How to Run Payroll in Malawi: Employment Taxes & Setup

Milani Notshe

Research Specialist

Last Updated

February 13, 2026

In This Guide

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Running payroll in Malawi involves many moving parts before your team sees money land in their accounts. Each month you need to calculate gross-to-net correctly, apply statutory withholdings and employer contributions, issue compliant payslips, plus file and remit on schedule. If anything slips through the cracks, you could face penalties, back-pay exposure, and unnecessary friction with your people.

If you’re hiring in Malawi, whether you’re building a local presence or expanding your global footprint, this guide is for you. We’ll walk through the choices and compliance requirements that have the biggest impact on your speed and risk, from entity vs. no-entity hiring to worker classification and the statutory bodies you’ll interact with along the way. By the end, you’ll know exactly what to expect and how to keep payroll running smoothly, wherever you’re hiring.

Key Takeaways

Payroll cycle: Employers in Malawi generally process payroll on a monthly basis.

Tax filing: PAYE income tax and pension contributions are typically reported and remitted monthly.

Employer taxes: Employer obligations include contributions to pension schemes and other statutory levies calculated as percentages of employee wages.

Tax year: Malawi’s tax year runs from July 1 to June 30.

Payroll processing methods: Payroll is commonly handled in-house or outsourced to providers familiar with Malawian tax and statutory deduction requirements.

How to Choose Your Payroll Structure in Malawi

Expanding into Malawi? Building a compliant payroll setup involves much more than simply paying salaries. You’ll be responsible for employment compliance, monthly tax and social declarations, and mandatory benefits. Even small delays in filings or payments can lead to real penalties.

You have several operating models to choose from to make this easier. The right one depends on your legal footprint, your appetite for risk, and how quickly you need to start hiring. Let’s break down the main options and when to use each.

1. No Local Entity in Malawi: Use an Employer of Record (EOR)

If you don’t yet have a legal entity in Malawi, an Employer of Record is usually the fastest and lowest-risk way to hire. An EOR becomes the legal employer on paper, provides locally compliant employment contracts, and manages payroll under local regulations, while you continue to direct the work and manage performance.

This model is ideal for:

Testing a new market
Hiring your first team members
Scaling a distributed workforce without building local infrastructure,

Why it’s the fastest and least risky option:

You skip the lengthy process (and cost) of setting up an entity.
All local registrations, monthly declarations, and statutory payments are handled by a provider already set up in-country, dramatically reducing your compliance risk.

2. You Have a Malawi Entity: Run In-Country Payroll

If you already operate a local entity, or you’re planning to establish one, running payroll directly gives you maximum flexibility and control. You can set your own policies, design benefits, and align payroll closely with your finance and internal approval processes. But this also comes with greater operational responsibility.

What you’re responsible for:

Registering with relevant authorities and maintaining compliance with statutory bodies (often involving CSS/IPRES or similar local institutions).
Accurately calculating and remitting payroll taxes and contributions every month – plus handling year-end requirements.
Issuing compliant payslips and maintaining audit-ready payroll documentation.

When this option makes sense:

You’re hiring at scale and want payroll fully “in-house,” even if you partner with a local provider for execution.
You need deeper integration with finance systems or custom benefit structures.

If you want to keep the entity but offload the admin, many employers choose global payroll services to handle calculations, filings, and payments while they remain the legal employer.

3. Contractors Only: Use Contractor Management

Paying independent contractors is often simpler than setting up full payroll, especially for short-term or highly specialized work.

However, you need to watch out for misclassification risk. In Malawi, as in many jurisdictions, someone may legally qualify as an employee based on how they work – not what their contract says. If they’re under your direction, working like an employee, you may be responsible for full employer obligations.

When contractor payments work well:

You need specialised expertise for a defined scope or timeframe
The contractor operates independently, not under your control or supervision

You can also use contractor management services to streamline compliant contracts, invoicing, and payments.

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What To Know About Payroll Processing In Malawi

Payroll in Malawi centers on Pay As You Earn (PAYE) income tax withholding, pension and social security-style contributions under the Pension Act, and statutory reporting to the Malawi Revenue Authority (MRA). You also need to manage fringe benefits taxation, local labour law requirements on wages and leave, and accurate record-keeping for audits. Non-compliance can trigger penalties, interest, backdated assessments, and serious trust issues with employees if net pay is wrong or late.

Your team must align payroll calculations with current tax bands, pension thresholds, and any sector-specific rules that may apply to your operations. Requirements can differ depending on employee income levels, whether staff are permanent or fixed-term, and whether you operate through a local entity or via an Employer of Record. This guide walks you through how to calculate payroll taxes, meet filing and payment deadlines, and set up compliant payroll operations in Malawi for 2026.

