MY GUIDE

A guide to payroll
in Malaysia

1 | A Guide to Payroll in Malaysia

Contents
Foreword 3

The basics of payroll 4

Wages and payments 6

Contributions, levies and insurance 8

Holidays and leave 10

Payslips 12

Payroll records and yearly reporting 13

When can non-compliance occur? 14

What is payroll software 15

About Employment Hero 16

Disclaimer: The information in this report is relevant as at 14 December 2023, and has been prepared by Employment Hero Pty Ltd ABN
(11 160 047 709) (Employment Hero). The views expressed herein are general information only and are provided in good faith to assist
employers and their employees. The Information is based on data supplied by third parties. While such data is believed to be accurate,
it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for
which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data. To the maximum extent permitted
by law, Employment Hero will not be liable to any party in contract, tort (including for negligence) or otherwise for any loss or damage
arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this report. Where
liability cannot be excluded by law then, to the extent permissible by law, liability is limited to the resupply of the information or the
reasonable cost of having the information re-supplied. If you are unsure about how this information applies to your specific situation,
we recommend you seek expert advice for your personal situation or find more information at malaysia.gov.my.
2 | A Guide to Payroll in Malaysia
Foreword
I often get asked why I started
Employment Hero, and it always comes
back to being passionate about our mission
– I want to help make employment easier
and more valuable for everyone.

During my early career as an employment

lawyer, I learned a few fundamental
truths; no one starts a business to be
an employer, and many new business
owners have a steep learning curve
in managing the responsibilities of
employment and payroll legislation.

Payroll regulations are incredibly complex,

and the reality is if you’re an employer
and you get it wrong, there can be
disastrous implications. As a lawyer,
I saw this happen time and time again.
I was sick of seeing hard-working small
businesses lose everything just because
they didn’t know any better. With SMEs
making up about 97% of all businesses
in Malaysia, they’re the backbone of the
economy and yet are often left to figure
things out by themselves.

With so much movement in the economy,

plus a rapid rush to retain and recruit
employees during the Great Resignation,
there’s never been a more important time
for Malaysian businesses to make sure
they’re paying their employees compliantly.

We want to empower you to feel confident

when it comes to paying your team in
accordance with current legislation.
Hopefully this guide will do just that.

Cheers,

Ben Thompson
CEO & Co-Founder of Employment Hero
A guide to payroll in Malaysia | 3
Let’s go back to
basics. What is
payroll and how
does it work in
Malaysia?
Payroll refers to the people who work at a
company and the amount of money they
are entitled to be paid for the work they
have completed. In Malaysia, the payroll
of most employees is governed by the
Employment Act (1995), also referred to
as the ‘EA’.

Whether you employ one person, or one

hundred people, the same rule applies to
all businesses when it comes to payroll – be
compliant or face penalties. However, when
you’re a small or medium-sized business,
you most likely don’t have the luxury of
having in-house or external professionals
helping you manage your payroll function.

Let’s uncover the essential information

for payroll, and the tools that can help
you streamline this complex process.

A Guide to Payroll in Malaysia | 4

What is the Employment Act (1995)? Gig workers are also covered by the
The EA is an act which outlines the Employment Act. An individual is considered
rights of employees and employers, under law to be an employee if the following
and their obligations under the law. conditions are met, regardless of whether
It covers all employees in Malaysia, there is a written contract.
irrespective of wages or occupation. The conditions are:
However, employees earning above → Their manner of work is subject to the
RM4,000 per month are exempted from supervision or control of another person;
certain provisions in the Act, such as:
→ Their working hours are under the
→ Overtime rates for employees supervision or control of another person;
working on rest days;
→ They receive tools, supplies, or equipment
→ Overtime rates outside working hours; from another individual to do a task;
→ Allowance for shift-based work; → Their work is a crucial component
of another person’s enterprise;
→ Overtime on public holidays;
→ Their effort is made purely for
→ Overtime for half working
another person’s profit; or
days on holidays; and
→ They receive compensation for
→ Termination, lay-off, retirement benefits.
the task they perform on a regular
basis, and this compensation
makes up most of their income.

