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Crystal Wang
Jun 28, 20246 min read

Contributions & Deductions Malaysian Employers Need to Know

Running a successful business in Malaysia requires a strong foundation. This includes not only a stellar product or service, but also a firm grasp on your legal obligations towards your employees. One crucial aspect is managing statutory contributions and deductions –  those seemingly complex terms on your payroll. Fear not, this guide will break down these essentials for a smooth and compliant payroll process. 

Cover photo for an article that explains the statutory and deductions for Malaysian employers


 

What is Statutory Contribution in Malaysia? 

Statutory, meaning required by law, refers to rules set by Acts of Parliament that everyone must follow. For instance, laws that require employers and employees to pay into certain funds are statutory requirements. 


Contribution means a payment made by an individual or organization towards a common fund or purpose. These contributions encompass legally mandated payments. 


This is the money that both employers and employees regularly pay, usually every month, into funds like the Employees Provident Fund (EPF), the Social Security Organization (SOCSO), and the Employment Insurance System (EIS). 


Therefore, a statutory contribution in Malaysia is a legally required payment made by both employers and employees into various funds. It’s not just about the salary—employers have to make extra payments each month as well. These payments, known as statutory contributions, are split between being deducted from the employee’s salary and being paid directly by the employer. 


So, hiring an employee in Malaysia means you’re not just paying their salary—you’re also contributing to their retirement, social security, and unemployment insurance. It’s all part of the law, ensuring that everyone has a safety net and a secure future! 


 

Types of Statutory Contributions

Employees Provident Fund (EPF)

The Employees Provident Fund (EPF) is provided under the Employees Provident Fund Act 1991 (Act 452) (‘EPF Act’). It is a fundamental part of Malaysia's retirement savings plan, ensuring that every working Malaysian has a nest egg for their golden years. Both employees and employers contribute to this fund. Minimally, employees contribute 11% of their monthly salary, while employers contribute an additional 13% (or 12% for those earning RM 5,000 or more). Think of it as a structured savings plan that ensures your employees have financial security for their future, promoting stability and peace of mind. 


  • Employer Contribution: 13% (or 12% for salaries exceeding RM 5,000) 

  • Employee Contribution: 11% 

  • Deadline: Contributions must be made by the 15th of the following month. 

  • Late Payment:- 


After 15th, before end of the following month:- 

Interest Charges: You'll be charged interest on the overdue amount. The interest rate is based on the EPF Board's declared dividend rate for that year, PLUS an extra 1%. There's also a minimum charge of RM10, and any cents will be rounded up to the nearest Ringgit (e.g., RM13.21 becomes RM14). 

 

After end of the following month:-  

There would be an additional dividend charge on top of the interest. This charge goes straight into your employee's EPF savings account and its rate imposed is calculated based on the dividend rate declared by the EPF Board for each respective year.  

Still uncertain on how to calculate? Check our EPF Late Payment Charge Calculator 

 

Pro Tip for Employers: Looking to attract top talent? Consider offering a higher Employer EPF contribution rate as a unique selling point! Employers can also enjoy tax deductions up to 19% for both EPF and Private Retirement Scheme (PRS) contributions.  

Want to discover more ways to attract top talent through benefits? Check out our Market Trend for Leave Entitlement article for more ways to attract top talent!  


Social Security Organizations (SOCSO)

Under Section 5 of the Employees' Social Security Act 1969 (SOCSO Act), all employees must be insured against specific contingencies through the Social Security Organization. SOCSO provides social security protection by offering various benefits, including medical and cash benefits, to employees in case of workplace injuries or occupational diseases. The rates vary based on the employee's wages, but generally, employers contribute around 1.75%, while employees contribute 0.5%. It’s like providing an essential insurance plan for your employees, ensuring they have support when they need it.


  • Employer Contribution: ~1.75%  

  • Employee Contribution: ~0.5%  

  • Deadline: Contributions must be made by the 15th of the following month. 

  • Late Payment: Late payments incur a 6% per annum interest charge for each overdue day, with a minimum penalty of RM5. i.e. If the monthly fine calculated is less than RM5, it will still be charged at RM 5 per month (combined with EIS). 

 

Employment Insurance System (EIS) 

The Employment Insurance System (EIS) is one of the specific schemes offered by SOCSO. It provides temporary financial assistance and job search support to workers who lose their jobs. It offers re-employment placement programs and financial support for up to six months. Both employers and employees contribute a modest 0.2% each of the employee's monthly salary. Losing a job is never fun, but the EIS can be a lifesaver, helping you stay afloat while you find your next opportunity. 


