The most frequent payroll compliance traps in Malaysia include wrong tax computations outdated knowledge of regulations incomplete employees files wrong classification of staff, mistakes in overtime calculations untrained payroll teams, and poor employee communication. Companies can steer clear of these problems by using payroll software that follows the rules staying up-to-date on regulations, keeping full records, automating attendance tracking, training their teams, and giving employees clear access to their pay information through self-service platforms.
Payroll compliance in Malaysia grows more intricate each year as tax rules statutory contribution rates, and labor laws keep changing. Many SMEs don’t notice payroll problems until they face financial penalties, employee disputes, or audit findings. Even minor errors—like wrong overtime calculations or missing employee papers—can lead to compliance issues.
This guide outlines the most frequent payroll mistakes Malaysian companies make and offers concrete ways to avoid them as we enter the tougher enforcement period of 2025–2026.
1. Wrong Tax Calculations
A lot of companies still work out EPF, SOCSO, EIS, PCB, and Zakat deductions manually. Even small errors in these required calculations can result in big fines late payment penalties, or adjustments that go back in time.
Why this happens: Mistakes in manual entry, out-of-date contribution rates, and spotty attendance records often cause wrong calculations.
How to Avoid It:
- Pick payroll software that keeps EPF, SOCSO, EIS, PCB, Zakat and Minimum Wage changes up to date on its own.
- Make sure attendance data in real time links straight to payroll calculations.
- Do checks each month to make sure all calculations match what LHDN, KWSP, and PERKESO ask for.
Read More:- Navigating EPF, SOCSO, and EIS Compliance With Payroll Software
2. Not Staying Current with Regulatory Changes
Malaysia often updates its payroll rules, including:
- New PCB tax tables
- Changes to Employment Act coverage (starting 2023)
- New SOCSO & EIS contribution rules
- Adjustments to minimum wage
- Guidelines for classifying allowances
- Links for new e-invoicing payroll reports (2025)
Even if your calculations look right, you might break the rules if you miss these updates.
How to Avoid This:
- Sign up for updates from LHDN, KWSP, SOCSO, EIS, and MOHR.
- Pick a payroll service like Info-Tech that keeps rules up-to-date on its own.
- Check compliance every three months with HR or Finance.
3. Incomplete Employee Records
Bad record-keeping is one of the riskiest compliance problems. If TIN numbers are missing, bank info is old, permits have expired, job titles are wrong, or contracts are missing, payroll can get messed up.
Records that often go missing:
- Employee ID & TIN number
- SOCSO classification codes
- Employment contracts with signatures
- Structures for allowances & benefits
- PCB forms from past jobs
- Work permit info for employees from other countries
How to Steer Clear of This:
- Digitize and store all employee files in a central location.
- Pick HRMS software that allows document uploads and checks.
- Check HR files every three months to make sure they’re complete.
4. Wrong Employee Classifications
How you class employees affects their EPF eligibility extra pay, PCB cuts, and perks. Many small businesses make these mistakes:
- Calling part-timers full-timers
- Treating contract employees like freelancers
- Putting foreign employees in the wrong SOCSO group
- Labeling interns as casual employees
This can lead to paying too much or too little.
How to Steer Clear:
- Stick to the Employment Act rules for job types.
- Look over classifications each time contracts change.
- Use payroll systems that handle employee group rules on their own.
5. Ignoring Rules for Overtime & Work Hours
Malaysia’s Employment Act has strict overtime rules. Breaking these often causes problems with employees.
Common overtime mistakes are:
- Wrong overtime hours from paper timesheets
- Wrong calculation for holiday & rest day pay
- Not tracking work done after hours
- Missing travel time or home-work hours
- Forgetting night or shift extra pay
How to Fix It:
- Link time tracking software to payroll.
- Make sure it auto-calculates:
- Overtime
- Rest Day
- Public Holiday
- Shift extras
- Use GPS or fingerprint check-ins for field teams.
6. Not Enough Training for Payroll Staff
Payroll is getting more technical. Staff who don’t update their knowledge might make mistakes even when using software.
Training gaps include:
- Understanding PCB formulas
- Knowing SOCSO job categories
- Dealing with foreign employee payments
- Rules for monthly pay vs. special pay
- How e-invoicing connects to payroll perks
How to Avoid It:
- Hold yearly payroll compliance training.
- Pick providers like Info-Tech that offer starter and refresher courses.
- Write down step-by-step guides for payroll tasks to keep things consistent.
7. Bad Communication With Employees
When employees can’t make sense of their pay stubs or deductions, arguments start. A lack of openness creates distrust needless questions, and extra work for HR.
Common gripes from employees:
- Allowances not showing up
- Incorrect overtime
- PCB cuts that look too big
- Spotty attendance logs
- Hard-to-follow bonus calculation
How to Steer Clear:
- Give employees clear rules about pay.
- Set up self-help sites for staff to check:
- Pay stubs
- Overtime reports
- Tax papers
- Time off & attendance info
- Keep staff in the loop on pay changes (like new tax charts).
The Growing Weight of Payroll Rules in 2025–2026
The Malaysian government is tightening its grip on digital compliance in HR and finance. This means:
- Tougher EPF, SOCSO, EIS audits
- Closer monitoring of PCB deductions through TIN
- E-invoicing enabling LHDN to double-check pay
- Digital payroll systems becoming standard, not a choice
Companies still doing payroll manually will run a higher risk of breaking rules.
How Info-Tech Helps Companies Follow All the Rules
Info-Tech’s payroll software is made for Malaysian laws and helps you steer clear of every trap mentioned above by:
- Statutory formulas that update
- Integration that works with attendance & HRMS
- Employee records in digital form
- OT calculations that are precise
- Trails for payroll audits
- App for employees to use on their phones
- Help with local rules
- Ability to handle multiple branches and shifts
Info-Tech makes sure your payroll is correct, clear, and worry-free, no matter if you have 10 or 2,000 employees. Explore How Info-Tech’s Payroll Software Ensures Accuracy, Compliance, and Efficiency For Your Business.
Contact Us For a FREE Demo!!
Frequently Asked Questions:
What payroll rule do companies in Malaysia often struggle to follow?
Wrong EPF, SOCSO, EIS, and PCB deductions top the list of common problems. This often happens when people do calculation manually or use old formulas.
Can payroll software stop compliance mistakes?
Yes. Good payroll software does tax calclation for you, updates rules, and stops typing errors.
How often should payroll employees learn new things?
Once a year at least—or more when big law changes happen.
What if my business labels employees wrong?
You might get fined, have to pay back dues, and face upset employees.
Do I need digital attendance for compliance?
The law doesn’t say you must, but it’s a smart move. Correct attendance logs help get payroll right.