For employees working in Malaysia registered entities, be it local or foreigner (work pass holders), it is a norm to see in their monthly pay slip indications of monthly contribution deducted from their monthly salary as well as their employer’s. This article will explain in detail what these monthly deductions entails to and why they are required by the Employment Act 1955.
Employee Provident Fund (EPF)
The Employee’s Provident Fund (EPF) or otherwise known as “Kumpulan Wang Simpanan Kerja – KWSP” is technically a federal statutory body under the purview of Ministry of Finance (MOF) in Malaysia. It is tasked to manage compulsory savings plan and retirement planning for private sector workers here in Malaysia.
Objectives of EPF in Malaysia
There are three different objectives that EPF strive for. They are:
Accumulation of retirement benefits.
Employee pension scheme (EPS) where the fund will generate pension for employees after the age of 58 years.
Employee Deposit Linked Insurance Scheme (EDLI) where it will cover an employee as a life insurance.
Employer’s responsibilities under EPF monthly contribution
It is mandatory for all SSM registered Companies or registered businesses such as Enterprises or Partnerships to register EPF as an employer within 7 working days upon hiring the first employee
Must register the employees as EPF members (if they are first time workers) and ensure their information is up to date
Provide monthly salary statements or pay slips to each employees indicating the deductions from employers as well as employee’s salary
Collect employee’s and employer’s share of EPF contribution and submit to EPF monthly
How can an employer register for an EPF account?
Employers are able to register its EPF account by visiting the nearest EPF branch. They are required to bring along:
FormKWSP 1 – retrieved via this link
Certified copy of directors NRIC or Passport
Company business profile [Will be given by Company Secretary]
Section 14 – Superform [Will be given by Company Secretary]
Section 15 – Notice of Registration [Will be given by Company Secretary]
Section 17 – Certificate of Incorporation [Will be given by Company Secretary]
Once registered, these items will be given to the employers as indication the registration is successful:
Employer’s reference number
Notice of employer’s registration
Employer’s registration certificate [To be displayed at business premise]
Why is EPF contribution deem important in Malaysia?
As stated above, the intention of deducting EPF contribution monthly is to assist employees working in the private sector to save their retirement fund. This way, an employee will no longer need to be stressful about setting up a separate pension scheme with the limited fund they have. It is also useful in the scenario where an employee is temporarily or no longer fit to work.
What is the employer’s and employee’s contribution rate of EPF in year 2021?
The EPF contribution rate table is as below:
| Employee’s status | Employer’s EPF contribution rate | Employee’s EPF contribution rate | ||
| Monthly salary rate | RM5,000 and below | More than RM5,000 | RM5,000 and below | More than RM5,000 |
| Malaysian age 60 and above | 4% | 0% | ||
| Malaysian below age 60 | 13% | 12% | 9% | |
| Permanent resident below age 60 | 13% | 12 | 9% | |
| Permanent resident age 60 and above | 6.5% | 6% | 5.5% | |
| Non-Malaysian below age 60 | RM5.00 | 9% | ||
| Non-Malaysian age 60 and above | RM5.00 | 5.5% | ||
How can employers make their EPF contribution payments?
The EPF contributions will be deducted from both employee’s and employer’s funds and will be paid every 15th of each month. A late payment charge or dividend will be imposed if such payment is not made on time. There are a few channels EPF have disclosed on where employers may auto deduct from:
E-Caruman website or mobile application
Internet banking
Bank agents of Bank Simpanan Nasional (BSN), Maybank, Public Bank and RHB Bank
EPF counters/kiosks nationwide
Social Security Organization (SOCSO)
The Social Security Organization (SOCO) or otherwise known as “Pertubuhan Keselamatan Sosial – PERKESO” is basically a government agency formed in 1971 under the jurisdiction of Ministry of Human Resource (MHR) in Malaysia.
Function of SOCSO in Malaysia
The main objective of SOCSO contribution is to provide social security protection to employees and their dependents through the Employment Injury Scheme and the Invalidity Scheme.
The protection is in term of cash and benefits for employees deemed unable to work for a period of time due to workplace injuries, emergencies, occupational sickness and death.
Employer’s responsibilities under SOCSO monthly contribution
It is mandatory for all SSM registered Companies or registered businesses such as Enterprises or Partnerships to register SOCSO as an employer within 30 working days upon hiring the first employee
Must register the employees as SOCSO members (if they are first time workers) and ensure their information is up to date
Provide monthly salary statements or pay slips to each employees indicating the deductions from employers as well as employee’s salary
Collect employee’s and employer’s share of SOCSO contribution and submit to SOCSO monthly
How can employer register their SOCSO account?
An employer is able to register for its SOCSO account by visiting the main SOCSO portal. They are required to:
Register ASSIST portal by emailing the completed form to idportal@perkeso.gov.my
Complete registration form 1 and 2
Certified copy of directors NRIC or Passport
Certified copy of employees NRIC or Passport & Work Pass
Company business profile [Will be given by Company Secretary]
Section 14 – Superform [Will be given by Company Secretary]
Section 15 – Notice of Registration [Will be given by Company Secretary]
Section 17 – Certificate of Incorporation [Will be given by Company Secretary]
Once registered, employer and employees are able to check their contribution online by using their Identity Card Number (NRIC).
Why is SOCSO contribution deem important in Malaysia?
SOCSO contribution is to protect employees working in Malaysia by way of compensating them in the event that they suffer from work related injuries. Any medical treatment as well as follow up treatments due to work related injuries will be covered fully by SOCSO.
