Employer’s Guide to EPF, SOCSO, EIS & MTD in Malaysia

For employees working in Malaysia registered entities, be it locals or foreigners on a work visa, 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.

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.

There are three different objectives that EPF strive for. They are:

Employers can register its EPF account by visiting the nearest EPF branch. They are required to bring along:

Once registered, these items will be given to the employers as indication the registration is successful:

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.

The EPF contribution rate table is as below:

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:

The Social Security Organization (SOSCO) 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.

The main objective of the SOCSO contribution in Malaysia 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.

An employer is able to register for its SOCSO account by visiting the main SOCSO portal. They are required to:

Once registered, employer and employees are able to check their contribution online by using their Identity Card Number (NRIC).

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.

The SOSCO contribution rate table is as below:

Similar to EPF, SOCSO contribution in Malaysia 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:

There are a few channels SOCSO have disclosed on where employers may auto deduct from:

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.

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.

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.

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.

The EIS contribution rate table is as below:

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:

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.

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.

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.

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 computerised calculation for year 2022. It is available via this link. It also shows the example calculation to ensure employers calculate the amount accurately.

There are several options given by LHDN for employer’s to auto deduct their MTD payments monthly. They are: