Payroll in Malaysia

Mercans stands as your trusted ally and premier payroll provider in Malaysia, offering superior payroll solutions (Managed & SaaS). Our steadfast dedication to delivering exceptional payroll services in Malaysia remains unmatched. Drawing from extensive experience in the payroll sector, Mercans ensures precise and compliant payroll processing, making us the preferred partner for businesses across the spectrum. Rely on Mercans as your dedicated local payroll company in Malaysia for punctual and accurate payroll management, including the convenience of multi-currency transactions within the Malaysian market. We provide a team of seasoned payroll experts well-versed in local regulations, offering comprehensive assistance for a seamless and customized payroll experience tailored to your specific business requirements.

Everything you need to know before running payroll in Malaysia

Working Hours

In Malaysia, the standard working week consists of 48 hours (8 hours per day), typically from Monday to Saturday. Any work beyond this duration qualifies as overtime and entails an additional premium.

Basic Facts

• Official State Name: Malaysia
• Population: 32.77 Million (32,772,100)
• Capital: Kuala Lumpur
• Major Languages: Malay
• Currency: Malaysian Ringgit (MYR)
• Main Industries: While the economy has historically relied on natural resources, it is diversifying into sectors such as science, tourism, commerce, and medical tourism.
• GDP Growth: 6.5%
• Internet Domain: .my
• International Dialing Code: +60
• Dates & Numbers: Dates are typically expressed in the day, month, and year format, e.g., 1 July 2020 or 1/7/20.

Working Conditions and Wages

The Malaysian Investment Development Authority (MIDA) offers a comprehensive guide on the Cost of Doing Business in Malaysia, available at www.mida.gov.my. This guide covers regulatory requirements concerning:

• Paid leave (including annual, maternity, and sick leave)
• Paid holidays
• Normal working hours (not exceeding 8 hours per day or 48 hours per week)
• Payment for overtime
• Salary ranges (both maximum and minimum) for executives and non-executives in the manufacturing sector
• Statutory contributions for employees to various funds.

Overtime

For employees receiving monthly wages, the entitlements for overtime under the Employment Act are outlined as follows:

• Working beyond the regular hours on a typical workday: 1.5 times the hourly rate of pay.
• Rest day (following regular working hours):
  • If the work doesn’t exceed half of the normal hours: 1 day’s wages at the regular rate.
  • If the work surpasses half but doesn’t exceed the normal hours: 2 days’ wages at the regular rate.
• Rest day (working beyond regular working hours): 2 times the hourly rate of pay.
• Public Holiday (following regular working hours): 1 additional day’s wages at the regular rate.
• Public holiday (exceeding regular working hours): 3 times the hourly rate of pay.

*Note: The “ordinary rate of pay” refers to the employee’s “daily” wage, calculated by dividing the monthly salary by 26.

The “hourly rate of pay” is derived by dividing the ordinary rate of pay by the normal hours of work.

Minimum Wages

Starting from July 1, 2023, the minimum wage for micro-enterprises in Malaysia has been enforced after being postponed since 2022.

In May 2022, Malaysia raised the national minimum wage by 25 percent, elevating it from 1,200 ringgit (US$265) to 1,500 ringgit (US$331). However, micro-enterprises, defined as businesses with five employees or fewer, were granted an extension until January 2023 to adopt the new rates. This extension was further prolonged to July 2023 to allow businesses ample time for preparation.

The updated minimum wage for employees in city council or municipal council areas is as follows:

• 57.69 ringgit (US$12.74) per day for those working six days per week;
• 69.23 ringgit (US$15.29) per day for those working five days per week; and
• 86.54 ringgit (US$19.11) per day for those working four days per week.

Micro-enterprises play a significant role in Malaysia’s economy, contributing approximately 40 percent to the GDP and employing two-thirds of the total workforce

13th Month Salary

In Malaysia, there is no legal requirement for a 13th month pay. However, it is a common practice for employers to offer a 13th month pay at the conclusion of the year.

Payroll Cycle

In Malaysia, payroll is distributed on a monthly basis, typically within the initial seven days of the subsequent month.

Company Formation in Malaysia

Entity Registration & Incorporation Requirements

To register as a sole proprietorship or partnership in Malaysia, individuals must be citizens or permanent residents aged 18 and above. The registered business must operate within the bounds of the law, avoiding any activities that contravene national security or moral standards. The available types of business registrations include:

• Business – EzBiz
• Cooperative – SKM Online
• Company – MyCOID
• Limited Liability Partnership – MyLLP

Business Registration Details

The term “business” encompasses all forms of trade, occupation, profession, or other activities conducted for profit, excluding employment, charitable endeavors, or activities specified in the Schedule under the Registration of Business Act 1956 & Registration of Business Rules 1957.

