Managing payroll in Malaysia can be complex, especially with various statutory contributions, tax deductions, and labor laws to comply with. Whether you are an HR professional or a business owner, understanding key payroll terms is essential to ensure accurate salary processing and full compliance with Malaysian regulations.
In this guide, we break down the most important Malaysian payroll terminology, helping you navigate payroll processes with confidence. Plus, we’ll show you how Amaze Advisory can simplify payroll management through expert payroll outsourcing services tailored for SMEs.
Key Malaysian Payroll Terms and Acronyms
1. Employees Provident Fund (EPF / KWSP)
The Employees Provident Fund (EPF), also known as Kumpulan Wang Simpanan Pekerja (KWSP), is a mandatory retirement savings scheme for Malaysian employees. Employers must contribute 12% or 13% of an employee’s salary, while employees contribute 9% to 11%, depending on government regulations.
2. Social Security Organization (SOCSO / PERKESO)
The Social Security Organization (SOCSO), also called Pertubuhan Keselamatan Sosial (PERKESO), provides social security protection for employees in cases of workplace injuries, illnesses, or disabilities. Employers and employees must contribute to SOCSO based on the employee’s salary range.
3. Employment Insurance System (EIS / SIP)
The Employment Insurance System (EIS) or Sistem Insurans Pekerjaan (SIP) provides financial assistance to employees who lose their jobs. Employers and employees both contribute 0.2% each of the employee’s monthly salary.
4. Monthly Tax Deduction (MTD / PCB)
The Monthly Tax Deduction (MTD), also known as Potongan Cukai Bulanan (PCB), is a system where employers deduct income tax from employees’ salaries based on the Inland Revenue Board of Malaysia’s (LHDN) tax schedule. This ensures employees pay their income tax in monthly installments.
5. Form EA & Form E
- Form EA:
A statement provided by employers summarizing an employee’s income and tax deductions for the year. Employees use this for personal tax filing. - Form E:
An annual declaration employers submit to LHDN, listing employee salary details and tax deductions.
6. BIK (Benefits-in-Kind) & Perquisites
Benefits-in-Kind (BIK) refers to non-cash benefits provided by employers, such as company cars, housing, or medical insurance, which are subject to taxation. Perquisites are additional allowances or incentives provided to employees that also impact taxable income.
7. Overtime Pay (OT)
Overtime pay is additional compensation for employees working beyond their standard working hours. Under Malaysia’s Employment Act 1955, the overtime rate is:
- 1.5x the hourly wage for overtime on normal working days
- 2x the hourly wage for overtime on rest days
- 3x the hourly wage for overtime on public holidays
8. Zakat (Islamic Tax Deduction)
Muslim employees in Malaysia can opt to have their zakat (Islamic charitable tax) deducted directly from their salary, reducing their monthly tax deduction (PCB).
9. HRDF Levy (Human Resource Development Fund)
Applicable to companies with ten or more employees, the HRDF levy is a 1% contribution of employees’ monthly wages to fund employee training programs. It is managed by the Human Resources Development Corporation (HRDCorp).
Why Payroll Compliance Matters
Failing to comply with payroll regulations can lead to serious legal and financial consequences, including:
- Heavy fines and penalties from regulatory bodies
- Employee dissatisfaction due to incorrect salary payments
- Audit risks and operational disruptions
Given Malaysia’s dynamic regulatory landscape, keeping up with payroll compliance is challenging, especially for SMEs without a dedicated payroll team.
How Amaze Advisory Simplifies Payroll Management for SMEs
At Amaze Advisory, we specialize in payroll outsourcing services designed to help SMEs manage payroll efficiently while staying fully compliant with Malaysian labor laws. Our comprehensive payroll solutions include:
- Accurate salary calculations and payroll processing
- Automated EPF, SOCSO, EIS, and PCB submissions
- E-payslips and payroll reports
- Secure and confidential payroll data management
By outsourcing payroll to Amaze Advisory, businesses can save time, reduce costs, and eliminate compliance risks, allowing them to focus on business growth.
Conclusion
Let Amaze Advisory take care of your payroll needs with our expert payroll outsourcing services tailored for SMEs. Contact us today to learn how we can simplify your payroll processes and keep your business compliant!
