Malaysia is one of the most popular countries in Southeast Asia for businesses. Malaysia is an important gateway to lucrative regional markets; The country has a developed economy that has grown over the past half-century at an annual rate of 6.5%. The Malaysian payroll landscape is complex, with a number of different laws and regulations that businesses must comply with. This can be a challenge for businesses, particularly those that are new to the country. If you want to expand your business or start your business in Malaysia, you need to understand how payroll in Malaysia works.
1) Income Tax
Part of the payroll process in Malaysia is the income tax contribution to the Inland Revenue Board (LHDN). It must be noted that the fiscal year in Malaysia starts from 1st January to 31st December. All tax residents as well as non-residents (employees who work between 60-182 days per year in Malaysia) are required to pay tax, capped at 30% for income more than MYR 2,000,000. Each employee will need to file their taxes for each calendar year before 30th April. Therefore, it’s important for every individual to be aware of the tax reliefs that are allowed to claim for. The following are just some of the tax reliefs available to individuals who are under payroll in Malaysia:
- Insurance premium for education or medical benefit
- Education fees
- Purchase of electronic devices
Also read: Tax Relief YA 2021 »
The other type of income tax that some individuals are supposed to pay is the zakat. Zakat on the other hand, is a compulsory religious deduction in Malaysia for Muslim employees. The deductions for Zakat can be made by the employers on behalf of the employees.
Public holiday – As long as the person is under the payroll in Malaysia, the employees are entitled to 11 gazetted public holidays in Malaysia per year, including the following:
- National Day,
- Birthday of the Yang di-Pertuan Agong,
- Birthday of the Ruler or Yang di-Pertua Negeri or Federal Territory Day,
- Labour Day, and
- Malaysia Day.
Annual leaves entitlement – Depending on the employee’s length of service, they are entitled to between 8-16 days of paid annual leaves.
Sick leaves – Depending on the employee’s length of service, they are entitled to between 14-22 days of paid sick leaves.
- Maternity leaves – A mother can get 60 days of consequent paid leaves for each of the first five children.
- Paternity leaves – A father can get up to 3 days of consequent paid leaves for each of the first five children.
- Compassionate/Bereavement leaves – Subject to employer’s approval
- Study leave – Subject to employer’s approval
- Marriage leave – Subject to employer’s approval
Also read: Important update to the Employment Law »
3. Social Securities
EPF, SOCSO, and EIS are the most common statutory contributions that employers in Malaysia are required to make for their employees.
Employees Provident Fund (EPF) in Malaysia manages the compulsory savings plan and retirement planning for employees in Malaysia. It is mandatory for employers to make this payment as it provides a convenient framework for employers to meet their statutory and moral obligations to their employees. Contributions in this regard are primarily based on employees’ monthly wages and deducted from their monthly wages.
The employer contribution is 12%.
Social Security Organisation (SOCSO) is an organisation set up to administer, run and implement the employees Social Security Act.
Employers must contribute to Malaysia’s mandatory social insurance schemes, which then contribute to the Employment Injury Insurance Scheme (EIIS), which provides them with injury compensation for unfortunate event that happen related to work.
Invalidity Pension Schemes (IPS) provides the funds if any employee expires or dies from events unrelated to work.
The employment Insurance scheme (EIS) is a government-run program that provides financial assistance to employees who are unemployed due to non-work-related reasons. The EIS contribution rate is 0.2% of an employee’s monthly salary, with the entire contribution paid by the employer. EIS benefits include unemployment benefits, training allowances, and career counseling, etc.
Also read: Important update to the SOCSO Act »
Human Resource Development Fund (HRDF) is a mandatory levy fund from employers to employees. The purpose for this is to provide training and development to employees for upskilling purposes. It is compulsory for all employers to register under the Pembangunan Sumber Manusia Berhad Act 2001 (PSMB).
From March 2021 onwards, all employers with 10 or more Malaysian employees are required to pay 1% of the employees’ monthly wages. As for employers with 5 to 9 Malaysian employees, the levy rate is 0.5%.
FAQs on Malaysia Payrolls
- Payroll in Malaysia is one of the most important aspects of business. It reflects the morale of employees and shows the business financial stability.
- Payroll errors can result in your company needing to pay heavy and expensive fines and it can also cause employee dissatisfaction and reputational damage.
- The most common ones are already discussed and they are Income Tax, and Withholding Tax. So, you don’t get on the radar of legal authorities.
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