There are two types of business structures:

• Single Business: Solely owned by one individual.
• Business Partnership: Jointly owned by at least two and no more than twenty partners.

Sole Business & Partnership Registration

• Business owners or designated representatives must register the business (sole proprietorship/partnership) within 30 days of its commencement.
• Registration can be done in person at any SSM counter or online via the Ezbiz Online service at ezbiz.ssm.com.my.

Businesses can be registered under their owner’s name or under a trade name:

• Owner’s name: Businesses using the owner’s name as per their identity cards do not require name approval.

• Trade name: Businesses using commercial names need name approval.

For more information, visit the Companies Commission of Malaysia (SSM) website. Online applications are available through Ezbiz Online.

Company Registration

Company Types

• Company limited by shares
• Company limited by guarantee
• Unlimited company

Company Requirements

• The company must have a name.
• It must have one or more members.
• In the case of a company with shares, it must have one or more shares.
• It must have one or more directors.

Establishment Requirements for Companies

To establish a company under the Companies Act 2016, an individual intending to form a company must meet the following basic requirements:

• Private company: At least one director residing primarily in Malaysia and one member of the company (shareholder).
• Public company: At least two directors residing primarily in Malaysia and one member of the company (shareholders).

Please refer to the Companies Commission of Malaysia (SSM) website for details on incorporation fees and procedures. Online applications can be submitted through MyCOID.

Limited Liability Partnership (LLP)

The LLP is a business structure regulated under the Limited Liability Partnership Act 2012, combining characteristics of a company and a conventional partnership. LLPs are designed for legitimate business purposes aimed at profit generation. They can be established by professionals such as lawyers, accountants, and company secretaries for practicing their respective professions. The LLP structure provides limited liability protection to partners, similar to shareholders in a company, and offers flexibility in setting up, operating, and terminating the partnership.

Registration Process for LLPs

• At least two persons (individuals or corporations) are required.
• The LLP must engage in lawful business activities aimed at profit generation.
• The LLP agreement must be in accordance with the terms agreed upon.

Visit the Companies Commission of Malaysia (SSM) website for details on LLP registration. Online applications are available through MyLLP.

Cooperative Establishment

Cooperatives aim to enhance the economic significance of their members in line with cooperative principles. Groups intending to establish cooperatives should first contact the Suruhanjaya Koperasi Malaysia (SKM) in their respective areas for information and advice on the establishment and registration process.

Steps to Establish a Cooperative

Before applying for cooperative registration, the following steps must be taken:

• Contact the SKM office.
• Submit the application to establish a cooperative to the state through the SKM district office.
• Form a committee of sponsors comprising at least ten individuals upon approval from the State Director of SKM.

Closing Business/Winding Up Company & LLP

Business Termination

• If a registered business ceases operations, the person in charge must inform the Registrar within 30 days using Form C.
• A business may be terminated for various reasons, including cessation of business operations, owner’s death, court order, or bankruptcy.

Visit the Companies Commission of Malaysia (SSM) portal for further details.

Winding Up

Winding up a company involves terminating its existence, collecting assets, and using them to settle debts and liabilities. Any remaining balance after settling debts is distributed among shareholders and contributors.

Two methods of winding up a company exist:

• Voluntary winding up.
• Winding up by court order.

Visit the Official Website of Suruhanjaya Syarikat Malaysia (SSM) for additional information.

Winding Up of Limited Liability Partnerships (LLP)

LLPs can be wound up by:

• One of the partners registered as a user or professional user.
• A compliance officer who is one of the partners.
• Winding up by court order.

For more information, visit the SSM Official Portal.

Payroll Compliance in Malaysia

Statutory Filings and Contributions

In Malaysia, employers are obligated to submit the following statutory filings. Mercans assists you in completing the necessary filings as per the Malaysian local laws.

Government Requirements

• Registration Requirements; Businesses operating in Malaysia must adhere to various registration requirements with statutory bodies:
• Employees Provident Fund (EPF): Employers must register with the EPF Board within seven days of hiring their first employee. This registration involves completing Form KWSP1 and submitting it with supporting documents.
• Social Security Organisation (SOCSO): Employers and employees must register with SOCSO within 30 days of the Employee Social Security Act becoming applicable. Registration is done via Form 1 for employers and Form 2 for employees, along with supporting documents.
• Malaysian Inland Revenue Board (MIRB): All employers must register with MIRB to obtain an employer tax reference number. This registration requires completion of Form 600E and submission of supporting documents.
• Employment Insurance System (EIS): Implemented by SOCSO, the EIS provides financial assistance to retrenched employees. Contributions are collected monthly to fund this scheme.
• Human Resources Development Fund (HRDF): The HRDF promotes training and development of employees across all industries. Levies are imposed to support this initiative.

