What You Need Before Starting Payroll in Malaysia
Understanding the payroll process is key to starting a business in Malaysia. You will need to understand the statutory deductions and contributions that not only each employee has to make, but the employer as well.
It can be quite tricky for a beginner, but once you get the basics of Malaysian payroll down, its fairly straightforward. Employee wage regulations are set by the Ministry of Human Resources and the Ministry of Finance. Most statutory requirements are set out in the Employment Act 1955, with income tax governed by the Income Tax Act 1967.
The Essentials
The most important thing to know before starting payroll is deciding on pay day. Salaries must be paid no later than the seventh day of the following month. Most companies typically have pay day on the last day of the month, but some do pay salaries slightly earlier, for example on the 26th to 28th of the month to avoid clashing with holidays and weekends.
Malaysia also mandates an eight-hour workday with an average working week of no longer than 48 hours and one day off per week. Employees are also entitled to 11 gazetted public holidays per year. Overtime pay is not mandated under Malaysian law if the employee’s salary exceeds RM2,000 a month, but is otherwise:
- 1.5 times hourly pay on working days (capped at four hours a day).
- Two times hourly pay on rest days.
- Three times hourly pay on public holidays.
Statutory Deductions and Contributions
The statutory deductions and contributions are essential to running payroll in Malaysia. These items will typically appear on the employee’s payslip.
- Employees’ Provident Fund (EPF): Employers and employees alike must contribute to the EPF compulsory retirement savings plan. Employees can contribute between 9–11% of their monthly salary, whereas the employer contribution is fixed at 12%.
- Social Security Organisation (SOCSO): SOCSO is Malaysia’s mandatory social insurance scheme, which covers employees in case of injury or death. Employers must make a monthly contribution to SOCSO for each eligible employee.
- Employment Insurance Scheme (EIS): The EIS provides financial help for employees who have lost their job while seeking new employment. Employers are required to contribute on a monthly basis for each employee.
- Human Resources Development Fund (HRDF) levy: This compulsory levy is paid by employers in the manufacturing, services, mining and quarrying sectors with 10 or more employees. The rate is 1% of each eligible employee’s monthly salary.
- Monthly tax deduction (MTD): MTD, or Potongan Cukai Bulanan (PCB) in Malay are monthly deductions that go toward paying your taxes based on salary. Employers will deduct this tax before salary payment, which is then paid to the Inland Revenue Board.
For employers, these deductions and contributions must be paid to each relevant statutory body not later than the 15th of the following month.
Types of Employment in Malaysia
You will also need to know what category of employment your employees fall under. This will affect what statutory deductions they are required to make, as well as statutory contributions they are entitled to.
- Part-time staff: If you have part-time employees who work between 30% and 70% of the number of hours put in by regular staff, they are entitled to EPF and SOCSO payments.
- Staff under a contract of service: These are typically employees who work under a fixed-term contract, e.g. for three months up to three years. These contracts may or may not be renewable. They are entitled to EPF and SOCSO payments.
- Permanent staff: Employees employed indefinitely under a full-time employment contract are entitled to EPF, SOCSO, and EIS payments.
- Freelancers: Freelance workers are not entitled to EPF, SOCSO, or EIS. They are normally excluded from payroll processing.
Employee Information
Of course, you will need to collect all relevant employee information in order to pay them accurately. This will normally include:
- Name (legal name as used on their IC or passport)
- ID number (IC number or passport number)
- Nationality (including residency status for non-Malaysians)
- Income tax number
- TP3 form (employee tax information including employment income from the same year)
- TP1 form (tax reliefs if applicable)
- EPF number
- SOCSO number
- EIS number
- Bank details (name of bank; bank account number; name on bank account)
Get Started on Payroll the Right Way With BrioHR
If you’re looking to automate payroll for your business, BrioHR helps you get started in a fuss-free, user-friendly way. BrioHR’s payroll function can even integrate seamlessly into your existing system, and is LHDN-approved.
BrioHR’s all-in-one, cloud-based solution with nine powerful modules automates repetitive tasks and empowers HR in a user-friendly interface. This enables business owners and HR teams to truly focus on what matters most – people.