What is a Contract of Service?

According to the EA, a contract of service
“means any agreement, whether oral or
in writing and whether express or implied,
whereby one person agrees to employ
another as an employee and that other
agrees to serve his employer as an employee
and includes an apprenticeship contract.”

A Guide to Payroll in Malaysia | 5

Wages and Payments
Employees are usually paid their wages on Working Hours
a monthly basis. If there is no wage period Employees should not be required to work:
specified in an employee’s contract of service
it will be assumed to be on a monthly basis. → More than 8 hours a day;
Employees must be paid no later than the
→ More than 5 consecutive hours without
7th day following the end of the wage period. a break of at least 30 minutes;

Minimum Wage → More than 45 hours in a week; and

Malaysia increased the national minimum
→ More than a spread of 10 hours in a day.
wage in May 2022 by 25% — from RM1,200
to RM1,500 for businesses in all sectors, However, exceptions apply, in the case of:
regardless of region. Employers with less
→ Accidents, actual or threatened,
than five employees were granted an
in the place of work;
exemption until July 1, 2023.
→ Work essential to the life
of the community;

→ Work for the defence or

security of Malaysia;

→ Urgent work to be done to machinery;

→ An interruption of work which

was impossible to foresee; or

→ Work in any industrial undertaking

essential to the economy of Malaysia
or any essential service as defined
under the Industrial Relations Act.

A Guide to Payroll in Malaysia | 6

Monthly Tax Deductions (MTD) Tax Filing
Employers must make a monthly tax Employees must complete their tax clearing
deduction (MTD) directly from an and filing at the end of the year, prior to
employee’s remuneration. This is also April. The financial year aligns with the
referred to as Potongan Cukai Bulanan (PCB). calendar year, 1st January to 31st December.
It is an employer’s responsibility to send this
tax to the Inland Revenue Board of Malaysia
Tax Reliefs
(IRBM/LHDN) on their employee’s behalf on There are over 20 tax reliefs that allow
or before the 15th day of the next month. employees to reduce their chargeable
income. This can be related to family,
Income Tax Rates education, parenthood, medical expenses,
Income tax rates vary on the employee’s charitable donations and more. Your
remuneration. You can calculate your employees must declare their own eligible
employee’s MTD/PCB by using an tax reliefs to you for tax calculations.
IRBM/LHDN verified payroll system.
Overtime
Employees are entitled to overtime, which
is regulated by the EA. Employees covered
Quinn’s Hero Tip
by the EA should be paid overtime at 1.5
Calculating MTD/PCB for all of your employees times their hourly pay rate. Rest days are
can be a headache if you’re not using a proper paid at two times, and public holidays
payroll system. Employment Hero Payroll can at three times the hourly pay rate.
automate this complex process and give you
full visibility over your team’s deductions. For non-EA employees, employers can stipulate
relevant provisions relating to overtime rates
within their employment contracts.

A Guide to Payroll in Malaysia | 7

Contributions, Levies and Insurance
Employers must provide some contributions Social Security Organisation (SOCSO)
and benefits to their employees. Contributions The Social Security Organisation (SOCSO)
must be clearly stated in the initial appointment manages social security funds in Malaysia.
letter to the employee. SOCSO contributions are mandatory for
all employees, be they a Malaysian citizen,
These may be automatically deducted from
permanent resident or foreign worker.
employee salaries. The three compulsory
contributions are; to the Employees Employers are required to pay monthly
Provident Fund (EPF/KWSP), the Social contributions for each eligible employee,
Security Organisation (SOCSO) and the and employee contributions must be
Employment Insurance System (EIS). deducted from an employee’s wage,
in line with rates that have been outlined
The Human Resources Development
in the Employees’ Social Security Act (1969).
Fund (HDRF) also applies to businesses
with more than ten employees. Other Contribution rates generally depend on
contributions and levies may apply. the employees’ age (whether they are older
or younger than 60) and their rate of pay.
Employees Provident Fund (EPF/KWSP) There may be other factors that apply.
The Employees Provident Fund (EPF/KWSP)
is a government fund which assists Malaysian
employees in saving for their retirement under
the direction of the Employees Provident Fund
Act (1991). EPF/KWSP payments only apply to
citizens and permanent residents, it is optional
for foreign workers.

