The Employment Act 1955 (‘EA’) is Malaysia’s principal legislation, setting forth the minimum standards for various employment conditions.

This includes salary and overtime calculation, working hours, leave benefits, and termination protocols.

Net salary is the sum that the employee receives after statutory deductions from gross salary.

Common deductions are taxes (PCB), contributions towards retirement savings (EPF), as well as allocations for social protection (SOCSO and EIS).

Gross salary is determined by adding together the base salary, fixed allowances, and any fluctuating elements.

For example, an employee receiving a basic salary of MYR 1,500, overtime of MYR 200, and a bonus of MYR 300 will have a gross salary of MYR 2,000. Some deductions, such as unpaid leave, can reduce the gross salary.

If you pay your employees late, you violate Section 19 of the Employment Act 1955. This can result in a fine of up to RM50,000 under Section 99A of the Act.

To ensure error-free payroll management, maintain accurate records, stay updated on tax laws, and regularly audit payroll processes. It also helps to use an LHDN-approved payroll system that can automate calculations, reduce manual errors, and ensure timely compliance with legal requirements.

Employees with monthly wages not exceeding RM4,000, as well as employees engaged in or supervising manual labor and employees operating or maintaining mechanically-propelled vehicles irrespective of wages.

While certain employees must earn RM 4,000 or less on a monthly basis to qualify for overtime in Malaysia under the First Schedule of the EA, employees who fit any one of the categories below, qualify for overtime compensation as well, regardless of their wages:

• Workers involved in manual labor.
• Individuals operating or maintaining mechanically-propelled vehicles.
• Employees overseeing manual laborers.
• Individuals engaged in any vessel registered in Malaysia.

The daily rate of pay is calculated as monthly wages divided by 26, as stipulated in the Employment Act, orany alternative calculation method that is more favourable to the employee (e.g. divided by 22 for employees working 5 days a week).

Overtime work on normal work days should be paid at a rate not less than 1.5 times the employee’s hourly rate of pay.

In PayrollPanda, you can use the preset automatic item Overtime (x1.5).

The definition of wages for overtime calculation excludes the value of accommodation/utilities/food, travel allowance, and contributions to pension/termination/welfare schemes, as well as bonus/incentives and overtime pay.

Employees not covered under the overtime provisions of the EA will have to adhere to the relevant terms outlined in their employment contracts.

While there is no fixed timeline for reviewing and updating payroll and HR policies, it is advisable to establish an internal review standard. Many organizations choose to review their policies every two years to ensure they remain relevant and compliant with current laws and best practices. However, policies should also be updated as needed in response to changes in legislation or organizational needs.

Technology enhances payroll and HR operations by automating repetitive tasks, reducing manual errors, and improving efficiency. It offers benefits such as accurate and timely payroll processing, streamlined compliance with regulations, easy access to data through cloud-based platforms, and detailed reporting and analytics to support decision-making.

Yes, annual leaves are paid leaves. Under Section 60E of the Employment Act, employees are entitled to annual leave ranging from 8 to 16 days depending on their length of service. Employees are provided with their ordinary rate of pay for every day of annual leave, or if an employee is employed on a monthly basis, they should receive their monthly wages without abatement for the annual leave days.

Employees are entitled to paid leave at their ordinary rate of pay on 11 of the gazetted public holidays, 5 of which must be:

• The National Day,
• Birthday of Yang di-Pertuan Agong,
• The Birthday of the Ruler or the Yang di-Pertua Negeri or the Federal Territory Day,
• The Workers’ Day; and
• Malaysia Day.

The remaining 6 public holidays employees are entitled to must be conspicuously displayed in a notice by the employer before the start of each calendar year.

Yes, payroll mistakes can significantly impact taxes. Errors such as incorrect salary calculations, misclassification of employees, or failure to withhold the appropriate taxes can lead to underpayment or overpayment of taxes, resulting in penalties, interest charges, and potential audits.

Compulsory tax deductions include:

• Individual:  RM 9,000 annually for all resident individuals.
• Spouse: RM 4,000 if the spouse does not have any source of income or has opted for joint assessment.
• Child: Amount for dependent child under 18: RM 2,000. Additional amounts for child in higher education or disabled child.
• EPF Deduction: Deduction for mandatory and voluntary employee contributions to EPF limited to RM 4,000 annually.
• Disability: RM6,000 additional deduction for disabled individuals.
• Disabled Spouse: RM5,000 additional deduction if unemployed spouse is disabled.

If you do not have an income tax number, you can register by:

• filling in the online e-Daftar application form accessible via MyTax, by selecting Individual as the Type of Taxpayer: or
• applying at the nearest LHDN office.

Penalties for tax evasion can be severe. For instance, failing to furnish an Income Tax Return Form or to notify chargeability to tax can result in penalties ranging from RM200 to RM20,000, imprisonment for up to six months, or both. Making an incorrect tax return by omitting or understating income may lead to penalties between RM1,000 and RM10,000, in addition to 200% of the tax undercharged.