Visit briohr.com and get a free demo now.
Understanding the payroll process is key to starting a business in Malaysia. You will need to understand the statutory deductions and contributions that not only each employee has to make, but the employer as well.
It can be quite tricky for a beginner, but once you get the basics of Malaysian payroll down, its fairly straightforward. Employee wage regulations are set by the Ministry of Human Resources and the Ministry of Finance. Most statutory requirements are set out in the Employment Act 1955, with income tax governed by the Income Tax Act 1967.
The Essentials
The most important thing to know before starting payroll is deciding on pay day. Salaries must be paid no later than the seventh day of the following month. Most companies typically have pay day on the last day of the month, but some do pay salaries slightly earlier, for example on the 26th to 28th of the month to avoid clashing with holidays and weekends.
Malaysia also mandates an eight-hour workday with an average working week of no longer than 48 hours and one day off per week. Employees are also entitled to 11 gazetted public holidays per year. Overtime pay is not mandated under Malaysian law if the employee’s salary exceeds RM2,000 a month, but is otherwise:
- 1.5 times hourly pay on working days (capped at four hours a day).
- Two times hourly pay on rest days.
- Three times hourly pay on public holidays.
Statutory Deductions and Contributions
The statutory deductions and contributions are essential to running payroll in Malaysia. These items will typically appear on the employee’s payslip.
- Employees’ Provident Fund (EPF): Employers and employees alike must contribute to the EPF compulsory retirement savings plan. Employees can contribute between 9–11% of their monthly salary, whereas the employer contribution is fixed at 12%.
- Social Security Organisation (SOCSO): SOCSO is Malaysia’s mandatory social insurance scheme, which covers employees in case of injury or death. Employers must make a monthly contribution to SOCSO for each eligible employee.
- Employment Insurance Scheme (EIS): The EIS provides financial help for employees who have lost their job while seeking new employment. Employers are required to contribute on a monthly basis for each employee.
- Human Resources Development Fund (HRDF) levy: This compulsory levy is paid by employers in the manufacturing, services, mining and quarrying sectors with 10 or more employees. The rate is 1% of each eligible employee’s monthly salary.
- Monthly tax deduction (MTD): MTD, or Potongan Cukai Bulanan (PCB) in Malay are monthly deductions that go toward paying your taxes based on salary. Employers will deduct this tax before salary payment, which is then paid to the Inland Revenue Board.
For employers, these deductions and contributions must be paid to each relevant statutory body not later than the 15th of the following month.
Types of Employment in Malaysia
You will also need to know what category of employment your employees fall under. This will affect what statutory deductions they are required to make, as well as statutory contributions they are entitled to.
- Part-time staff: If you have part-time employees who work between 30% and 70% of the number of hours put in by regular staff, they are entitled to EPF and SOCSO payments.
- Staff under a contract of service: These are typically employees who work under a fixed-term contract, e.g. for three months up to three years. These contracts may or may not be renewable. They are entitled to EPF and SOCSO payments.
- Permanent staff: Employees employed indefinitely under a full-time employment contract are entitled to EPF, SOCSO, and EIS payments.
- Freelancers: Freelance workers are not entitled to EPF, SOCSO, or EIS. They are normally excluded from payroll processing.
Employee Information
Of course, you will need to collect all relevant employee information in order to pay them accurately. This will normally include:
- Name (legal name as used on their IC or passport)
- ID number (IC number or passport number)
- Nationality (including residency status for non-Malaysians)
- Income tax number
- TP3 form (employee tax information including employment income from the same year)
- TP1 form (tax reliefs if applicable)
- EPF number
- SOCSO number
- EIS number
- Bank details (name of bank; bank account number; name on bank account)
Get Started on Payroll the Right Way With BrioHR
If you’re looking to automate payroll for your business, BrioHR helps you get started in a fuss-free, user-friendly way. BrioHR’s payroll function can even integrate seamlessly into your existing system.
BrioHR’s all-in-one, cloud-based solution with nine powerful modules automates repetitive tasks and empowers HR in a user-friendly interface. This enables business owners and HR teams to truly focus on what matters most – people. Visit briohr.com and get a free demo now.