Types Of Payroll Taxes In Malawi

In Malawi, payroll taxes are primarily governed by the Taxation Act and the Pension Act, administered by the Malawi Revenue Authority and overseen by the Ministry of Finance and Economic Affairs. You will mainly deal with PAYE income tax, mandatory pension contributions, and fringe benefits tax, each with its own calculation rules, rates, and payment schedules.

Pay As You Earn (PAYE) Income Tax

PAYE is the core payroll tax in Malawi, where you withhold individual income tax from employees based on progressive monthly tax bands and remit it to the MRA. Employees bear the tax cost, but you are responsible for calculating the correct tax on employment income, including cash salary and taxable allowances, and paying it to the MRA by the due date.

For 2026, PAYE rates are broadly 0% on the lowest band, 25% on middle income, 30% on higher income, and 35% on top earnings, applied on a monthly basis in Malawian kwacha (MWK). PAYE is generally filed and paid monthly, and late or underpaid PAYE can attract penalties, interest, and potential audits, with the MRA empowered to recover unpaid tax directly from your business accounts.

Mandatory Pension Contributions

Under the Pension Act, most employers must contribute to an approved pension fund for eligible employees, with both employer and employee sharing the cost. A common structure is a minimum total contribution of 10% of pensionable earnings, typically split as 5% employer and 5% employee, although some employers choose higher rates as part of their benefits strategy.

Pension contributions are calculated on pensionable salary, usually basic pay plus any specified regular allowances, and must be remitted to the pension fund monthly together with contribution schedules. Failure to pay on time can lead to penalties from the pension administrator, regulatory scrutiny, and potential claims from employees if their retirement savings are not correctly funded.

Fringe Benefits Tax And Taxable Allowances

Non-cash benefits and certain allowances provided to employees, such as employer-provided housing, vehicles, and some cash allowances, are taxable benefits under Malawian tax law. The employee ultimately bears the tax through PAYE, but you must value the benefits according to MRA rules and include them in taxable income each month.

Typical effective tax on fringe benefits aligns with the PAYE bands, meaning the marginal rate on these benefits can be 25%, 30%, or 35% depending on the employee’s total income. Incorrect valuation or omission of benefits can result in PAYE under-withholding, with the MRA able to levy penalties and interest and require you to settle the shortfall, often without the ability to recover it from employees after the fact.

How To Pay Employees In Malawi

Employees in Malawi are most commonly paid via bank transfer in Malawian kwacha, although some smaller employers still use cash for lower-paid or remote staff. Payroll is typically run monthly, and employment contracts should clearly state the pay frequency and regular payday to align with labour law expectations on timely wage payment.

If you do not have a Malawian entity, you can use an Employer of Record to hire and pay staff compliantly, or partner with a local payroll provider while you register your own entity with the Registrar of Companies and the MRA. Payslips should show at least gross pay, itemised allowances, PAYE, employee pension contributions, other deductions, and net pay, and they should be provided in a durable format that employees can store and reference.

Payment Method: Use electronic bank transfers in MWK as the default method for salaried staff wherever possible.
Pay Frequency: Set a consistent monthly pay cycle and communicate the exact payday in employment contracts and HR policies.
Currency Rules: Pay local employees in Malawian kwacha unless a specific regulatory approval allows otherwise.
No-Entity Hiring: Engage an Employer of Record if you need to hire quickly without setting up a Malawian legal entity.
Payslip Content: Include gross earnings, each allowance, PAYE, pension contributions, other deductions, and net pay on every payslip.
Bank Details Collection: Collect and verify employee bank account details and national IDs before the first payroll run.
Record Retention: Store payroll records and payslips securely for several years to support audits and employee queries.

Payroll Set Up Checklist (Entity Vs No-Entity)

Getting payroll set up correctly in Malawi ensures you withhold the right taxes, pay employees on time, and stay aligned with MRA and pension regulations. Your approach will differ depending on whether you operate through a Malawian legal entity or rely on an Employer of Record to handle local employment and payroll on your behalf.

With a local entity, you are directly responsible for PAYE registration, pension scheme setup, and ongoing filings, while a no-entity model shifts those obligations to your Employer of Record or local partner. Clarifying roles early avoids gaps in compliance and prevents double withholding or missed contributions.

Register Entity: Incorporate your company with the Registrar of Companies and obtain a business registration certificate.
Obtain Tax Registration: Register with the Malawi Revenue Authority for PAYE and other relevant tax accounts before hiring staff.
Set Up Pension Scheme: Enrol employees in an approved pension fund and agree employer and employee contribution rates that meet legal minimums.
Collect Employee Data: Gather national IDs, tax identifiers, bank details, contracts, and start dates for all employees.
Choose Payroll System: Implement payroll software or a local provider that supports Malawian tax bands and pension rules.
Define Pay Policies: Document pay dates, overtime rules, allowances, and benefits in line with Malawian labour law.
Configure PAYE Tables: Load current PAYE tax bands, thresholds, and benefit valuation rules into your payroll engine.
Set Approval Workflow: Establish internal cut-offs for timesheets, approvals, and funding before each payroll run.
No-Entity Option: If you lack a local entity, contract with an Employer of Record to handle employment, payroll, and statutory filings.

