Employee Benefits Payroll: A Complete Guide for Malaysian Companies

Managing employee benefits through payroll can be a challenging but essential aspect of running a business in Malaysia. For companies operating in Malaysia’s vibrant economy, adhering to the legal requirements around employee benefits is crucial not only for compliance but also for cultivating a supportive workplace culture. 

A well-managed employee benefits payroll system considers income tax, social security contributions, and leave entitlements. In this guide, we will walk you through these essential components, focusing on Malaysian laws and practices.

Overview of Malaysia’s Payroll

Payroll management in Malaysia requires compliance with various regulations designed to protect employee rights and ensure transparency. Malaysia’s Employment Act and other employment regulations govern the minimum standards for wages, working hours, benefits, and other employment terms. Managing employee benefits payroll effectively means ensuring these standards are met, especially regarding contributions to social security schemes, tax deductions, and paid leave entitlements.

A key element of payroll in Malaysia is meeting statutory obligations for social security, retirement savings, and insurance benefits, which support the country’s social safety net. Employers must track employee salaries, deductions, and benefits accurately to fulfil these legal requirements while enhancing employee satisfaction and trust.

Requirements of Malaysian Taxation

According to InCorp Asia, understanding Malaysia’s income tax regulations is essential for establishing a compliant employee benefits payroll system. The Inland Revenue Board of Malaysia (LHDN) oversees tax collection and enforces strict guidelines on employee income tax. Employers are required to deduct and remit income taxes for both resident and non-resident employees based on specified rates and criteria.

Key Elements of Income Tax Compliance

As outlined by InCorp Asia, The tax year in Malaysia runs from 1st January to 31st December. Employees are expected to file their taxes by 30th April annually. Both tax residents and non-residents are subject to progressive tax rates, with a maximum rate of 30% for incomes above MYR 2,000,000. Additionally, employers must account for various tax reliefs that can lower employees’ taxable incomes. These include deductions for educational expenses, medical insurance, and electronic devices intended to support remote work.

Malaysian Income Tax Breakdown

Here is a brief overview of Malaysia’s tax rates for resident employees:

For non-resident employees, a flat 30% tax rate applies to all income. Additionally, Muslim employees are eligible for zakat deductions, which can be applied as a tax relief.

Malaysian Social Security Contributions

As noted by InCorp Asia, Malaysia’s social security system is designed to provide employees with financial support during retirement, unemployment, and medical emergencies. These contributions form a vital part of any employee benefits payroll system, encompassing several mandatory schemes.

1. SOCSO (Social Security Organisation)

SOCSO covers employees under the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS). The EIIS provides compensation for work-related injuries, while the IPS supports employees with disabilities or long-term illnesses. SOCSO contributions are required for employees under 60 and are tiered based on monthly salaries, with a maximum employer contribution of MYR 86.65 and an employee contribution of MYR 24.75.

2. EIS (Employment Insurance System)

The EIS offers financial support and career assistance to employees who lose their jobs. Contributions for EIS are set at 0.2% of the employee’s monthly salary and are borne entirely by the employer. This system provides unemployment benefits, job search aid, and training allowances.

3. EPF (Employees Provident Fund)

The EPF is a retirement savings scheme requiring both employer and employee contributions. Employers are obligated to contribute 12% of the employee’s salary, supporting long-term financial security for retirement.

4. HRDF (Human Resource Development Fund)

The HRDF funds training and development programmes for employees. Employers with 10 or more employees contribute 1% of their employees’ monthly wages to this fund, while smaller employers with 5 to 9 employees contribute 0.5%. This fund helps businesses upskill their workforce, promoting employee growth and development.

Leave Entitlements in Malaysia

A comprehensive employee benefits payroll system should also include all legally mandated leave entitlements. In Malaysia, these include sick leave, annual leave, and public holidays, among others, which promote work-life balance and employee satisfaction. Below are some tips of leave entitlements in Malaysia as outlined by InCorp Asia:

1. Sick Leave

Employees are entitled to between 14 and 22 days of sick leave, depending on their length of service. This allows employees to recover from illness without financial concerns, creating a healthier workforce.

2. Annual Leave

Annual leave entitlements in Malaysia range from 8 to 16 days, based on an employee’s years of service. Paid leave encourages employees to rest and recharge, enhancing overall job satisfaction.

3. Public Holidays

Employees are entitled to observe 11 public holidays annually. These holidays include National Day, Malaysia Day, Labour Day, and Federal Territory Day, reflecting the country’s cultural diversity and national pride.

4. Maternity and Paternity Leave

New mothers receive 60 consecutive days of paid maternity leave, while new fathers are granted 3 days of paid paternity leave. These leave entitlements support family life, allowing employees time to bond with their newborns.

5. Other Leave

Malaysian employment law also permits other leave types, including compassionate or bereavement leave, study leave, and marriage leave. While these leave types are often subject to employer approval, they acknowledge diverse employee needs and support a balanced work-life environment.

Manage Your Payroll System with Paywatch

Creating a compliant and efficient employee benefits payroll system in Malaysia doesn’t have to be complex. With Paywatch, you can simplify payroll management by offering employees flexible access to their earned wages anytime they need it. As an innovative EWA (Earned Wage Access) solution, Paywatch empowers businesses to support financial wellness and improve employee satisfaction.

Get in touch with us to explore how the Paywatch App can transform your payroll management and strengthen employee loyalty.