EPF/KWSP payments are deducted from an

employee’s salary and paid by the employer
on the employee’s behalf. The employer
must also make their own contribution for
each employee.

The rates at which the employee’s deduction

and the employer’s contribution are
paid depend on the employee’s age,
annual salary and citizenship status.
You can see the current rates here.

A Guide to Payroll in Malaysia | 8

Employee Insurance System (EIS) Human Resources Development
The Employee Insurance System (EIS) is another Fund (HRDF)
contribution that must be deducted from an The Human Resources Development Fund
employee’s wage, and also paid by the employer (HRDF) levy is a mandatory contribution if
on the employee’s behalf. This applies to most you employ ten or more people, established
Malaysian citizens and permanent residents. under the Human Resources Development
Act 1992. The levy is currently paid at a rate
Managed by SOCSO, the EIS is designed
of 1% of each employee’s total monthly wages
to support employees for a period of time
(including allowances).
if they lose their job. Workers who become
unemployed may be able to access up to The fund supports the training and upskilling
six months of support through the scheme of employees, apprentices and trainees.
while they seek new employment. There are some exceptions, for example,
it does not apply to employees who are
There are employees who are exempt from
employed as a domestic servant.
paying EIS, including (but not limited to);
government employees, those who are
self-employed and employees aged 57
Quinn’s Hero Tip
and above who have no prior contributions
before the age of 57. Visibility is key. With so many different
contributions and levies paid at various rates,
having clear visibility over what is being paid
to whom is essential to avoid human error.
Employment Hero not only automatically
calculates your contributions and levy rates,
you can also easily see these payments within
the platform when you process your payroll.

A Guide to Payroll in Malaysia | 9

Holidays and leave
Sick leave Annual leave
Employees are entitled to sick leave if they Employees are entitled to different amounts
fall ill on a working day. After being examined of annual leave, based on their time with an
by a registered medical practitioner, they are employer. While on annual leave, employees
entitled to be paid sick leave. are still entitled to sick or maternity leave.
In this case, the annual leave shall be
Employees are entitled to 14 days sick leave
cancelled and the alternative leave type
each calendar year if they have been employed
taken instead. Employees may be paid in
by their employer for less than two years,
lieu of annual leave at the request of the
18 days each calendar year if they have been
employer, but they must agree in writing.
employed by their employer for more than
two years, and 22 days each calendar year if Employees who are employed under the
they have been employed by their employer Employment Act 1995 can access;
for more than five years.
→ 8 days for every year of continuous service
In cases where hospitalisation is required, with the same employer if they have
been employed for less than 2 years
employees covered under the Employment Act
are entitled to 60 days of hospitalisation leave → 12 days for every year of continuous
per year, on top of paid sick leave entitlement. service with the same employer if
This must be certified by a registered medical they have been employed for over
practitioner, officer, or dental surgeon. 2 years but less than 5 years

→ 16 days for every year of continuous

service with the same employer if they
have been employed for over 5 years

The private sector may grant more annual

leave to the employee.

Quinn’s Hero Tip

Leave management can be a challenging

process, especially when you’re managing
several employees. Employment Hero’s Leave
Management tools allows your employees
to see their leave balance and easily apply
for leave. Managers are then able to see the
leave of everyone on their team in a calendar
and easily approve or deny requests.

A Guide to Payroll in Malaysia | 10

Parental Leave
Statutory maternal leave and pay may
also apply to employees who have given
birth or are about to give birth.

Employees who are employed under the

Employment Act 1995 are entitled to paid
maternity leave, calculated as the employee’s
usual daily salary. In April 2022, the amount
of leave that mothers were entitled to
increased from 60 days to 98 days according
to the Employment (Amendment) Act 2022.

