The essential guide to payroll in Malaysia

Whether you’re considering setting up payroll operations in Malaysia, or you’re joining an established team there, you’ll need to be across the basics of payroll compliance. Here’s what you need to know.

Malaysia is a popular destination for business expansion due to its South-East Asian locale, which means it’s well-positioned as a global business hub. With opportunities existing in major industries such as oil and gas, tourism, finance and manufacturing, Malaysia thrives on low operational costs and a population bountiful with multilingual residents who can help create a seamless transition into a new country for any growing business.

Malaysia prides itself on its large workforce that is full of young, eager and educated people and its forward-thinking business acumen, which has helped to maintain a robust economy.

Overview of payroll requirements

Tax

• Malaysia’s financial year runs from 1^st January to 31^st
• Regardless of residency or citizenship, all workers in Malaysia are required to pay tax.
• The highest rate of tax on personal income is 30%, which is the rate for income exceeding MYR 2,000,000.
• Under Malaysian tax law, those classified as non-residents are individuals who work in Malaysia for more than 60 days but less than 182 days in a year. This means that even if an individual is Malaysian, if they work for between 60 and 182 days in a year in Malaysia, they will be taxed at the same rate as a non-resident.
• Non-residents pay a flat-rate tax of 30% of their income.
• Zakat is an obligatory religious deduction in Malaysia. Employers can make deductions on behalf of their employees, and if a Zakat deduction is made through payroll, it is treated as a pre-tax deduction.

Leave

• Malaysia’s leave entitlements are commensurate with tenure at the organisation.
• For annual leave, an employee who has given less than two years of service is entitled to 8 days of leave per year. An employee who has given more than 2 but less than 5 years of service is entitled to 12 days of leave per year. And an employee who has given more than 5 years of service is entitled to 16 days of leave per year.
• The structure is similar for sick leave and an employee who has given less than 2 years of service is entitled to 14 days of sick leave per year. An employee who has given more than 2 but less than 5 years of service is entitled to 18 days of sick leave per year. And an employee who has given more than 5 years of service is entitled to 22 days of sick leave per year.
• Leave balances start accruing after an employee has worked at the organisation for 1 year, however, paid leave may be taken pro-rata for part-time workers or for those who have given less than 1 year of service.

• Maternity leave allowances are not aligned to tenure, and for her first 5 children, a woman is afforded 60 consecutive paid days of leave. Fathers are provided with 2 days of paid leave for the birth of each of their first 5 children.
• There are 11 holidays throughout the year, all of which are taken as paid leave.

Social Security

• Malaysia’s Social Security Organization provides insurance protection for injury due to employment.
• Employers make monthly contributions to the Social Security Organization, which administers the program.
• The insurance schemes, known as Employment Injury Insurance Scheme and Invalidity Pension Scheme, cover all Malaysian citizens as well as permanent residents of Malaysia.

Reporting and compliance

• Employers have a responsibility to ensure that their corporate tax return, Social Security Organization and Employees Provident Fund forms are submitted correctly and on time.
• When setting up a new business in Malaysia, the employment of foreign workers, non-residents and secondees is often mistreated by payroll and, therefore, tax may be paid incorrectly. Employers should be vigilant to enter the worker’s details correctly in the first instance to ensure that benefits and tax are paid in-line with their salary and working status.
• The Human Resourced Development (HRD) Levy applies to companies in the Manufacturing, Services, Mining and Quarrying sectors. In return for paying the levy, employers will receive financial assistance for training and development of their local employees. It’s compulsory for employers with 10 or more Malaysian employees to register with the Human Resource Development Fund (HRDF), and optional for employers with 5 to 9 Malaysian employees.

Quirks of payroll in Malaysia to take note of

Employees working in the private sector will have contributions made by their employer to their retirement plan, which is known as Employees Provident Fund. A minimum of 12% of the employee’s salary must be contributed to the fund by the employer, with a portion of the money becoming available to workers from the age of 50. Full access to the account is granted to the worker when they reach 55. Workers who become temporarily or permanently disabled are also eligible for access to the funds.

In Malaysia, a standard working week is 48 hours, which is split across 6 days of the week (Monday to Saturday). Employees must not work for more than 8 hours a day and working hours exceeding this range will be considered overtime and will attract a higher rate of pay.

On 1^st February 2020, the Minimum Wages Order 2020 came into effect. The changes were made to increase the minimum wage for employees working in the country’s 56 city and municipal council areas as a way of addressing the high cost of living in these locations. Since the changes were made, the minimum monthly wage is RM1,200.00, with the minimum hourly wage being RM5.77. Minimum wage rates also depend on the number of days worked in a week.

Those working outside the 56 city and municipal council areas must now earn a minimum monthly wage of RM1,100 and a minimum hourly wage of RM5.29.

People who are not employed by the month, day or hour are also entitled to minimum wage rates, including those who earn based on trip, commission, task or similar.

Section 34 of the Employment Act 1955 prevents women in Malaysia from working between 10 p.m and 5 a.m. These are considered to be protection provisions for women and apply to those working in the industrial or agricultural sectors. It also prevents an employer from requiring their female workers to commence work for the day without having rested for 11 consecutive hours from such work.

Of course, these are just the basics of payroll compliance in Malaysia. As with any country’s payroll, there are a lot more complexities you’ll need to be across.

To ensure you’re fully compliant, team up with a seasoned payroll partner like Ascender. We have local experts in Malaysia who can guide you through the process and ensure you’re up-to-date with changing legislation. Get in touch to find out more.