Example Of Salary Tax Calculation

Assume an employee earns a monthly gross salary of MWK 800,000 with no additional taxable benefits and is enrolled in a pension scheme with 5% employee and 5% employer contributions. You would first calculate the employee’s pension deduction, then apply the PAYE tax bands to the taxable income, and finally arrive at net pay after all statutory deductions.

This process ensures that PAYE and pension are correctly withheld each month and that the amounts you remit to the MRA and the pension fund match your payroll records. Using a structured step-by-step approach reduces errors and simplifies reconciliation at month-end.

Step 1 – Determine Gross Pay: Confirm the monthly gross salary of MWK 800,000 from the employment contract.
Step 2 – Calculate Employee Pension: Apply the 5% employee pension rate to gross pay, giving a pension deduction of MWK 40,000.
Step 3 – Compute Taxable Income: Subtract the pension deduction from gross pay to get taxable income of MWK 760,000 before PAYE.
Step 4 – Apply PAYE Bands: Apply the current PAYE tax bands to MWK 760,000 to calculate total monthly PAYE due.
Step 5 – Derive Net Pay: Subtract PAYE and the pension deduction from gross pay to arrive at the employee’s net salary.

Submitting Employee Tax In Malawi

To submit employee taxes in Malawi, you typically file PAYE returns and remit payments monthly to the MRA using the designated electronic or bank channels. You must have your tax registration number, payroll period details, employee schedules, and the calculated PAYE and withholding amounts ready before initiating payment.

MRA Online Portal: Use the MRA’s electronic filing system where available to submit PAYE returns and generate payment references.
Bank Transfer: Pay PAYE and other payroll taxes via bank transfer using the correct MRA account details and reference numbers.
In-Branch Payment: Where required, deposit payments at designated commercial banks that collect revenue on behalf of the MRA.
Payroll Software Integration: Leverage payroll systems that can produce MRA-compliant reports and payment files for upload or bank processing.
Third-Party Provider: Engage a local payroll provider or Employer of Record to handle filings and payments if you lack in-house capacity.

Payroll Tax Due Dates In Malawi

Tax Type	Due Dates
PAYE Income Tax	Monthly, due by the 14th day of the following month.
Withholding Tax on Services	Monthly, due by the 14th day of the following month.
Pension Fund Contributions	Monthly, typically due within 14 days after month-end as per fund rules.
Skills Development Levy (if applicable)	Monthly or quarterly, according to the assessment schedule agreed with authorities.
Annual PAYE Reconciliation	Annually, usually due within three months after the end of the tax year.
Annual Pension Contribution Reporting	Annually, by deadlines set in the pension fund’s reporting calendar.

Running Payroll Processing in Malawi

So, what does it actually take to run payroll in Malawi? It involves calculating monthly salaries, applying the right statutory deductions, and making sure your team gets paid accurately and on time, while staying fully compliant with local tax and labour laws.

Let’s walk through what that looks like in practice:

Monthly Payroll Workflow

Gather all the essentials: hours worked, leave taken, new joiners, leavers, and any salary or benefit changes.
Double-check timesheets, leave balances, overtime, and any variable pay to make sure everything is accurate.
Work out gross earnings, including base salary, bonuses, commissions, and allowances.
Apply mandatory and voluntary deductions, like income tax, pension contributions, benefits, and any company-specific deductions. Then, calculate net pay after all deductions.
Run internal reviews, compare with previous payroll cycles, and get the necessary approvals.
Pay employees via bank transfer and share payslips through email or your payroll system.
Send statutory payments and required reports to tax authorities.
Update your records and ensure payroll entries flow correctly into your accounting system.
Share payroll summaries with finance and address any open questions or discrepancies.

How Playroll Streamlines Processing

Keeping track of all these steps, especially in a new market, is no easy task. Regulations change, requirements shift, and it’s easy for things to fall through the cracks. Playroll makes this effortless by managing the entire payroll process for you: onboarding employees, handling calculations and deductions, issuing payslips, transferring funds in Malawian Kwacha, and taking care of statutory filings and compliance.

Income Tax And Social Security In Malawi

Understanding the tax obligations for both employers and employees is crucial when operating in Malawi's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in Malawi.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 5% - 7% on top of the employee salary in Malawi. This typically includes mandatory pension contributions and, where applicable, levies linked to training or social protection schemes.

