Situated in in Southeast Asia, Malaysia consists of thirteen states and three federal territories, separated by the South China Sea into two regions. A country rich in resources such as tin, rubber and palm oil Malaysia is neighbored by Singapore, Indonesia, Thailand and the Philippines with a current population of 32,389,582 as at 2020.

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

With its wealth for raw goods, Malaysia is the place to be if you want to expand your business within the ASEAN region. However setting up a business in Malaysia means being compliant to the rules of the country and this is why most companies opt to outsource their payroll.

The benefits of partnering with a payroll outsourcing service provider will allow you to free up time to allow your team to focus their efforts on your core business, minimise compliance and legislative risks and to secure payroll processing in a secure environment.

Payroll outsourcing 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.

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.

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/computerised distribution
• Statutory contributions/deductions: EPF, SOCSO, etc.
• Remittance of payment to authorities: Necessary to know deadlines and methods of payment.

In 2018 the Malaysian government introduced the Employment Insurance System (EIS) as a new protection for workers. EIS is a financial scheme aimed at helping employees who have lost their job, and it is managed by Social Security Organisation (Socso). This scheme is meant to enable retrenched workers to gain monetary funds that would help them get back on their feet for up to six months. The EIS is not only offered to those who have been retrenched but also those who resigned due to threats to the insured or even to their family.

Is it time for a change?

If you find your team always pressed for to need deadline then it might time to consider payroll outsourcing and it is best to start thinking of outsourcing your payroll before dire problems begin to arise. Do weigh the opportunity costs for time spent on payroll versus time spent on business goals and productivity in the short and long term.

As an important gateway to regional business interests, Malaysia has developed a thriving economy which has grown over the past half century. Payroll outsourcing services is the latest trend in Malaysia for business expansion to help improve their overall performance and bottom line quickly, efficiently, and inexpensively.

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