What Is EPF? A Must Know For Employees And Employers In Malaysia

EPF — called Kumpulan Wang Simpanan Pekerja (KWSP) in Malay — stands as a key financial pillar for Malaysians. If you’re an employee looking to secure your financial future or an employer handling payroll rules, knowing how EPF works can stop you from making expensive errors and help you build better money habits.  Most employees think of EPF as just “money taken from their pay,” while companies often see it as a payroll duty. But the EPF system does much more — it aims to guard retirement funds back major life needs, and make sure private businesses follow the rules.  This guide simplifies EPF to help employees and employers understand contributions, withdrawals, and rules. 

EPF: The Basics 

EPF serves as Malaysia’s required retirement savings plan under the EPF Act 1991. It covers all private-sector employees and non-pensionable public-sector employees. Every month, employers and employees pay a portion of the employee’s wages into the fund. The fund then invests this money and earns returns.  EPF savings grow over time. Employees can take out their money when they turn 55 or 60. In some cases, they can also withdraw funds to buy a house, pay for medical care, get an education, or leave Malaysia for good.  In a nutshell, EPF safeguards an employee’s financial future while making sure employers meet their legal payroll duties. 

Why EPF Matters 

EPF stands as one of the strongest retirement safety nets in Malaysia. For many Malaysians, it forms the bulk of their retirement nest egg — and because money goes in, people build wealth without extra work.  EPF is important because: 

• It keeps retirement savings safe and in expert hands. 

• Required monthly payments lead to steady long-term savings. 

• EPF returns help money grow quicker than regular savings accounts. 

• Employees can tap into funds for big life needs like health, housing, and schooling. 

When companies follow EPF rules, they gain employees’ confidence, make fewer mistakes in pay, and avoid fines for late or short payments. 

EPF Contribution Rates: What Employers & Employees Must Know 

EPF contribution rates change based on how much you earn where you’re from, and how old you are. Here’s the basic breakdown: 

Employees Below 60 Years Old 

Category	≤ RM5,000 Salary	> RM5,000 Salary
Malaysians	Employee 11% / Employer 13%	Employee 11% / Employer 12%
PRs & Non-Malaysians (Registered before 1 Aug 1998)	Employee 11% / Employer 13%	Employee 11% / Employer 12%
Non-Malaysians (Registered after 1 Aug 1998)	Employee 2% / Employer 2%	Employee 2% / Employer 2%

Employees Age 60 and Up 

Category	Contribution
Malaysians	Employee 0% / Employer 4%
PRs & Non-Malaysians (Registered before 1 Aug 1998)	Employee 5.5% / Employer 6–6.5%
Non-Malaysians (Registered after 1 Aug 1998)	Employee 2% / Employer 2%

Extra info: 

• Employers must pay until the employee turns 75. 

• The rates come from the Third Schedule of the EPF Act 1991 and are mandatory. 

Many companies now use online payroll systems to make calculations easier and prevent expensive compliance mistakes. Our guide titled How to Automate Payroll Tax, and Invoicing with Just One Software shows how all-in-one HRMS software helps cut down on errors. 

How EPF Savings Are Structured 

EPF contributions fall into three main accounts. Each account has a specific purpose and different rules for withdrawals: 

• Akaun Persaraan (Retirement Account) – About 75% of monthly contributions go here to build savings for retirement in the long run. 

•  Akaun Sejahtera – 15% goes to this account for housing, education, and approved life needs. 

• Akaun Fleksibel – Around 10% stays here for more flexible withdrawals, as per EPF rules. 

When members turn 55, these three accounts combine into Akaun 55 letting members take out funds anytime. New contributions after 55 go into Akaun Emas, which members can withdraw from once they reach 60. 

EPF-Liable Payments 

It doesn’t cover all types of income. It applies to payments that fall under “wages” in the EPF Act.  Payments that EPF covers: 

• Basic wages 

• Bonuses and commissions 

• Incentives 

• Paid leave (sick leave, maternity leave, study leave) 

• Allowances seen as wages 

• Backdated payments 

Payments that EPF might not cover: 

• Overtime 

• Service charges and tips 

• Travel allowances 

• Some reimbursements or benefits in kind 

Companies need to sort wage parts to avoid penalties for underpaying.  

EPF Dividends and Returns 

EPF puts member contributions into approved assets like government bonds, equities, and sukuk. Each year, it announces a dividend rate for: 

• Simpanan Konvensional 

• Simpanan Shariah 

Dividend rates hover around 6%, based on how the market performs. These dividends boost the value of your savings a lot over time. 

Common Myths About EPF 

People often misunderstand how EPF works: 

• “People over 60 don’t contribute.” This isn’t quite right — while employees might stop contributing, companies still put money in based on age and where you live. 

• “You can withdraw EPF anytime for anything.” Taking money out follows tight rules and is allowed for certain reasons. 

• “EPF is just for retirement.” It also helps with housing, education, healthcare, and other key needs. 

For Employers: EPF Compliance & Practical Tips 

EPF compliance isn’t a choice — and you can face big fines for late or wrong payments. Employers must: 

• Take out employee contributions and send them with employer contributions by the 15th of the next month. 

• Stick to the legal rate schedule in the EPF Act, don’t guess or use flat percentages. 

• Give out payslips that show it deductions so employees can check if they’re right. 

• Maintain clear exact payroll records for audits. 

Software that combines payroll tasks like Info-Tech HRMS & Accounting Software does the math for contributions, updates changes right away, and creates payslips that follow the rules. 

How Employees Can Get the Most Out of Their EPF Savings 

Employees can boost their EPF contributions by: 

• Checking statements often through KWSP i-Akaun 

• Keeping an eye on contribution accuracy and dividend earnings 

• Being careful with Akaun Fleksibel to avoid cutting long-term savings 

• Planning withdrawals for education, housing, or medical needs 

• Getting to know dividend patterns for Shariah vs Conventional investments 

It is a long-term asset, and smart management leads to better retirement readiness. 

To Wrap Up 

It isn’t just a required deduction — it’s a well-organized, trustworthy, and government-backed system that safeguards the financial future of millions of Malaysians. For employees, it builds up long-term retirement security. For employers, it’s a must-do task that boosts payroll honesty and employees trust.  Digital tools like Info-Tech HRMS & Accounting Software help businesses automate EPF calculations, create accurate payslips, and follow rules without manual work or guessing. 

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