Tax Type	Tax Rate
Employer Pension Contribution	5% of pensionable earnings (minimum typical rate).
Optional Enhanced Employer Pension	Up to 10% of pensionable earnings in some schemes.
Work Injury Insurance (if arranged privately)	Varies by insurer and risk class, often 1%–3% of payroll.
Skills Development or Training Levy (if applicable)	Commonly around 1% of payroll where imposed.
Severance Accrual (internal policy)	Not a statutory rate but often budgeted at several percent of payroll.

Employee Payroll Tax Contributions

In Malawi, the typical estimation for employee payroll contributions cost is around 5%.

Tax Type	Tax Rate
Employee Pension Contribution	5% of pensionable earnings (minimum typical rate).
PAYE Income Tax – Lower Band	0% on income within the tax-free threshold.
PAYE Income Tax – Middle Band	25% on income within the middle band.
PAYE Income Tax – Higher Band	30% on income within the higher band.
PAYE Income Tax – Top Band	35% on income above the top threshold.
Tax on Taxable Benefits	Taxed at the employee’s marginal PAYE rate.

Individual Income Tax Contributions

Individual income tax in Malawi is charged on a progressive scale, with higher earnings taxed at higher rates. The MRA updates thresholds periodically, so your payroll system must always reflect the latest bands.

Income Bracket	Tax Rate
0 – 100,000 MWK per month	0%
100,001 – 1,000,000 MWK per month	25%
1,000,001 – 3,000,000 MWK per month	30%
Above 3,000,000 MWK per month	35%

Pension in Malawi

Pension in Malawi is governed by the Pension Act, which requires most employers to enrol eligible employees in an approved pension fund and make regular contributions. Both employer and employee typically contribute at least 5% of pensionable earnings each, with contributions remitted monthly to build long-term retirement savings.

Managing Common Payroll Challenges in Malawi

Global employers operating in Malawi often encounter unique payroll challenges that can affect compliance and efficiency, like navigating evolving tax laws and managing employee data. With a need for real-time accuracy, modern organizations must develop strategies to overcome these challenges effectively. Below, we explore some of the most common payroll hurdles and provide actionable solutions to streamline payroll processes in Malawi.

Maintaining Accurate And Detailed Payroll Reports

Maintaining accurate global payroll reports is often challenging due to currency exchange complexities, data integration issues, and the need to keep employee information up-to-date –including tax information, hours worked, leave balances, and any changes in salary or job status. Generating accurate reports is easy with a comprehensive payroll automation tool that consolidates fragmented data sources, and can keep track of employee payments and deductions.

Keeping up with ever-changing tax laws & Compliance Laws

In Malawi, tax laws and compliance regulations can change frequently, presenting a significant challenge for global employers. Monitoring updates to federal, state, and local tax codes is crucial to avoid non-compliance and costly penalties, but requires significant time and resources. Partnering with local experts or a reputable global HR platform is an effective way to maintain compliance. These services can help employers stay compliant with evolving regulations while freeing up time for more strategic work.

Consolidating Multi-Vendor Payroll Analytics

Managing payroll across multiple vendors often leads to fragmented data and inefficiencies, making it difficult to consolidate analytics. These challenges can hinder decision-making, especially when trying to gain a clear view of workforce costs and trends. To address this, organizations can invest in a centralized payroll management system that unifies data from multiple vendors. A consolidated platform simplifies payroll tracking, ensures data accuracy, and provides actionable insights into payroll expenditures.

Integrating Multiple HR & Payroll Systems

Global companies are prone to using multiple HR or payroll systems across regions, which can easily lead to fragmented payroll data, increasing the risk of delays and errors in employee compensation. To combat this, seamless integration between payroll and other systems is critical.

Payroll management systems that connect with existing HR and financial platforms can help streamline workflows by reducing manual inputs and ensuring that all departments operate with up-to-date, accurate information. In turn, this helps guarantee on-time, accurate payroll, boosting employee satisfaction.

How Playroll Can Streamline Payroll & Taxes In Malawi

Expanding globally is an exciting milestone for any company, but it comes coupled with complex payroll challenges. It doesn’t have to be complicated. At Playroll, our easy-to-implement global payroll management software combines automation with hands-on support to make global payroll truly simple. Here's how Playroll helps:

Multi-Vendor Integration: Our platform syncs seamlessly with your providers and in-house systems to unify global payroll services in one platform.
Standardize Payroll Processes: Unify your operations in one dashboard to ensure payroll is running smoothly globally, with advanced approval flows and reports.
Improve Governance & Compliance: Improve compliance by centralizing all your compliance tasks and processes. Easily track your payment obligations, with digitized audit trails.
Advanced Reporting: Access and configure your data, your way, with a comprehensive suite of payroll analytics and reporting tools.

Disclaimer

THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Playroll does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect Playroll’s product delivery in any given jurisdiction. Playroll makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.

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