Employer Guide to Malaysia Payroll Deductions

Every employer in Malaysia with employees (local or foreign) is required by law to make statutory contributions on behalf of their workforce. Understanding these obligations is critical to avoid penalties, legal action, and damage to employee morale.

The four mandatory payroll deductions that employers must manage are:

**1. EPF (Employees Provident Fund):** Both employer and employee contribute. The employer's contribution rate is 12-13% depending on the employee's salary level and age. The employer must deduct the employee's share from their salary and add their own contribution before paying the total to KWSP by the 15th of the following month.

**2. SOCSO (PERKESO):** The employer contributes 1.25-5.25% depending on the employee's category and wages. The employee contributes 0.5%. Wages are capped at RM5,000 for most categories. SOCSO contributions are due by the 15th of the following month.

**3. EIS (Employment Insurance System):** Both employer and employee contribute 0.2% each, with wages capped at RM4,000. EIS is administered by PERKESO alongside SOCSO.

**4. PCB (Monthly Tax Deduction):** The employer deducts income tax from the employee's salary based on LHDN's PCB schedule and remits it to LHDN by the 10th of the following month.

In addition to these statutory deductions, employers must also comply with minimum wage requirements. The current minimum wage in Peninsular Malaysia is RM1,500 per month (for most sectors), with variations for Sabah, Sarawak, and Labuan.

Here is a quick reference for employer contribution rates:

**EPF Employer Rates:** - Salary ≤ RM5,000: 12% - Salary > RM5,000: 13% - For employees aged 55-60: 11% (≤RM5,000) or 12% (>RM5,000) - For employees above 60: 10.5% (≤RM5,000) or 11% (>RM5,000)

**SOCSO Employer Rates (First Category):** - Standard rate: 2.05% - Wage cap: RM5,000

**EIS Employer Rate:** - Standard rate: 0.2% - Wage cap: RM4,000

**Total Employer Cost Example:** For a RM5,000/month employee: - Gross salary: RM5,000 - EPF employer: RM600 (12%) - SOCSO employer: RM102.50 (2.05%) - EIS employer: RM8 (0.2%) - Total cost to employer: RM5,710.50

For a RM10,000/month employee: - Gross salary: RM10,000 - EPF employer: RM1,300 (13%) - SOCSO employer: RM102.50 (capped at RM5,000) - EIS employer: RM8 (capped at RM4,000) - Total cost to employer: RM11,410.50

Employers should budget for approximately 14-16% above the gross salary to cover all statutory contributions. Payroll software or outsourcing to a payroll service provider can help automate these calculations and ensure timely payments.