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Payroll Guide: The Basics of Payroll In Malaysia

An expert looking man standing with the title of: The Basic Payroll in Malaysia

Ever wondered what payroll is all about, how the payroll process works, or how to set up payroll in Malaysia? Payroll can seem pretty complex. However, understanding and managing payroll effectively is crucial for your business’s success and growth.

In this article, we’ll explain the basic concepts, guide you through the step-by-step process, and provide insights into managing payroll efficiently.

Whether you’re just starting or looking to improve your current processes, this guide will give you the knowledge and tools to keep your payroll operations smooth, compliant, and efficient. Let’s dive in and make payroll simple for your business!

6. FAQs


What Is Payroll?

Payroll might seem like a complex behind-the-scenes operation, but it all boils down to one key thing: making sure your employees get paid accurately and on time for their hard work. It involves calculating salaries, wages, bonuses, and deductions, and managing taxes and benefits. By efficiently managing all these aspects, payroll ensures your employees receive their net pay on time, and keeps your business compliant with Malaysian labour laws and tax regulations.

In other terms, payroll is the process that keeps your employees happy and your business running smoothly.


Why does Smooth Payroll Make All the Difference?

Payroll, while crucial, can sometimes feel like an overwhelming back-office burden. But here's the secret: smooth payroll makes all the difference.

Think of it this way: payroll is the foundation that supports a happy and productive workforce. When employees receive their paychecks accurately and on time, it translates to several key benefits for your business:

  1. Managing Finances: Accurate payroll records are key for sound financial management. They empower you to make informed decisions for your business. With clear data, you can budget effectively, and generate reliable financial reports.

  2. Staying Compliant: A streamlined payroll process acts as your guide, ensuring you meet all the necessary requirements for tax withholding and remittance (PCB/MTD, EPF, SOCSO). This ensures your business avoids costly fines and legal issues, saving you time, money, and unnecessary headaches.

  3. Keeping Employees Happy: When employees receive their compensation accurately and on time, it provides financial security and peace of mind. This, in turn, fosters a positive work environment where employees feel valued and respected – a powerful combination that breeds trust, appreciation, and ultimately, a happier and more motivated workforce.


How to Process Payroll?

Managing payroll might seem like a big puzzle, but breaking it down into simple steps makes it a breeze. Staying updated on legal changes, employee turnover, and company policies is key. Here's how it all breaks down into three phases:

Pre-Payroll Phase

  1. Setting Up Business Policy: Start by laying down the groundwork. Decide on employee numbers, leave allowances, employment policies, and perks. This sets the stage for a smooth payroll process.

  2. Legal Components: Familiarize yourself with Malaysia's mandatory contributions such as the Employees Provident Fund (EPF), Social Security Organization (SOCSO), Employment Insurance System (EIS), and Malaysia's income tax system, Potongan Cukai Bulanan (PCB) under Inland Revenue Board's (LHDN). You can find contribution rates and more information on their websites: - EPF: - SOCSO & EIS: - PCB:

  3. Salary Composition: Define all salary components, including basic salary, incentives, benefits, and allowances. Determine your payroll cycle (i.e. pay period, cut-off date & payday) and plan your next steps accordingly.

  4. Employee Information: Collect all necessary employee details, from identification and bank account information to tax details. Gather inter-departmental inputs like joining dates, pay scales, and leave records.

Payroll Calculation Phase

Time to crunch the numbers! Whether you're using slick payroll software or doing it old-school with Excel, this phase is all about getting those salaries, benefits, and deductions spot-on. Once the math is done, it's pay slip time!

Calculating payroll involves several steps to ensure accuracy and compliance:

  1. Determine Gross Salary: Start with the employee’s basic salary and add any allowances or bonuses.

  2. Calculate Overtime: Compute the additional pay for any overtime hours worked, according to Malaysian labour laws.

  3. Apply Deductions: Subtract statutory deductions like EPF, SOCSO, and PCB, along with any other voluntary deductions (e.g., loan repayments).

  4. Compute Net Pay: Subtract all deductions from the gross salary to arrive at the net pay, which is the amount to be paid to the employee.