PayrollPanda is one of the best LHDN-approved payroll software options in Malaysia. It offers a range of features to help with error-free payroll, including automated payroll and tax calculations, statutory form generation, leave management, and real-time compliance updates. These tools simplify payroll processing and help ensure accuracy and compliance with Malaysian regulations.

E form must be submitted to LHDN by employers by 31 March of the next tax year (or 30 April if submitted online).

PCB stands for Potongan Cukai Bulanan, which translates to Monthly Tax Deduction (MTD) in English. It’s the system where employers in Malaysia deduct income tax from their employees’ salaries each month and remit it to the Inland Revenue Board of Malaysia (LHDN).

Failure to register, deduct, or remit PCB can lead to penalties and fines imposed by the LHDN.

The employee’s PCB number can be found on the second page of Form CP 39.

The employee can also check their PCB number via e-Daftar or by calling LHDN.

If your employee doesn’t have a PCB number, you can register on Online (e-Daftar) accessible from MyTax by selecting Individual as the Type of Taxpayer.

Note that the application can take up to 7 working days. This process is applicable for employees earning salaries above the taxable income only.

PCB submission can be done through Internet Banking or LHDN Online Facilities. Payments can be made online via FPX through specific bank portals. Employers can also utilise cheque deposit kiosks at CIMB bank or make cash payments at POS Malaysia counters.

The EPF Act is an act outlining a series of social security laws in Malaysia. It provides a mandatory retirement savings fund for employees to create a more financially secure retirement for Malaysians.

EPF contributions are compulsory for all employees in the private sector and those in the public sector who do not have pension schemes with exceptions. It is the responsibility of the employer to handle employer and employee EPF contributions.

Under EPF rules, Malaysian and permanent resident employees must contribute, with no minimum age. For Malaysians, employee contributions are payable up to the age of 60 and employer contributions up to the age of 75.

The EPF contribution deducted from the employee’s salary is around 11% of the wages subject to EPF contribution for employees below the age of 60. Employers should refer to the EPF table for the contribution amounts based on the specific salary range. Employers also contribute at around 13% of the employee’s wages subject to EPF for wages up to RM5,000 and 12% for wages above RM5,000. Employers cannot deduct their part from the employee’s salary. Learn more about EPF contribution rates.

Certain payments are not considered “wages” by the EPF and are thus exempted from EPF contribution.

These include service charges (tips, etc.), overtime payments, gratuity, retirement benefits, termination benefits, travel allowances, payment in lieu of notice of termination of service, director’s fee, and gifts (including cash payments for holidays like Hari Raya, Christmas, etc).

The EPF number can be found on the Borang A form.

EPF submissions and payments can be made through either e-Caruman or online banking.

To use e-Caruman, an account with KWSP i-Akaun is required. For online banking, the EPF payment bank file needs to be uploaded through the bank portal.

PayrollPanda users can obtain files for both submission methods upon payroll submission.

i-Akaun is the online portal for the Employees’ Provident Fund (KWSP) with separate logins for members and employers.

Employers can use i-Akaun to submit and pay their EPF contributions, while members can check the contribution amounts paid into their EPF fund, as well as dividends received.

First, employers must ensure that they are registered with KWSP.

Following KWSP registration, follow these steps to register for an Employer i-Akaun:

• Complete Form KWSP 1(i) and deliver it to the nearest KWSP office.
• You can acquire the iAkaun Activation Code, typically sent to your registered mobile number as an SMS.
• Upon receiving the code, visit the EPF website, navigate to Employer Login > i-Akaun Activation, and activate your account within 30 days.

At the age of 50, Malaysians and permanent residents are allowed to withdraw up to 30% of their EPF savings, and at the age of 55, they can withdraw their full savings.

A full withdrawal is also permitted in the event of emigration, disability, or termination of employment for foreigners contributing to the EPF.

Yes, KWSP is the Malay acronym for Kumpulan Wang Simpanan Pekerja, and it is synonymous with EPF which stands for the Employees’ Provident Fund.

It functions as a retirement fund established as a federal statutory body under the management of the Ministry of Finance in Malaysia.

The EPF operates by collecting monthly contributions from both employees and their employers, directing these funds into savings accounts.

SOCSO, also known as PERKESO in Malay, is a governmental organisation formed to offer social security benefits to employees as outlined in the Employees’ Social Security Act of 1969.

SOCSO is an acronym for “Social Security Organization,” the English equivalent of Pertubuhan Keselamatan Sosial in Malay, commonly abbreviated as PERKESO.

Employer and employee contributions are payable for employees below the age of 60 (first category covered under the Employment Injury and Invalidity Schemes).

Employer contributions only are payable for employees aged 60 and above (or employees aged 55 and above who have never contributed to SOCSO) (second category covered under the Employment Injury Scheme only).