Married male employees are also now

entitled to seven days of paid paternity
leave, which must be taken consecutively.
Eligibility requirements apply.

The 2022 Employment Act amendments

include further protections for pregnant
female employees. Starting January 1st, 2023,
it is now an offence under the Employment
Act 1955 for employers to terminate or to
give notice of termination to this category of
employees with exceptions given for breach of
contract, misconduct and closure of business.

Public Holidays
Every employee is entitled to be paid at their
ordinary rate of pay on gazetted public holidays.

A Guide to Payroll in Malaysia | 11

Payslips
Payslips must be issued to a business’
employees each time they are paid. Quinn’s Hero Tip
Payslips allow your employees to keep track
of their earnings, contributions and leave. Putting together this information manually
can really slow down the payroll process.
They are a key part of processing payroll.
With Employment Hero Payroll, payslips
The following information must be are automatically generated with your
employee’s information and details of the
included on each payslip that is issued:
payment. This reduces human error and
→ The employee’s full name could save you hours (if not days) of admin.

→ The employee’s EPF/KWSP

membership number

→ The employee’s gender

→ The employee’s identification

or passport number

→ The employee’s citizenship status

→ The employee’s wage payment term

(for example; daily/weekly/monthly)

→ The employee’s wage amount

for the period concerned

→ The date of the wage payment

→ Details of other payments for the period

concerned (for example; allowances)

→ The amount deducted for the

EPF/KWSP contribution

→ The employer registration number

→ The amount paid by the employer,

for employer’s share

→ The full name of the employer or

employer’s representative, their address
and contact number or email address

→ The statement of date issued

A Guide to Payroll in Malaysia | 12

Payroll records
In accordance with the Personal Data Form EA (C.P 8A)
Protection Act 2010, it’s important to Form EA (C.P 8A) must be submitted to your
keep a record of all payroll activities for employees by the last day of February following
at least six years. Using a proper filing the end of financial year (31st December). This
system, like those which are available is their individual statement of remuneration
through payroll software, can help you from the financial year, and allows them to put
easily retain and find this information. together their individual tax returns. It does not
need to be submitted to IRBM/LHDN.

Yearly reporting You may also need to consider monthly

statutory reporting such as the CP22, CP22A,
Borang 2, Borang 3, SIP 2A or KWSP 3. These
The Inland Revenue Board of Malaysia
help employers submit new and terminated
(IRBM/LHDN) requires employers to
employees to statutory bodies. Consult an
submit two annual forms: Form E and
employment law specialist to find out what
Form EA (C.P 8A).
reporting you need to submit on a monthly
Form E or annual basis.
Form E must be submitted to IRBM/LHDN
for the financial year by the 31st March following
the end of financial year (31st December). This .
is a statement of payments made to a business’
employees, plus MTD/PCB deductions from
the year.

Quinn’s Hero Tip

Don’t waste time with hours of manual

calculations when it comes to your end of year
reports. Payroll software like Employment Hero
can gather the information you need in
seconds, and help you feel confident that
you’re delivering the correct information to
your employees and IRBM/LHDN, everytime.