Example Calculation:

An image of Example Calculation: Gross Salary: RM 5000, Allowances: RM 500 (travel), RM 300 (meal), Overtime Pay: RM 200,  Total Earnings: RM 5,000 + RM 500 + RM 300 + RM 200 = RM 6000, Deductions: EPF: RM 660 (11% of RM 6000), SOCSO: RM 19.75, PCB: RM 350, Total Deductions: RM 660 + RM 19.75 + RM 350 = RM 1029.75, Net Pay: RM 6000 - RM 1029.75 = RM 4970.25

Now that you’ve mastered the basics of payroll calculation, why not take it a step further? If you're curious about calculating overtime (OT) in Malaysia, read our article for all the details!

Payroll Phase

  1. Salary Reimbursement: Disburse salaries on the designated payday and issue each employee's pay slips. 

  2. Accounting for Payroll: As payroll is a significant expense, it's important to maintain accurate payroll accounts and post entries correctly.

  3. Payroll Reporting: Handle statutory deductions like EPF, SOCSO, and PCB. After salary distribution, ensure these deductions are remitted to the respective government agencies by their due dates and file the necessary returns.


Components of Payroll

Payroll involves several components that must be accurately calculated and managed:

  • Basic Salary: The fixed amount paid to an employee before any additions or deductions.

  • Allowances: Additional payments such as travel, housing, or meal allowances.

  • Overtime Pay: Compensation for hours worked beyond regular working hours.

  • Bonuses: Additional financial rewards given for performance or during festive seasons.

  • Deductions: Includes EPF (Employees Provident Fund), SOCSO (Social Security Organization), PCB (Potongan Cukai Berjadual or scheduled tax deductions), and other statutory contributions.

  • Net Pay: The final amount paid to the employee after all additions and deductions.


Common Payroll Mistakes Businesses Make

Inaccurate Calculations: Messing up wages, overtime, or deductions can lead to big headaches and unhappy employees. Nailing these calculations is crucial for keeping your team content and maintaining their trust.

Non-Compliance: Skipping out on Malaysian payroll regulations, like botching EPF or SOCSO contributions, can get you in trouble with fines and legal issues. Keeping up with these rules is essential to avoid pricey penalties.

Late Payments: Missing payroll deadlines can tank employee morale and might result in compliance penalties. Paying your team on time keeps them happy and trusting.

Poor Record-Keeping: Shoddy record-keeping can make resolving disputes or passing audits a nightmare. Keeping everything well-documented ensures you can handle any hiccups and stay compliant.

Ignoring Updates: Not keeping up with changes in tax laws or other requirements can lead to non-compliance. Regularly updating your payroll processes to match current laws helps you avoid legal hassles and keeps things running smoothly.

By tackling these common payroll mistakes, you can build a more efficient and compliant payroll system, making your workplace more positive and productive overall.



1. What is the difference between salary and payroll?

In simple terms, salary refers to the fixed yearly pay agreed upon in a job contract. On the other hand, payroll is like the backstage manager handling all the money matters, tracking how much each employee earns and managing deductions and taxes. So, while salary is what you earn, payroll is the system making sure you get paid accurately and on time!

2. Is payroll a part of HR or accounting?

Payroll sits at the intersection of HR and accounting. HR handles employee-related aspects like wages and benefits, while accounting manages financial transactions and tax obligations. This shared responsibility means that tasks related to payroll may be divided between HR and accounting teams.

3. Who is responsible for income tax in Malaysia?

In Malaysia, the responsibility for income tax resides with the individual taxpayer. However, employers play a significant role by acting as facilitators, handling monthly tax deductions on your behalf through a CP39 statement.


Feeling Overwhelmed by Payroll?

Managing payroll in Malaysia can be a complex and time-consuming task. From calculating salaries and deductions to ensuring compliance with ever-changing tax and labour regulations, it's easy to feel overwhelmed.

Synergy Outsourcing offers a solution: payroll outsourcing. We take care of everything, allowing you to free up your staff and focus on running your business. Our experienced team handles all your payroll needs, including accurate salary calculations, streamlined statutory contributions (EPF, SOCSO, PCB/MTD), and ensuring timely remittances. We also keep you updated on the latest regulations, reducing your compliance risk.

Contact Synergy Outsourcing today via +6 010-277 0718 or 📩 or contact form for a free consultation! We'll show you how our payroll solutions can transform your business.

Not sure if outsourcing payroll is the right fit?  This article explores the pros and cons to help you decide.


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