The SOCSO contribution rates depend on the category, and contributions are capped at monthly wages subject to SOCSO of RM 5,000.

From 1 July 2024, foreigners under 60 years old are covered like Malaysians under the Employment Injury Scheme and Invalidity Scheme.

Like Malaysian employees over 60, foreign employees over 60 years old are covered under the Employment Injury Scheme only.

The PERKESO Assist Portal serves as a platform enabling employers to submit and pay SOCSO and EIS contributions, as well as access past contribution records.

SOCSO (Social Security Organization), also known as PERKESO (Pertubuhan Keselamatan Sosial), is a Malaysian governmental body established under the Employees’ Social Security Act 1969 to provide comprehensive social security coverage for employees.

The EPF (Employees Provident Fund), also know as KWSP (Kumpulan Wang Simpanan Pekerja) in Malay, is a different statutory body that manages a mandatory savings program and retirement strategy for employees in the private and non-pensionable public sectors.

While EPF’s primary focus is on savings and retirement funding, SOCSO has a more extensive mandate covering various aspects such as accidents, injuries, physical and vocational rehabilitation, loss of employment, job seekers, placements, as well as upskilling and reskilling.

The Employment Injury and Invalidity Scheme is applicable to Malaysian employees below the age of 60.

Effective July 2024, it is also applicable to foreign workers.

The Employment Injury Scheme is applicable to both Malaysian employees aged 60 and over, as well as all foreign employees.

The Employment Insurance System (EIS), introduced by PERKESO in January 2018, is a  scheme designed to support workers who have lost their jobs until they secure new employment.

Contributions are gathered in a fund with the purpose of offering financial aid to those facing retrenchment. Additionally, the EIS aims to enhance welfare coverage and provide support for job searches through career counselling and assistance in finding employment opportunities.

Employer and employee contributions are payable for all Malaysian and permanent resident employees aged 18 to 59.

Employee and employer contributions are approximately 0.2% of the employee’s wages subject to SOCSO. The contribution is capped at monthly wages of RM 5,000.

Malaysian and permanent resident employees aged 60 and above, as well as all foreign employees, are exempted from contributions as they are not covered under the scheme. Employees aged between 57 and 59 who have never contributed to the EIS are also exempted.

Benefits-in-kind refer to non-monetary benefits provided by your employer, including a company car, driver hired by the employer, or living accommodation.

An example of a benefit-in-kind is a company car or accommodation provided by the employer.

Benefits-in-kind are normally considered part of an employee’s taxable income, unless a specific exemption applies. Tax exemptions do not apply to an employee having control over the employer.

The phrase “control over their employer” is defined based on the type of employer:

• For a company, it involves the employee’s power to control through shareholding, voting power, or powers conferred by governing documents.
• For a partnership, it is when the employee is a partner in the business.
• For a sole proprietor, control exists when the employee and the employer are the same person.

If an employee has control over their employer, all perquisites, allowances, and benefits-in-kind received by the employee become part of their taxable income, and no tax exemptions apply.

For example, an employee who has control over their employer cannot claim the RM6,000 annual tax exemption for travel allowance for official duties.

Perquisites are benefits, whether in the form of cash or non-monetary benefits, that can be monetised, whether they are received by an employee directly from their employer or from external parties in relation to the performance of employment duties.

Allowances are examples of perquisites, and so is a gift voucher.

An example of a perquisite is a travel allowance or gift voucher.

The following payments are fully or partially tax exempted:

• Childcare allowance
• Parking rate or parking allowance
• Travel/petrol allowance
• Meal allowance
• Utility bills in name of the employee
• Subsidised loans
• Workers’ and medical insurance premiums
• Professional subscriptions
• Scholarships
• Assets provided free of charge or sold at discounted prices
• Gift vouchers
• Pure gifts
• Rewards related to employment

An employee having control over the employer cannot claim the above tax exemptions.

Benefits-in-kind are non-monetary benefits provided by or on behalf of an employer that cannot be converted into cash, while perquisites are benefits, whether in cash or kind, that can be converted into money.

For example, if a driver used by an employee is employed by the employer, that will be a benefit-in-kind, but if the employee personally employs the driver and the employer reimburses him for the expense, that will be a perquisite.

To qualify for the Returning Expert Program, an employee must:

• Be a Malaysian citizen.
• Reside and work abroad continuously for at least 3 years at the time of application.
• Not earn employment income in Malaysia continuously for at least 3 years leading up to the application.
• Hold at least a diploma qualification, possess relevant working experience, and have a monthly salary equivalent to at least RM20,000.

The Iskandar Knowledge Worker Program in Malaysia is limited to companies operating within the following 9 sectors:

• Biotech
• Green tech
• Education
• Creative
• Healthcare
• Global business services
• Logistics
• Tourism
• Motorsports