Payroll In Malaysia | Payroll Process and Payroll Taxes in Malaysia

Malaysia, a Southeast Asian country is the world’s 44th most populous country with a population of over 32 million people. Malaysia's economy is expanding, with a per capita GDP of USD 11,371. Malaysia rapidly transformed during the 20th century as it moved away from dependence on traditional mining and agricultural sectors to revitalize its business infrastructure. The Malaysian Ringgit (MYR) is the official currency of Malaysia and is represented by the RM symbol. Malaysia was a founding member of ASEAN (Association of Southeast Asian Nations) and has a strong parliamentary system that is friendly to foreign investment interests. According to the World Bank's 2019 Ease of Doing Business Survey, Malaysia was ranked number 12.

Due to Malaysia's key position, competitive dynamics, skilled manpower, and exceptional technological capabilities, many nations choose to expand their businesses. Before thinking about expanding your industry operations in Malaysia, it's important to realize that compliance with all payroll laws Malaysia is essential to success.

Payroll Cycle & Working Hours in Malaysia

The Employment Act of 1955 primarily governs labor laws & payroll laws Malaysia to regulate working hours, breaks, overtime pay, and other employment conditions. For payroll in Malaysia, payments are typically made on the last working day of the month as part of the payroll processing in Malaysia. However, salaries must be credited to workers' bank accounts by the seventh of every month.

A worker's regular working hours and night-time hours cannot total more than 8 hours per day and 45 hours per week. Except for overtime, the spread-over period of work cannot be longer than 10 hours per day (inclusive of breaks for rest).

Payroll Tax In Malaysia

For payroll processing in Malaysia, Every business must register as an employer for tax purposes, Employees' Provident Funds (EPF), Social Security Funds, and, if necessary, the Human Resources Development Fund (HRDF). When the first employee starts working for the company, employers must register with the Social Security Organization (SOCSO). For payroll in Malaysia, employers and employees are required to make these mandatory statutory contributions to comply with Malaysian payroll regulations.

Social Security & Statutory Contribution for Payroll Tax in Malaysia

There are three required statutory contributions as payroll tax for payroll processing in Malaysia. These are:

SOCSO - The Employees' Social Security Act, 1969, and the Employee' Social Security Regulation, 1971, are administered, enacted, and put into effect by the Social Security Organization (SOCSO), a legal entity for payroll in Malaysia. The company offers social security protection through social insurance, which covers medical and financial benefits, as well as the provision of artificial aids and rehabilitation to employees to lessen suffering and help with financial security and family protection. Each eligible employee's monthly contribution to SOCSO must come from the employer.

Social protection comes in two types

Employ Injury Insurance Scheme (EIIS) - Employees who sustain illnesses or injuries related to their jobs are covered by the Employment Injury Insurance Scheme (EIIS). All Malaysian citizens, long-term residents, and foreign employees are subject to the EIIS (excluding domestic servants).
Invalidity Pension Scheme (IPS) - Coverage for workers who become invalid or pass away due to circumstances unrelated to their employment. According to the Employees' Social Security Act of 1969, an employer who has one or more employees is required to register and make monthly contributions to SOCSO for each employee (henceforth refer as Act).

Employee Provident Fund (EPF) - The Employees Provident Fund (EPF) is a social security organization created following Malaysian law. The Employees Provident Fund Act (1991; Act 452)) provides retirement benefits for members by managing their savings in a trustworthy and efficient way, and it stipulates that such contributions are fully refundable to the employees once they reach the age of 55.

All Malaysian employees must participate in a mandatory savings program, which Employees Provident Fund oversees. The EPF retirement benefits program requires contributions from both employers and employees (who must be Malaysian citizens or permanent residents only). EPF contribution rates for employees vary based on their monthly salaries. For workers under the age of 60, employers contribute 12%–13%. Employees (employee cost) make up 9%. For employees over 60, this number decreases. For non-residents, this contribution is optional.

Employment Insurance Scheme (EIS) - It is a law that offers monetary help to workers who have lost their jobs. It is managed by the SOCSO to offer certain benefits and a program for re-employment placement to insured people who have lost their jobs, thereby promoting active labor market policies, and matters related thereto.

For each employee, employers must make a monthly contribution as employment cost. Employers with one or more employees are required to sign up for the Employee Insurance System (EIS) and pay monthly contributions for all employees between the ages of 18 and 60. (Act 800). Employers and employees each contribute 0.2% of a worker's salary, which suggests that the total contribution is 0.4% of the worker's monthly wage.

Human Resource Development Fund (HRDF) - As a part of employment cost, employers across certain industries like mining, industrial production, mineral extraction, and services are required to pay the HRDF tax, which is collected by the Human Resources Development Fund to make it possible for Malaysian workers to receive employee training and skill upgrades. Employers with more than 10 employees are mandated to pay 1% of Malaysian workers’ monthly wage as an HRDF contribution.

Both the employer and the employee are required to make payroll tax contributions under payroll laws Malaysia. The contributions also include Malaysia's portion of payroll tax. The employer and employee payroll contributions in Malaysia are described in the following points:

Employer Contribution (Employment Cost) to Payroll Tax in Malaysia (2022)

Employee Contribution (Employee Cost) to Payroll Tax in Malaysia (2022)

Employee Income Tax in Malaysia

Malaysia levies taxes at a rate that ranges from 0% to 28%. A non-income resident's earned or received in Malaysia is subject to a maximum tax rate of 28%. W.E.F 2020, residents who make more than 2 million a year will be subject to a 30% tax rate in Malaysia.

The income tax that employees must pay is also deducted from their paychecks in Malaysia. The taxable income ranges and payroll tax in Malaysia for the year 2022 are shown in the following table:

The fiscal year in Malaysia runs from 1st January to 31st December. By the fifteenth day after the payroll month, employers must submit a monthly withholding tax return and make MTD (Monthly Tax Deduction) payments to the Inland Revenue Board of Malaysia.