An Introduction to Payroll in Malaysia

Today, our partner, a leading Payroll Outsourcing and Employee Mobility Solutions expert serving Malaysia and other Asian countries, provides a summary of payroll in Malaysia.

Running payroll in Malaysia?

Here are some general guidelines:

• All companies are required to register as an employer for tax, Employees’ Provident Funds (EPF), Social Security Funds, and Human Resources Development Fund (HRDF), if applicable. Employers must register with the Social Security Organization (SOCSO) when the first employee begins at the company.
• The principal and immediate employer who employs one or more employees is required to register and contribute monthly to SOCSO. Employers must register at the SOCSO office within 30 days from the date the new employee was employed.
• There are currently no specific legal data protection requirements with regards to payroll data in Malaysia. For the time being, companies with a payroll function in Malaysia – either in-house or outsourced – must rely on internal or external company policies to ensure data protection principles are upheld.
• In 2018, the Malaysian government introduced the Employment Insurance System (EIS) to protect workers. EIS is a financial scheme aimed at helping employees who have lost their job, and SOCSO manages it. This scheme is meant to enable retrenched workers to gain monetary funds to help them get back on their feet for up to six months. The EIS is offered to those who have been retrenched and those who resigned due to threats to the insured or their family.
• Employers in Malaysia must withhold employees’ monthly tax contributions – at rates ranging from 0%-28% depending on salary amount. The complexity of Malaysia’s tax regulations means it may be advisable for foreign businesses to outsource their payroll administration to a global payroll provider to benefit from compliance expertise and ensure pay is delivered efficiently to their international employee populations.
• Payroll processing in Malaysia normally takes place monthly. Payroll administrators should take the following into account:

Mandatory Benefits: In Malaysia, mandatory payroll benefits include paid annual leave, statutory holidays, maternity or medical leave, and benefits for termination or unemployment.

Optional Benefits: Optional payroll benefits in Malaysia may include payment for Long Service, allowances for housing and transport, medical insurance schemes, commission and bonuses, and any retirement or pension schemes.

Statutory Contributions: Both employer and employee make statutory social security contributions to the EPF retirement and SOCSO scheme. Employees may also have to make PTPTN repayments (Malaysia’s student funding scheme) or Zakat donations (Muslim employees only).

Scheduler Tax Deduction: Monthly tax deductions in Malaysia are governed by the STD mechanism – reducing the need for employees to pay tax in one lump sum.

Payslip: All employees in Malaysia should be issued with a payslip when paid, including information such as wages earned and deductions made.

Employee Records: Employers must maintain an employee register with relevant payroll information for each staff member.