributions from both employers and employees.

• Eligibility: All individuals earning above a certain threshold contribute to the state pension.
• Retirement Age: The current age is 62, gradually increasing to 67 by 2032.
• Benefits: The pension amount varies based on contribution history.

Private Pension Plans

Voluntary private plans complement the state pension, offering additional retirement security.

• Employer-Sponsored Plans: Many companies offer these plans, with tax benefits for contributions.
• Personal Plans: Individuals can establish their own plans, allowing for personalized investment choices.

Work Permit in Malta

Malta as a Prime Destination for International Business Expansion and Expatriates

Malta offers an appealing environment for expatriates and companies aiming to expand globally. For businesses considering relocating employees or recruiting new talent in Malta, it’s essential to secure the proper work visas and permits to maintain legal compliance.

Understanding Malta’s work visa process is crucial, as non-compliance with local laws may lead to delays and penalties.

Work Visa Types Available in Malta

Malta provides several visa types for foreign nationals, including options for tourism, business, and medical purposes. For those planning to work in Malta, there are two primary visa categories:

• Short-Stay Visa (C Visa): This Schengen visa allows foreign nationals to enter Malta and travel within other Schengen countries. The C Visa is available as a single-entry, double-entry, or multiple-entry visa, permitting stays of up to three months.
• National Long-Stay Visa (D Visa): Required for individuals planning to work or reside in Malta for over three months, the D Visa also applies to students. In addition to the D Visa, foreign employees will need an employment license—Malta’s version of a work permit.

Essential Requirements for Malta Work Visas

To apply for a Maltese work visa, foreign nationals generally need the following documents:

• Completed visa application form
• A cover letter stating the purpose of travel to Malta
• A valid passport with at least two blank pages
• Two recent passport-sized photographs
• Proof of travel medical insurance covering the entire Schengen area
• An employment contract from a Malta-based employer
• Proof of accommodation in Malta
• Evidence of sufficient financial resources for the duration of the stay

Alongside a visa, foreign employees will also need an employment license. The requirements for an employment license include:

• Completed application form
• Copy of the applicant’s CV
• Copy of the applicant’s visa if already in Malta
• Employer’s cover letter
• One passport-sized photo
• Professional references and testimonials
• Medical certificate verifying health
• Vacancy report showing efforts to hire qualified Maltese nationals

Application Steps

Prospective employees should consult the nearest Maltese embassy or consulate for up-to-date requirements before submitting their visa application and supporting documents to the consulate.

Employers are responsible for applying for the employment license for foreign workers, preparing and submitting all necessary documents to the Employment and Training Corporation in Malta along with applicable fees.

Once the visa and employment license are approved, the employee is cleared to travel to Malta and start work. Adhering to these procedures is essential to ensure a smooth and compliant transition to Malta’s workforce.

EOR Solutions in Malta

• EOR for Prospective Employees: Mercans provides comprehensive Employer of Record (EOR) solutions for businesses looking to hire their ideal candidates in Malta. Our services cover all aspects of the employee lifecycle, ensuring adherence to Maltese labor laws and regulations.
• EOR + Recruitment: For organizations in need of talent acquisition support, our combined EOR and recruitment services offer a complete solution. Leveraging our extensive network and expertise, we assist you in finding, onboarding, and retaining top talent, facilitating your expansion into the Maltese market.
• Visa Sponsorship and Global Mobility: Our visa sponsorship and global mobility services simplify the complexities of expatriate employment. We manage the relocation of your international workforce, ensuring compliance with Malta’s immigration and employment laws.
• AOR for Contractor Payments: For businesses facing challenges with contractor payments, our Assistance on Record (AOR) services provide an effective solution. We manage the intricacies of contractor payments, ensuring accuracy and compliance throughout the process.
• Converting Freelancers to Employees: Mercans aids in transitioning independent contractors to permanent employees in Malta. Our expertise ensures that this process is seamless and compliant with local legal requirements.
• HCM Integration: Integrate Mercans’ EOR services effortlessly with your HCM system in Malta for real-time data exchange, improved compliance, and cost efficiency. Rely on our expertise for a cohesive, compliant, and efficient approach to enhancing your workforce management and payroll operations.

Best Employer of Record Malta

• Compliance with Regulatory Standards: Mercans is committed to full compliance with the regulations set forth by Malta’s Department of Industrial and Employment Relations, ensuring that all legal requirements are met.
• Independent Entity: Operating as a standalone organization, Mercans delivers reliable and customized employment services tailored to the unique needs of each client.
• Diverse Employment Solutions: Mercans effectively manages various employment arrangements, including employees, freelancers, contractors, and expatriates, providing flexible solutions that cater to diverse workforce needs.
• Tailored for Large Enterprises: Mercans is equipped to support enterprise-level businesses, offering scalable and sophisticated services designed to accommodate complex organizational structures and requirements.
• Multi-Currency Payroll Management: Mercans facilitates payroll management in multiple currencies, ensuring smooth financial operations for global and multinational companies.
• Extensive Global Reach: With a broad international network, Mercans excels at handling multi-country payroll, enabling seamless operations across borders.
• Commitment to Data Security: Mercans is fully compliant with GDPR and adheres to rigorous security standards, including SOC 1 and SOC 2 certifications, ensuring the highest level of data protection.
• ISO Certifications: Mercans holds ISO 20000 and ISO 27001 certifications, reflecting our dedication to excellence in IT service management and information security.
• Robust Security Standards: Mercans meets OWASP ASVS 3.0 compliance standards, ensuring strong security practices in application development and management.
• HRBlizz: Our proprietary HR Blizz platform is a global payroll and talent management SaaS solution that streamlines payroll processes while ensuring compliance with local laws. Backed by a team of over 1,000 in-country specialists, we provide expert guidance on labor laws and business practices.
• G2N Nova: G2N Nova offers advanced global gross-to-net payroll processing in over 100 countries, making it the most sophisticated native payroll engine available. It can be utilized as a standalone service or integrated seamlessly with leading HCM and Workforce Management systems.