Malta Budget 2026: Key Employment Law Updates & Practical Advice for Your Business

Call me a nerd, but the annual budget is one local announcement I truly look forward to—I'm glued to the TV watching it all unfold!

Now that the announcements have been made, we've analysed the key proposals and changes that will directly impact you as an HR professional/employer.

Here is a simple, practical breakdown of what you need to know and what you should consider doing next.

1. Immediate Financial Impact: COLA Increase

• What was announced? The mandatory Cost of Living Adjustment (COLA) for 2026 will be €4.66 per week per employee.

• Practical Advice: This is a mandatory increase for all full-time and part-time employees (on a pro-rata basis). You must ensure your payroll systems are updated to reflect this change, effective from the first salary payment in January 2026. If you are about to negotiate a Collective Agreement keep this in mind when negotiating salary increases.

2. New Subsidy for Employee Retention (Micro Invest)

• What was announced? A new financial aid measure, through the Micro Invest scheme, to help businesses retain talent.

• The Details: For employees who have been with your company for more than four years, the government will finance 65% of their wage increase for two years. This support is capped at €780 per employee per year (or 80% / €960 for Gozo-based businesses).

• Practical Advice: This is a significant subsidy. We strongly advise you to:

  1. Identify all employees who have been with you for four years or more.

  2. Review their current salaries. If you are planning pay rises to retain them, this scheme can significantly reduce the cost.

  3. We recommend familiarising yourself with the Micro Invest scheme's criteria to ensure you can benefit from this. (On a practical note, talk to your CFO or Accountant!)

3. New & Upcoming Changes to Employee Leave

• Neonatal Care Leave (New): A new leave entitlement will be introduced for employees whose newborn babies require intensive or additional care immediately after birth.

  • Practical Advice: The good news for employers is that it seems that the Government will pay for this leave, so it is not a direct cost to you. However, you will need to update your internal leave policies and procedures to manage these requests once the law is enacted.

• Future Discussions (Maternity, Paternity, Parental Leave): The Government will begin discussions with social partners to increase Maternity and Paternity Leave and improve Parental Leave.

  • Practical Advice: These are not immediate changes, but this signals a clear policy direction. Businesses should monitor these discussions and start considering the potential impact on long-term workforce planning and staffing cover.

• Leave Donation (Encouraged): The Budget highlighted the "leave donation" fund in the public sector (where colleagues can donate leave to those in need) and encouraged the private sector to adopt similar models.

  • Practical Advice: This is entirely voluntary for your business. However, it can be a very low-cost, high-impact employee benefit that fosters a positive company culture. We can assist in drafting a policy if this is something you wish to explore.

4. The "Big One" on the Horizon: Auto-Enrolment Pensions

• What was announced? Final discussions are underway to introduce a mandatory auto-enrolment occupational pension scheme.

• Practical Advice: While not finalised in this budget, this is coming. This will likely be the most significant administrative and financial change for employers in the near future. It will mean new obligations for employers to contribute to employee pension funds. We urge you to start scenario-planning for this new, recurring cost.

5.   Change in State Pension Eligibility (New)

• What was announced? The law will be amended to equalise the minimum qualifying period for a contributory pension. The minimum requirement of 10 years of contributions will now apply to everyone, regardless of their birth year, to qualify for a minimum pension.

• Practical Advice: This is a social measure that doesn't directly impact you as an employer. However, it's positive news for employees who may have had career breaks (and thus a low number of contributions) and were at risk of not qualifying for a pension. It's good information to be aware of when discussing retirement plans with your employees.

6. Employee Upskilling & Rights Awareness

• "AI for All" Initiative: The Government is launching a national AI training programme, offering free courses, certification, and even free subscriptions to AI tools (like ChatGPT or Gemini) upon completion.

  • Practical Advice: Increased AI literacy can lead to significant productivity gains for your business at no cost. Make sure you have the Generative Artificial Intelligence Usage Policy in place.

• Workers' Rights Campaign: A national information campaign on workers' rights and conditions will begin early next year.

  • Practical Advice: This campaign will make your employees more aware of their legal rights. This is the perfect time for a compliance "health check". We strongly recommend you use the coming months to audit your employment contracts, payslips, working time records (including overtime and breaks), and leave policies to ensure you are fully compliant and to prevent any potential disputes.

7. Labour Market & Migration

• Stricter Migration Policy: The Budget reaffirmed the Government's commitment to the new, stricter Labour Migration Policy.

• Practical Advice: If your business relies on hiring non-EU workers, you must stay up-to-date with the more rigorous scrutiny and rules being applied by Jobsplus.

How We Can Help

These changes will require updates to your payroll, policies, and budgets. As your legal partners, we are here to help you navigate these developments, from drafting new leave policies to auditing your current compliance.

Please do not hesitate to reach out if you would like to discuss how any of these points affect your specific business.

Kind regards,

Roselyn