Calculating payrolls isn’t just about calculating the monthly compensation for employees. It’s also about ensuring these mandatory contributions are included in Malaysian laws. We’ve heard of many cases where employers didn’t contribute to their employees’ EPF, SOCSO, and EIS for payroll compliance. Despite being given the recommended percentage cut for each, they still struggle to make these mandatory contributions and end up paying unnecessary fines or lawsuits.
Learn More: How is Payroll Calculated? Payroll Calculation Formula for Businesses
But what are these contributions that employers need to make?
What is the Employee Provident Fund (EPF)?
The Employees Provident Fund, also known as EPF, is a mandatory savings program overseen by the government that assists workers in securing their financial future. Both employers and employees contribute to the fund monthly.
EPF functions based on a straightforward concept – a percentage of your monthly earnings, typically 11% of your basic salary, is subtracted and placed into an individual EPF account. For employers, the rate is 12-13%. Over time, this sum increases through investments managed by the fund. These savings are intended to offer financial security throughout your retirement. EPF is one of the most important payroll contribution compliance for companies to follow.
What is SOCSO?
SOCSO, also known as the Social Security Organisation, serves as a safety net for Malaysian employees, offering financial aid and assistance to those who experience work-related injuries or illnesses. The primary goal of SOCSO is to provide support for you and your family during challenging circumstances. The deduction for SOCSO is 0.5% for employees and 1.75% for employers.
What is EIS?
The Employment Insurance System (EIS) is a government effort to offer monetary support to unemployed workers. Its goal is to assist individuals during the difficult phase of joblessness by providing short-term financial help. The deduction percentage for EIS is 0.2% for both employees and employers.
What Are The Consequences For Non-Compliance?
Compliance to EPF payroll contribution is mandatory for every company, whether they are small or big. Penalties and punishments are dependent on how late employers make their EPF payments to their employees or the severity of the offence.
Employers who fail to make contributions for their employees by the 15th of the month will face a 3-year jail term, a fine not exceeding RM10,000 or both.
However, if the employer deducts contributions from your salary but does not contribute to the scheme itself, they will face severe punishments. These include a 6-year jail term, a fine not exceeding RM20,000, or both.
Meanwhile, for bigger companies, the penalties and punishments are severe. In accordance with Section 46 of the Employee Provident Fund 1991 act, if the company director, partners or association fails to pay any outstanding EPF contributions to their employees, they are at risk of facing court action including:
- Bankruptcy
- Seizure of Assets
- Retention of Passports
Automate Payrolls To Avoid These Offences
Complying with these contributions is a huge responsibility for companies. They may seem insignificant, but no one wants to be known as irresponsible to the public. But keeping up may be difficult, especially for smaller companies and startups, with all the calculations for three different contributions. It doesn’t have to be—with Info-Tech’s payroll software.
Info-Tech’s payroll software helps with keeping track of every form of compensation for employees. This not only includes EPF, SOCSO and EIS contributions, but also the monthly income tax (MTD/PCB) deductions.
The deductions are automatically adjusted within the software whenever employers change employees’ monthly compensation, especially when bonuses, claims, and allowances are included. With software, Human Resources can focus on more important matters since monthly compensations are automated.
The best part of Info-Tech’s payroll software? You can automatically send digital payslips to employees’ mobile attendance app and allow them to download their payslips whenever they want. Employers can also view these documents on the website with ease. This includes significant paperwork, and you no longer have to worry about losing employees’ payslips.
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