payroll in malaysia


Malaysia is a country rich in resources such as tin, rubber and palm oil making it a high tech infrastructure that is great for new businesses. Separated by the South China Sea into two landmasses, which are neighboured by Singapore, Indonesia, Thailand and the Philippines, the current population of Malaysia stands at 32,046,554 as of June 2018. 

Investment in Malaysia has been increasing for over 50 years, with the government pushing to transform the country into a major financial hub. Some of the main reasons to invest in Malaysia include: 

Financial initiatives: The Malaysian government is engaged in a number of initiatives to bring foreign direct investment into the country, including the set-up of Malaysian Investment Development Authority (MIDA), and the Malaysia External Trade Development corporation MATRADE, which work to help companies set up and find markets. 

Business opportunities: Malaysia offers businesses opportunities in a range of diverse sectors such as banking, technology, pharmaceutical and many more. 

Location advantage: Malaysia’s location at the heart of Southeast Asia, offers its businesses access to a range of valuable markets, and a consumer base of over 600 million people. Around 5000 companies from over 40 countries have established premises in Malaysia - and benefit from excellent communication and transport links (air and sea) to neighbouring regions. 

Skilled workforce: 20,000 graduates enter the Malaysian labour pool each year, offering businesses a wide range of highly-skilled potential employees. The Malaysian workforce tends to be young and productive - ideal for roles in research and manufacturing sectors. Workers also tend to have strong grasp of English. 

Companies are required to register as an employer for tax, Employees’ Provident Funds (EPF), Social Security Funds and HRDF (Human Resources Development Fund), if applicable. Employers must register with the Social Security Organization (SOCSO) when the first employee begins at the company. The principal and immediate employer who employs one or more employees is required to register and contribute monthly to SOCSO. Employers must register at the SOCSO office within 30 days from the date the new employee was employed. 

There are currently no specific legal data protection requirements with regards to payroll data in Malaysia. For the time being, companies with a payroll function in Malaysia - either in-house or outsourced - will have to rely on internal or external company policies to ensure data protection principles are upheld. A typical implementation timeline will be two months including a one month payroll parallel run. However, implementation duration will vary depending on the complexity of payroll requirements and the headcount to be implemented. 

Payroll processing in Malaysia normally takes place on a monthly basis. Payroll administration should take the following into account: 

Mandatory Benefits: In Malaysia, mandatory payroll benefits include paid annual leave, statutory holidays, maternity or medical leave, and benefits for termination or unemployment. 

Optional Benefits: Optional payroll benefits in Malaysia may include payment for Long Service, allowances for housing and transport, medical insurance schemes, commission and bonuses, and any retirement or pension schemes. 

Statutory Contributions: Both employer and employee make statutory social security contributions to the EPF retirement and SOCSO scheme. Employees may also have to make PTPTN repayments (Malaysia’s student funding scheme), or Zakat donations (Muslim employees only). 

Scheduler Tax Deduction: Monthly tax deductions in Malaysia are governed by the STD mechanism - which reduces the need for employees to pay tax in one lump sum. 

Payslip: All employees in Malaysia should be issued with a payslip when they are paid, including information such as wages earned and deductions made. 

Employee Records: Employers must maintain an employee register, with relevant payroll information for each staff member. 

Employers in Malaysia must withhold employees’ monthly tax contributions - at rates ranging from 0%-28% depending on salary amount. The complexity of Malaysia’s tax regulations means it may be advisable for foreign businesses to outsource their payroll administration to a global payroll provider to benefit from compliance expertise and that ensure pay is delivered efficiently to their international employee populations. The standard payroll process in Malaysia includes the following steps:

  • Pay-day: Payments must be made by the 7th of each month
  • Payment method : Cash, cheque, or credit to bank account
  • Calculation of salary : Incorporating overtime, sick pay etc
  • Issue of payslips : Manual or automated / computerized distribution
  • Statutory contributions / deductions : EPF, SOCSO, etc
  • Remittance of payment to authorities : Necessary to know deadlines and methods of payment

The unemployment rate in Malaysia is considered to be relatively low and stable, however there are still challenges of being retrenched with no income coming in or adequate contingency fund to help them and their dependents (if any) get back on their feet. 

The above insights was produced by Propay Partners for publication by Global Payroll Association - Click here to view article
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