Employees are an important asset to every organization and it should be the practice of every company to have an employee file for each employee. The payroll file normally includes contracts of work, documents relating to the employee sent to different government authorities, performance reviews and training given to the employee. Once the payroll is processed, different documents are required to be filed with the Inland Revenue department.


Once a company recruits an employee the company is required to prepare an employment contract which makes reference to the laws and regulations applicable for the particular employment, the agreed salary and the type of contract. A contract can be of for a definite period or of an indefinite duration. An employee can be employed full time, full time with reduced hours, part time or as a casual employee.

On recruitment the Company is required to submit the Jobsplus engagement form and the FS4 form to the Inland Revenue Department. The FS4 form includes details of the tax status of the individual, and on it one selects whether it is the employee's main source of employment, part time employment or other emolument income.

If it is the employee's main source of employment, the employee can opt to choose single, parent or married tax rates depending on his/her tax status. Single tax rates can be used by single persons; or by married persons with no children who opted for the separate computation; or by married persons with children who no longer qualify to use the parent tax rates and who opted for the separate tax computation. Married tax rates can be used by married spouses, normally this is beneficial when only one spouse is in employment or by single parents (unmarried/widows/separated/divorced persons) who maintained a child during the year and meet certain conditions provided that the parent was not in receipt of financial assistance from the other spouse. Parent tax rates can be used by parents who maintained under their custody a child not over 18 years of age or not over 23 years if receiving full time instruction. In this section employees have the option to select a reduced rate of tax applicable for overseas employment or for highly qualified persons to pay tax at 15%. Another reduced rate of 7.5% is available for employees whose main income is from a qualifying sport activity and there is an option applicable for women returning to work.

Employees qualifying for the part-time reduced rate will select Section C of the FS4 indicating whether they qualify for the reduced part-time rate because they are employed elsewhere, or they are in receipt of a pension taxable in Malta or they are receiving full time instruction.

Directors will complete Section D of the FS4, and they are subject to a minimum tax rate of 20%.

Monthly Payroll reports

Once the employee is employed with the Company, the Company is required to provide a payslip to the employee. For every month, the Company is required to prepare an FS5 form which includes details of the number of employees employed in that month, main emoluments and other emoluments paid to employees, part time emoluments paid and other emoluments paid as fringe benefits. This report includes the tax amount, the social security contributions and the maternity fund contributions that are required to be paid to the Commissioner for Revenue and this form is required to be submitted by the last working day of the month following that for which it is prepared.

Yearly payroll reports

At the end of the year the Company prepares the FS3s to be distributed to the employees and FS7s. At the end of 2018, Companies who have more than 9 FS3 forms are required to make an online submission of the FS3 and FS7 documents by the 15th of February 2019. Companies with fewer employees can do a manual submission.

Now is the time to decide whether to continue preparing payrolls yourself or whether to subcontract this service, or whether to subcontract this service for employees in a managerial level (for confidentiality purposes). Otherwise, depending on the payroll software you use, you may need to update the salaries with the cost of living increases announced during the last government budget, the revised social security rates, the revised maternity fund contributions and the sickness and injury deduction rates. Some payroll software is updated with this common information automatically.

Termination of employment

On termination of employment, the Company is required to complete the Jobsplus termination form and provide the employee with an FS3 until date of termination.

Our services

Our legal team at GM assists clients with the preparation of employment contracts, we assist clients to apply for social security numbers, tax numbers, to process residence applications, and we assist clients to prepare the required payroll documents.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.