A Guide to Payroll in Malaysia | 13

When can non-compliance occur?
The payroll system in Malaysia is incredibly Inadequate record keeping
complex. With different calculations, Are you still using paper forms to log your
contributions, levies and legal jargon employees’ payroll documentation? As
to be conscious of, it’s no surprise that it’s so easy for papers to be misplaced
businesses can get it wrong from time to time. or incorrectly filed, you are opening
Regardless of why non-compliance yourself and your business to liability.
occurs, penalties can apply. Those who In today’s digital age, record keeping
do not comply, consciously or not, can is easy. With so many software options
face fines or even imprisonment in extreme available to help manage payroll, payslips,
cases. Here are some common reasons why timesheets and your employees’ time and
non-compliance occurs in small businesses. attendance, there’s no excuse for not having
the correct records of your employees.
A gap in payroll knowledge
Many small businesses aren’t qualified As we mentioned in the last section, keeping
payroll professionals, however, they choose a record of payslips is essential. Employers
to process payroll themselves without help are also required to keep employee records.
or advice from professionals. Knowing the Make it simple for yourself and your team by
ins-and-outs of paying your employees is introducing a digital solution.
a complex task, and this is where we see
employers accidentally doing the wrong thing. Incorrect set up of your payroll system
Setting up your payroll system correctly
At the end of the day, no one starts a from day one is the most crucial part of
business to become an employer. For many, your payroll process. If you get this wrong
it’s something that naturally happens, so how from the very beginning without realising,
are you supposed to know the complexities it can spell disaster years down the track
of payroll tax and compliance when you bring when the error comes to fruition.
your first employee on board? How do you
know which contributions apply to which team And it’s not just calculating the correct
member and accurately calculate deductions pay rate for your employees. There’s a
with no prior experience? myriad of other areas that are crucial
to get right – MTD/PCB, EPF/KWSP and
Using payroll software with built-in compliant SOCSO contributions, leave entitlements,
rules can help support you through this allowances and a range of other elements.
learning process, in addition to streamlining
your payroll operations for the long term. When it comes to setting your payroll
It’s also a good idea to seek expert advice system, we can’t stress how important
from an employment law expert when you it is to seek professional advice and
are setting up your business for employment. invest in payroll software that can help
you streamline your processes.

A Guide to Payroll in Malaysia | 14

What is payroll software?
We’ve mentioned payroll software several Record keeping and reports
times throughout this guide, but what exactly When you use effective payroll software,
is it? How can it help you stay compliant and digital records are instantly created for
what functions does it have to streamline your each employee’s payslip. Never lose a payslip
payroll operations? again, and quickly access documents in our
easy-to-use system. This can help you cut
Automated payroll
down hours of admin, as you quickly locate
In a few simple clicks, a payroll platform
essential documents.
can help you process, finalise and publish
your payroll using the power of automation. When you use Employment Hero payroll,
Some platforms can quickly make accurate you can also lodge income data and
calculations, including deductions and generate accurate reports every time
contributions. Information appears for the with our powerful tools.
administrator during the pay run, clearly
displaying the calculations and giving you Staying up-to-date
full transparency over the process. Understanding and complying with employment
legalities can be one of the biggest challenges
Time and attendance facing small to medium businesses, but that’s
Keeping track of your employees where software can help.
hours is important when you’re running
Many payroll systems have calculations of
your business; especially if your team
pay rates and deductions built-in, so that
members are not on full-time wages.
you never have to manually generate this.
Payroll software can help with everything Many providers also keep up to date with
from dynamic rostering to cover peak changes to legislation and automatically
business times, shift bidding, clocking update when they’re introduced.
in and out remotely using the app and
much more. Easily approve timesheets
and accurately process all time worked. Quinn’s Hero Tip

Employment Hero can give you the compliance

confidence you need. We’re employment law
and payroll experts who are obsessed with
keeping up to date with the latest legislation.

A Guide to Payroll in Malaysia | 15

About
Employment Hero

Employment Hero Payroll automates With Employment Hero Payroll

your manual tasks, is IRBM/LHDN you’ll have access to:
verified and helps you manage your → Dynamic rostering
payroll and workforce planning in one
easy-to-access place. → Roster templates

If you want to find out more about how → Shift bidding

Employment Hero can help streamline
→ Budgeting rules
your payroll process, get in touch with
one of our small business specialists today. → Work Engine rules

→ Clock in and out

→ Real time reporting

→ Automated reporting tools

→ Automated pay runs

→ Automated payslips

→ End of year reports

For more information on how we can help transform

your business book a demo today.

A Guide to Payroll in Malaysia | 16

 The smarter way to manage people, payroll
and productivity. For SMEs with big ambitions.

17 | A Guide to Payroll in Malaysia