What is the employer’s and employee’s contribution rate of SOCSO in year 2021?
The SOSCO contribution rate table is as below:
| Employee’s status | Employer’s SOCSO contribution rate | Employee’s SOCSO contribution rate |
| Age 60 and above | 1.25% (Employment Injury Scheme only) | 0% |
| Age below 60 | 1.75% (Employment Injury Scheme and Invalidity Scheme) | 0.5% |
| Foreign workers | 1.25% (Employment Injury Scheme only) | 0% |
How can employers make their SOCSO contribution payments?
Similar to EPF, SOCSO contribution will be deducted from both employee’s and employer’s funds and will be paid every 15th of each month. A late payment interest rate of 6% per year is imposed for each day such contribution is not paid on time.
There are a few channels SOCSO have disclosed on where employers may auto deduct from:
Internet banking
Cheque, money order, or postal order
Bank counters
Bank agents of Maybank, RHB Bank, and Public Bank
SOCSO counters nationwide
Employment Insurance System (EIS)
The Employment Insurance System (EIS) is relatively new compared to EPF and SOCSO schemes. It was first implemented in January 2018 by PERKESO itself. The contribution is also deducted monthly within an employee’s salary as well as funds from employers.
Goal of EIS in Malaysia
The EIS scheme is intended to help employees who lost their jobs until they are able to secure a new position. The contributions are collected in a fund in order to provide financial assistance to retrenched employees.
Employer’s responsibility on EIS monthly contribution
Since EIS is under the same roof of SOCSO, hence, employer is not required to register as member separately. As long as the employer has registered its SOCSO profile, the EIS profile will be automatically created.
Why is EIS contribution deem important in Malaysia?
EIS is a scheme to specifically assist retrenched employees until they land another opportunity. The temporary financial assistance is given to unemployed people for up to six (6) months.
What is the employer’s and employee’s contribution rate of EIS in year 2021?
The EIS contribution rate table is as below:
| Employee’s status | Employer’s and employee’s EIS contribution rate |
| Age 18 to 60 | 0.2% |
How can employers make their EIS contribution payments?
The EIS contribution is deducted the same way as SOCSO which is on the15th of each month. There are a few channels EIS have disclosed on where employers may auto deduct from:
Internet banking
Cheque, money order, or postal order
Bank counters
Bank agents of Maybank, RHB Bank, and Public Bank
SOCSO counters nationwide
Monthly Tax Deduction (MTD)
The monthly tax deduction (MTD) or otherwise known as “Potongan Cukai Bulanan – PCB” is a mechanism that requires an employer to deduct individual income tax from their employee’s monthly salaries.
The MTD is calculated based on cash remuneration only. All other benefits-in-kind as well as taxable reimbursements are calculated for tax when the individual submits their annual filing return.
Reason to conduct MTD in Malaysia
The inland revenue board (LHDN) believes that deducting employees’ tax monthly is able to reduce the person’s tax liability by lowering their total taxable income. This way, taxpayers will not feel burdened at the total amount as they have started paying it on a monthly basis.
Employer’s responsibilities under MTD monthly contribution
Deducts the Monthly Tax Deductions (MTD) from employee’s monthly salaries
Makes additional deductions from employee’s remuneration in accordance with the direction given by the Director General under Rule 4 of Monthly Tax Deductions (MTD) Rules
Employer shall pay to the Director General every 15th of each month the total amount of tax deducted or should have been deducted by him from the remuneration of employees during the preceding calendar month.
Furnishes a complete and accurate employee’s information of the following in a return when submitting Monthly Tax Deductions (MTD) payments/additional deductions:
- income tax number (if any);
- name as stated on identity card or passport;
- new and old identity card number/police number/army number or passport number (for foreign employee); and
- Monthly Tax Deduction (MTD)/additional deductions amount.
Why is MTD contribution deem important in Malaysia
The MTD scheme is to lower the burden of taxpayers. It is also to avoid issues that come with requiring payment of a large sum of income tax when the individual filed for their annual tax filing with LHDN.
What is the contribution rate of MTD in year 2021?
Different from the normal EPF, SOCSO and EIS standard table rate, the calculation of MTD can be a bit complicated. Hence, LHDN has assisted in furnishing the specification for MTD calculations using computerized calculation for year 2021. It is available via this link. It also shows the example calculation to ensure employers calculate the amount accurately.
How can employers make their MTD contribution payments?
There are several options given by LHDN for employer’s to auto deduct their MTD payments monthly. They are:
Manual payment – Through form CP39 / CP39A at LHDN counter
Payments using diskette – To be made at CIMB Bank / Public Bank Berhad Malaysia counters
Online payments
There are a lot of contributions for employers to understand and implement in order to ensure they are following the labor act in Malaysia. To avoid confusion or headaches, Paul Hype Page offers services such as third-party human resource, corporate secretarial, taxation services and visa application.
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FAQs
You may report the case straight to each government agencies and to consult with Department of Labour of Peninsular, Malaysia.
Yes, employees are allowed to do so by registering an online profile in each of the portals available. They are also able to contact each government agencies to ensure all the contributions are done accurately.
No. Any employers who deems failed to make those contributions every 15th of each month will be convicted and liable to imprisonment for a term not exceeding three years and a fine not exceeding MYR 10,000.
There are mainly four (4) types of mandatory contributions that must be deducted by employers and employees monthly. They are EPF, SOCSO, EIS and MTD.
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