Ongoing Compliance Requirements

• Contributions to EPF: Employers and employees must make monthly contributions to the EPF, with the contribution rate varying based on the employee’s monthly wages.
• Contributions to SOCSO: Contributions to SOCSO are compulsory for Malaysian citizens, with rates specified based on various criteria.
• Employee’s Monthly Tax Deductions to MIRB: Employers are responsible for deducting Monthly Tax deductions from employees’ remuneration each month and remitting them to MIRB.
• Contributions to EIS: Employers and employees make contributions to the EIS based on the employee’s monthly salary.
• Contributions to HRDF: Employers with Malaysian employees are required to register with HRDF and make monthly levies based on the number of employees.

Payroll Requirements

• Payroll Payment and Pay Slip: Employers must provide employees with details of their wages, contributions, and deductions through pay slips, either electronically or in hard copy. Payment must be made by the seventh day of the following month.
• Banking Requirements Related to Payroll Employee wages can be disbursed through cash, check, or electronic funds transfer (EFT).

Payroll Taxes in Malaysia

Statutory Contributions

Statutory Contributions under the Employees Provident Fund (EPF) Act 1991 Effective 1 January 2020:

For Employees Below 60 Years Old (as of 28 February 2020):

• Monthly wages of RM5,000 (US$1,150) and below: Statutory rate of 13% of the employees’ monthly wages
• Monthly wages exceed RM5,000 (US$1,150): Statutory rate of 12% of the employees’ monthly wages

For Employees Aged 60-75 Years:

Malaysian Citizens

• Employers: Statutory rate of 4% of the employers monthly wages
• Employees: Statutory rate of 0% of the employees’ monthly wages

Permanent Residents

• Monthly wages of RM5,000 (US$1,150) and below: Statutory rate of 6.5% of the employees’ monthly wages
• Monthly wages exceed RM5,000 (US$1,150): Statutory rate of 6% of the employees’ monthly wages
• Employees: Statutory rate of 5.5% of the employees’ monthly wages

All foreign workers and expatriates and their employers are exempted from statutory contributions. However, they can choose to contribute at the following rates:

For Employees Below 60 Years Old

• Employer’s share: RM5.00 (US$1.15) per employee per month
• Employee’s share: 11% of the employees’ monthly wages

For Employees Aged 60-75 Years

• Employer’s share: RM5.00 (US$1.15) per employee per month
• Employee’s share: 5.5% of the employees’ monthly wages

Source: Employees Provident Fund – www.kwsp.gov.my

Social Security Organisation (SOCSO)

The Social Security Organisation (SOCSO) administers two social security schemes:

• Employment Injury Insurance Scheme: Provides protection to employees against work-related accidents or occupational diseases, offering various benefits such as Medical Benefit, Temporary Disablement Benefit, Permanent Disablement Benefit, etc.
• Invalidity Scheme: Provides coverage against invalidity or death not connected with employment, offering benefits like Invalidity Pension, Survivors’ Pension, Funeral Benefit, etc.

Contributions to SOCSO are compulsory for eligible employers and employees, classified into two categories:

• First Category: Contributions made by both employers and employees for Employment Injury Insurance Scheme and Invalidity Pension Scheme.
• Second Category: Contribution payable by the employer for the Employment Injury Insurance Scheme only.

Employees exempted from coverage include Federal and State Government permanent employees, domestic servants, and self-employed individuals.

Additionally, the Self-Employment Social Security Act 2017 provides protection to self-employed taxi drivers and similar service providers, while the Employment Insurance System Act 2017 offers financial assistance to insured workers who lose their jobs.

SOCSO has extended coverage to spouses working together and legal foreign workers in Malaysia, providing protection against employment injuries. The Return to Work Programme (RTW) and SOCSO Tun Razak Rehabilitation Centre (TRRC) support the rehabilitation of injured or sick workers, helping them reintegrate into the workforce.

Personal Income Tax

Income tax is levied on income earned in or derived from Malaysia by any individual. Gains or profits from employment, profession, or vocation are taxable if obtained in Malaysia. Employment income is considered derived from Malaysia if the work is performed there and is subject to Malaysian taxation, even if paid abroad. Capital gains are generally not taxed except for those from the sale of real property or shares in a real property company.

