What You Should Know About Your Payroll and Taxes (Malaysia)
Being a working adult also means being responsible for your own duties and rights when it comes to your pay and taxes. Malaysia’s taxes can actually be easily understood if given the right directions. Of course, to some people, it may seem to be important enough to care but we must keep ourselves informed in order to make the right decisions and be aware of the consequences of our actions in relation to taxes.
Note: This is for Malaysian Residents who are Employees only.
A General Payslip Consists Of
Income
It includes your basic pay and possibly other income such as allowances, bonuses, commissions, and such. Taxability is depending on each statutory body’s definition of taxable wages.
Deductables
Things like loans, deductions, Islamic deductibles (zakat, tabung haji, etc ), and such are sometimes included in your payslip depending on the usage and purpose.
Statutory Contributions
Malaysia’s statutory contributions consist of two parties: Employer and Employee. Every month an employee has to pay for income tax (MTD/PCB), Employment Provident Fund (EPF), Social Security (SOCSO), and Employee Insurance Scheme (EIS). On the other hand, employers have to pay the same items (excl. tax, except otherwise) alongside with Human Resource Developmental Fund (HRDF). Percentages are varied, which will be discussed later.
Your Rights
It is your right to obtain a copy of itemized payslip from your employer. If they do not give you any payslips, it is an offense. Your escalation points can be the labor law office (JTK), LHDN, KWSP, PERKESO, and HRD when you have any complaints about your employer, provided that they had made illegal attempts or offenses.
When should you or the taxes be paid
You pay
Before the 7th of every month, or the working day before. In some cases, the 7th day after the official payroll cycle ends, this may happen due to the official payday is not by the end of the month. If you are not paid on time, you have the option to reach out to the labor law officers (JTK).
Statutory Contributions
General rule of thumb is before the 15th of the following month, or the working day before. If your employers did not make your contributions on time, you have the option to reach out to the statutory body officers respectively.
What is taxable wages
This is what your HR should know but for your knowledge:
Lembaga Hasil (Tax)
Tax is imposed annually on individuals who receive income in respect of :
- Gains/profit from a business;
- Gains/profit from employment;
- Dividends, interest or discounts;
- Rent, royalties or premiums;
- Pensions, annuities or other periodic payments; and
- Gains/profit not falling under any of the foregoing paragraphs.
KWSP (EPF)
Liable Income:
Salary, Payment for unutilized annual or medical leave, Bonus, Allowance, Commission, Wages for half-day leave, Incentive, Arrears of wages, Wages for maternity leave, Wages for study leave, and Other payments under contract of service or otherwise.
PERKESO (SOCSO/EIS)
Any remuneration payable in money to an employee is taken as wages for purposes of SOCSO contributions. This includes the following payments:
i. Salary
ii. Overtime payments
iii. Commission and service charge
iv. Payments for leave; such as annual, sick, maternity, rest day,
public holidays and etc
v. Allowances such as incentives, shift, food / meal, cost of living, housing and etc
All payments made to an employee paid at an hourly rate, daily rate, weekly rate, piece or task rate is considered as wages.
Sources
Sources where your HR can refer to:
How to Calculate Statutory Contributions
Lembaga Hasil (Tax)
Tax calculation is very complex and difficult to understand. Use the PCB calculator from LHDN for proper tax calculation. It’s best to prepare the other statutory contributions first before calculating.
Note: Tax is calculated in relation to the income/deductibles of your whole current year. The accumulated taxable income and tax paid are required if you have worked in the current year. For example, you started working in January and you want to calculate your taxes in April. You must first know the accumulated taxable income and wages between Jan-Mar before you can get a correct tax amount. Your HR should know what is taxable and what isn’t.
You might also notice that there are additional fields like EFP(accumulated/current), Zakat (accumulated/current), current month’s additional remuneration (Bonus, commissions, additional remuneration’s EPF), and current month’s deductions (usually not included in payslip). You only need to include what’s in your payslip before Year End Tax Declaration as your employer typically would not include information that isn’t on the payslip. (Year-end tax declaration is a whole other topic.)
KWSP (EPF)
It depends on your age and the number of wages you earn. Read here for more information. EPF contribution amounts are only applicable to the income earned during t the current month. This means that it does not require income/deductible information from other months.
Employee portion: The standard rate of the year OR the total amount you have voluntarily registered to pay, depending on your age.
For example, in the year 2021, the standard rate for Malaysian below age 60 was reduced from 11% to 9%. If you want to maintain 11% in total, you will need to submit a form to voluntarily contribute an additional 2%. Your employer should be able to assist you with this.
Employer portion: You will receive different rates if you are of different age and earning below/above RM5000.
PERKESO (SOCSO/EIS)
It depends on the wages you’ve earned. Read here for more information. SOCSO and EIS contribution amounts are only applicable to the income earned during t the current month. This means that it does not require income/deductible information from other months.
There is a ceiling/cap of contribution amount to be paid. The ceiling now is at RM5000 where SOCSO’s max cap is at RM61.90 whilst EIS’s max cap is at RM19.80.
Human Resource Development Corp (HRDF)
It is contributed by the employer only and at 1% of your liable wages. Read here for more information. HRDF contribution amounts are only applicable to the income earned during t the current month. This means that it does not require income/deductible information from other months.
Liability and Offences
In general, the employer is responsible to make the payments. Some companies are reluctant to do so, so it’s would become your own responsibility to do it.
Lembaga Hasil (Tax)
Offenses, fines, and penalties for employees and employers.
KWSP (EPF)
These are the three main elements that determine the obligation to contribute to EPF: Employer, Employee, Contract of Service or Apprenticeship, and Wages. Read here for more information.
PERKESO (SOCSO/EIS)
Offenses, fines, penalties, and prosecutions are here.
Human Resource Development Corp (HRDF)
Pembangunan sumber manusia berhad (compounding of offences) regulations 2003 can be read from here.
End Note
Yeah, it does look scary if you’re new to this, isn’t it? Take your time to understand it. Once you do, you will realize that it’s actually pretty simple. When you grasped the idea of your general payroll information and tax information, you will be able to understand further declaration forms and year-end declarations.
Disclaimer: If you need proper advice, it is recommended to reach out to your HR or government bodies for official statements. Make sure they are written statements!
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