Payroll Compliance in Malaysia: Key Responsibilities Every Employer Must Know
Payroll compliance is one of the most important responsibilities for Malaysian employers. Proper payroll management ensures employees are paid accurately and all statutory obligations are fulfilled. Failure to comply can lead to penalties, audits, or delays in company processes. This article outlines the essential payroll compliance requirements that every employer should understand, especially SMEs.
1. Understanding Statutory Contributions in Malaysia
Every employer must ensure mandatory deductions and contributions are made correctly each month. These include:
Employees Provident Fund (EPF)
A retirement savings scheme requiring:
Monthly employer and employee contributions
Contribution rates based on the latest EPF table
Payment deadline: Before the 15th of the following month
SOCSO (PERKESO)
Provides protection for employees under two major schemes:
Employment Injury Scheme
Invalidity Scheme
Contributions are based on salary category and must be paid by the 15th of the following month.
Employment Insurance System (EIS)
Supports employees who lose their jobs.
Both employer and employee contribute monthly according to the EIS table.
2. Monthly Tax Deduction (PCB/MTD)
Employers are required to deduct Monthly Tax Deduction (MTD or PCB) from employees’ salaries according to LHDN guidelines.
Key requirements:
Use the correct PCB schedule or automated payroll system
Include additional benefits such as allowances, bonuses, and commissions
Submit deductions by the 15th of the following month
Prepare EA Forms for employees by end of February each year
Accurate PCB ensures employees’ annual tax filings are smooth and error-free.
3. Payroll Recordkeeping Requirements
To comply with Malaysian labour and tax regulations, employers must maintain:
Employee profiles and employment contracts
Monthly salary records
Overtime and allowance calculations
Statutory deduction reports
Payslips (digital or printed)
Annual EA Forms
Attendance or timesheet records
These records must be kept for at least seven years for audit and inspection purposes.
4. Common Payroll Mistakes Employers Must Avoid
Many SMEs run into payroll issues due to lack of proper systems or manual errors. Some of the most common mistakes include:
Incorrect EPF or SOCSO contribution rates
Missing PCB deductions for allowances or bonuses
Late payment of statutory contributions
Not updating salary changes or employee status
Issuing payslips with incomplete details
Misclassifying employees and contract workers
Using an updated payroll system or outsourcing payroll can significantly reduce these risks.
5. Payroll Responsibilities During Employee Resignation
When an employee resigns, employers must follow specific payroll steps:
Final salary calculation including leave balance, overtime, or claims
Immediate update of EPF, SOCSO, and EIS status
PCB updates based on the final salary
Issuance of EA Form at year-end
Notification to statutory bodies if required
Proper exit payroll ensures compliance and avoids disputes.
Managing payroll compliance is essential to protect both the business and its employees. With clear processes and accurate reporting, employers can avoid penalties and maintain strong internal controls. At Sern Yii, we assist Malaysian SMEs with complete payroll management, statutory submissions, and accurate monthly reporting. Contact us today to keep your payroll compliant, organised, and worry-free.