• Present in Malaysia for at least 182 days in a calendar year.
• In Malaysia for less than 182 days during the year but connected to a period of 182 or more consecutive days in the preceding or following year.
• In Malaysia for 90 days or more during the year and, in any 3 of the 4 immediately preceding years, was in Malaysia for at least 90 days or was a resident.
• A resident for the year following and each of the 3 preceding years.

Employee Benefits in Malaysia

Mandatory and supplementary employee benefits in Malaysia encompass a range of schemes and provisions designed to safeguard and enhance the well-being of workers. These benefits can be broadly categorized into mandatory and supplementary components.

Mandatory Benefits:

• Social Security Organization (SOCSO):
  • Also known as PERKESO, SOCSO is a crucial social insurance scheme providing coverage for work-related injuries, disabilities, and death.
• Employment Insurance System (EIS):
  • EIS is a vital social security program offering coverage for retrenched workers, ensuring financial support during periods of job loss.
• Employees Provident Fund (EPF):
  • Established by the Malaysian government, EPF manages a compulsory savings plan and retirement fund for private sector workers, facilitating long-term financial security.

Supplementary Benefits

In addition to mandatory benefits, employers often provide supplementary benefits to enhance the overall compensation package. Common supplementary benefits in Malaysia include:

• Inpatient Benefit:
  • Offering coverage for hospitalization expenses, including dependent cover, with employee coverage extending up to the age of 70 and child coverage up to 23 for those pursuing full-time education.
• Outpatient Benefit:
  • Basic medical insurance covering general practitioner and specialist consultations for employees.
• Life & Permanent Disability Insurance:
  • Providing a lump-sum payment to beneficiaries in the event of the employee’s death or permanent disability, typically based on a fixed sum assured or multiples of salary.
• Critical Illness Insurance:
  • Offering a lump-sum payment upon diagnosis of covered critical illnesses, providing financial support during challenging times.
• Personal Accident Insurance:
  • Providing a lump-sum payment in case of death or permanent disability due to accidental causes, with coverage options based on fixed sum assured or multiples of salary.
• Dental/Optical/Maternity Benefits:
  • Comprehensive coverage for routine and major dental procedures, optical expenses, and maternity-related medical care.

Wider Benefits Provision (Perks)

In addition to tangible benefits, employers in Malaysia may offer various perks to enhance employee satisfaction and well-being. These include:

• Company Cars: Typically offered to top management as a perk.
• Training & Development: Access to on-the-job training, workshops, or certification programs.
• Retirement Benefits: Additional retirement provisions, such as pension plans or retirement savings.
• Wellness Programs: Health screening initiatives to promote employee well-being.
• Flexible Benefits: Employee-selected benefits from a menu, often tax-efficient and managed through specialized portals.
• Employee Assistance Program (EAP): Counseling and support services for personal and work-related issues.
• Childcare Subsidies: Financial assistance for working parents to cover childcare expenses.
• Mobile Phones: Allocation of mobile phones to staff, especially those in client-facing roles.
• Flexible Working Arrangements: Policies supporting hybrid work models post-pandemic, offering autonomy and productivity.

Leave Benefits in Malaysia

Employment law in Malaysia predominantly operates under the Employment Act of 1955 (“Employment Act”), which outlines the basic entitlements provided to eligible employees. It’s essential to note that while the Employment Act sets minimum standards, not all employees fall under its jurisdiction. Those covered by the Employment Act, termed EA Employees, include:

• Individuals earning a monthly salary below RM2,000
• Manual laborers, regardless of salary
• Employees involved in operating or maintaining motor vehicles
• Supervisory roles overseeing manual laborers
• Those engaged in maritime activities, subject to specific conditions

Annual Leave

According to the Employment Act, minimum annual leave entitlements are as follows, based on length of service:

• Less than 2 years: 8 days
• 2 years or more, but less than 5 years: 12 days
• More than 5 years: 16 days

Pro-rated annual leave is applicable if an employee has worked for less than a full year in a given calendar year.

Sick Leave

Under the Employment Act, sick leave entitlements are outlined based on length of service:

• Less than 2 years: 14 days
• 2 years or more, but less than 5 years: 18 days
• More than 5 years: 22 days

For hospitalization needs, EA employees are entitled to 60 days of hospitalization leave per year, with a total cap of 60 days for both sick and hospitalization leave annually.

Maternity Leave

All female employees, including Non-EA Employees, are entitled to 60 consecutive days of paid maternity leave for each of their first five children. Employers must provide maternity allowance, equivalent to the employee’s salary for the duration of the 60 consecutive days, provided the employee meets certain criteria regarding employment tenure and proximity to childbirth.