  • Employer Contribution: 0.2%  

  • Employee Contribution: 0.2%  

  • Deadline: Contributions must be made by the 15th of the following month. 

  • Late Payment: Late payments incur a 6% per annum interest charge for each overdue day, with a minimum penalty of RM5. i.e. If the monthly fine calculated is less than RM5, it will still be charged at RM 5 per month. (combined with SOCSO). 

 

As of 1 October 2024, the wage ceiling for contributions is capped at RM6,000. Please refer to the contribution table below for more details: 


contribution table rate for salary RM3,000 till RM4,000

 

MTD / PCB Deduction  (Deduction from Employee) 

While not strictly classified as a statutory contribution, Monthly Tax Deduction (MTD) or "Potongan Cukai Bulanan" (PCB) is an essential element of Malaysian payroll. Think of it as streamlining the tax process for your employees. You essentially withhold the appropriate income tax amount from their monthly salary and remit it directly to the Inland Revenue Board of Malaysia (LHDN). 

  

Malaysia's progressive tax system means the tax rate increases with income (up to 30%).  Other factors like marital status and tax reliefs also come into play when calculating the exact amount deducted. 

 

HRD Levy (Deduction from Employer) 

Companies with 10 or more Malaysian employees (including part-timers) must register with HRDF. This levy contributes to employee development and overall business success. Registered companies contribute a monthly levy based on their employees' wages and fixed allowances. The rate is 1% for mandatory registration and 0.5% for the optional category. Contributing to HRDF unlocks valuable benefits. Companies can leverage HRD Corp's grant system to retrain or upskill their employees. Once a training program is completed, HRDF reimburses the expenses incurred. This can significantly enhance your workforce's skillsets and potentially boost productivity, innovation, and employee retention within your company. 


 

FAQs 

1. Do I need to provide an insurance plan if there’s SOCSO?

Yes, you should consider providing an insurance plan even with SOCSO coverage. SOCSO mainly covers work-related injuries and diseases. An additional insurance plan can offer broader coverage, including general medical expenses, hospital stays, surgeries, life insurance, disability insurance, and critical illness insurance. This ensures comprehensive protection for your employees beyond what SOCSO provides. 


2. What happens if I overpaid / underpaid any of the statutory?

If you overpay statutory contributions, you can request a refund or have the excess amount adjusted for future payments. However, underpayment typically incurs penalties and interest charges calculated by the statutory body. It's important to rectify underpayments promptly to avoid further penalties and ensure compliance with regulatory requirements. 

 

3. Are bonuses & allowances included in the statutory calculation?

Bonuses and allowances are generally included in statutory calculations like EPF and SOCSO contributions in Malaysia. These contributions are based on total remuneration, including regular wages, bonuses, and allowances, within specified limits. Income tax also considers bonuses and allowances as part of taxable income, with employers required to withhold taxes accordingly. Rules may vary for other deductions like Zakat or industry-specific funds. It’s important for employers to understand and comply with specific regulations to ensure accurate calculations and legal compliance. 

 

4. Do I still need to pay statutory for employees over 60 years old (retirement age of Malaysia)?

In Malaysia, statutory contributions typically continue for employees over 60 years old. EPF contributions extend until the employee reaches 75, while SOCSO contributions generally cease at 60, but may continue under certain circumstances. Income tax deductions apply to employees over 60 based on their taxable income, unless exemptions apply. Employers must comply with these requirements to avoid penalties, and consulting with a tax advisor can clarify specific obligations. 


 

Why It All Matters?

Understanding these contributions and deductions goes beyond just ticking boxes. It demonstrates your commitment to your employees' well-being, future security, and professional development. It also ensures you're operating within the legal framework, avoiding potential penalties and fostering a positive working environment. 

Managing payroll obligations can be time-consuming, especially with ever-changing regulations. But fear not! By familiarizing yourself with these key contributions and deductions, you're well on your way to a smooth payroll process. Remember, timely payments and accurate deductions are crucial for employee satisfaction and legal compliance. 


Here at Synergy Outsourcing, we are ready to optimize your financial processes and ensure compliance with ease! Contact us today at 📞+6 010-277 0718 or 📩 info@synergy-outsourcing.com to discover how our expertise can simplify your operations and keep your business on track. 


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