Starters / New Employees

Onboarding new employees involves registering them with relevant authorities such as SOCSO, EPF, and EIS. Required documents for registration typically include:

• Employee’s name
• National Registration Identity Card Number
• Occupation
• Contribution details
• Monthly wages
• Allowances

Additionally, documents required for registration with LHDNM may include a copy of the latest Salary Statement (EA/EC) or Salary Slip, identification documents, and a marriage certificate if applicable.

Benefits of Payroll Outsourcing in Malaysia

• Compliance with Complex Regulations: Outsourcing payroll services in Malaysia guarantees meticulous adherence to intricate labor laws and regulations. Seasoned professionals adeptly navigate these complexities, minimizing the risk of errors or penalties due to non-compliance, providing peace of mind for businesses.

• Scalability and Flexibility: Payroll outsourcing offers unparalleled scalability and flexibility to meet the evolving needs of businesses. Whether expanding its workforce or adapting to changes in employment regulations, outsourcing providers seamlessly adjust their services to meet these demands.
• Access to Advanced Technologies and Expertise: By leveraging cutting-edge software solutions, outsourcing providers streamline processes, enhance data security, and improve efficiency in payroll management. Additionally, professionals possess extensive knowledge of tax regulations, deductions, and reporting requirements, ensuring accurate and timely processing.
• Cost Savings and Competitive Pricing: Outsourcing payroll leads to significant cost savings by eliminating the need to hire and train in-house staff. Furthermore, providers often offer competitive pricing models tailored to the specific needs of businesses, optimizing cost-effectiveness while maintaining quality service.
• Supporting Business Growth: Overall, outsourcing payroll services in Malaysia enables businesses to focus on core objectives while benefiting from accurate, compliant, and cost-effective management. With specialized expertise, advanced technologies, and scalability, providers play a crucial role in supporting the growth and success of businesses.
• High Safety Standards: Incorporating industry-leading security measures to safeguard sensitive data, along with ISO 27001 and ISAE3402 certifications, ensures stringent adherence to information security protocols.
• Adequate and Sustainable Performance: Ensuring consistent and sustainable performance that meets the dynamic demands of payroll services.
• Flexibility and Scalability: Offering flexibility and scalability to accommodate evolving client needs and adapt to changing business environments.
• Collaborative Cloud Tool: Utilizing a Cloud-based platform that facilitates collaborative work, promoting efficiency and accessibility across teams. These certifications signify a commitment to the highest standards of information security and operational integrity.

Payroll Solutions in Malaysia

Unlock the potential of seamless payroll processing in Malaysia with Mercans’ Global Payroll Solutions. Our adaptable models guarantee local compliance, facilitate multi-currency transactions, and seamlessly integrate with global Human Capital Management (HCM) and Enterprise Resource Planning (ERP) systems. Ensuring accurate payments has never been easier.

Discover Our Versatile Models:

• Software as a Service (SaaS): Customized for enterprise businesses managing payroll across multiple countries with intricate complexities stemming from diverse data points, locations, currencies, and languages. Our SaaS model optimizes operations for maximum efficiency.
• Managed Services: Tailored for mid-sized and large enterprise businesses, our Managed Services model addresses the needs of those handling multi-country payroll. It delivers on-demand HR expertise, ensuring security, reliability, and compliance at every step.
• Human Resource Management System (HRMS): Ideal for mid to large businesses in expansion mode, our HRMS model provides a comprehensive suite of functionalities, including payroll and benefits. Companies can choose the specific features they require, ensuring a personalized and effective solution.

Streamline Payroll with Mercans’ Technology and Integrations

• Technology; Explore the forefront of innovation with Mercans’ cutting-edge technology that powers our global payroll solutions. Learn more about our technological prowess here
• Integrations: Seamlessly integrate your Human Capital Management (HCM) systems with Mercans’ solutions, enhancing efficiency and connectivity. Discover the power of integration here.
• Recognitions: Join a partner recognized for excellence. Mercans has earned accolades for its commitment to delivering exceptional payroll services. Explore our awards and recognitions here.

Outsource to Payroll Company in Malaysia

In Malaysia’s vibrant and dynamic business landscape, Mercans stands out as the top partner for navigating the intricacies of local operations. Our commitment to 100% compliance with Malaysian regulations, deep understanding of Malaysian labor laws, and extensive range of services make us the perfect ally for businesses aiming to excel in Malaysia. By teaming up with Mercans, businesses can leverage our expertise to guarantee seamless operations, compliance with statutory requirements, and a solid foundation for expansion in this thriving market. With Mercans as your trusted partner, embark on a journey of success and growth in Southeast Asia.