How Is Payroll Calculated? Payroll Calculation Formula For Businesses

Introduction: The Importance of Getting Payroll Right 

Payroll isn’t just something you do every month — it’s one of the most important jobs in any company. Whether you run a small business or a big corporation, correct payroll calculations help to: 

• Keeping employees happy and trusting by paying them and on time 

• Following the rules set by LHDN, EPF, SOCSO, and EIS 

• Clear view of finances for planning, checks, and getting ready for online billing 

Just one slip-up in payroll can lead to short pay, penalties, or employees losing faith. That’s why it’s key to understand how Malaysia figures out payroll — as computers take over more tasks and new rules come into play in 2025. 

What Makes Up Payroll Calculations? 

Figuring out payroll in Malaysia isn’t just about base pay. You need to handle government payments extra pay, and take-aways — all based on local work laws. 

Parts of Payroll: 

1. Basic Salary 

2. Fixed Allowances (like transport, meal, housing) 

3. Variable Pay (such as commission, overtime, bonuses) 

4. Deductions (EPF, SOCSO, EIS, PCB, unpaid leave) 

5. Net Pay (after all statutory and non-statutory deductions) 

Payroll Calculation Process: Step-by-Step 

1. Pick the Pay Period 

Choose if you’ll pay employees, every two weeks, or weekly. Most companies in Malaysia use a monthly cycle. They pay by the 7th of the next month, as the Employment Act 1955 requires. 

 2. Gather Employee Information 

Before you work out payroll, get these details: 

• Employee name, job title, and first day 

• Job type (full-time, contract, part-time) 

• Pay structure and extras 

• Bank info 

• EPF, SOCSO, EIS group 

• PCB/MTD (Monthly Tax Deduction) tax number 

A digital HR system keeps all this info correct and fresh. 

 3. Add Attendance & Time Off Data 

Correct pay depends a lot on attendance and time off records. You need: 

• Days at work 

• Okay’d paid/unpaid time off 

• Extra hours 

• No-shows or late arrivals 

Up-to-date payroll programs (like Info-Tech HRMS) combine attendance records straight into payroll cutting out manual mistakes. 

4. Calculate Gross Pay 

Formula: 

Gross Pay = Basic Salary + Allowances + Overtime + Bonuses 

For monthly-salaried employees: 

Gross Pay = (Yearly Salary ÷ 12) 

For employees paid by hour or day: 

Gross Pay = Hourly Rate × Hours Worked  

OR 

 Daily Rate × Days Worked 

5. Apply Statutory Deductions 

All Malaysian employers must take out and put money into these required funds: 

Deduction Type	Employee Contribution (2025)	Employer Contribution (2025)	Purpose
EPF (KWSP)	11% of salary (or 9% optional for employees under age 60)	13% (or 12% if salary > RM5,000)	Retirement savings
SOCSO	0.5% (Employment Injury Scheme)	1.75%	Social protection
EIS (PERKESO)	0.2%	0.2%	Job loss insurance
PCB/MTD (Tax)	Based on LHDN schedule	N/A	Monthly income tax deduction

Check the latest LHDN EPF, and SOCSO tables to get updated contribution rates. 

Tip: Info-Tech’s payroll system syncs new EPF/SOCSO/PCB rates when authorities update them. 

6. Calculate Net Pay 

After applying all deductions, figure out the take-home pay: 

Formula: 

Net Pay = Gross Pay – (EPF + SOCSO + EIS + PCB + Other Deductions) 

Example (Monthly Employee): 

Component	Amount (RM)
Basic Salary	4,000
Allowances	500
Overtime	200
Gross Pay	4,700
EPF (11%)	-517
SOCSO	-23
EIS	-9
PCB	-50
Net Pay	4,101

7. Create Payslips & Reports 

Payslips need to include: 

• Gross & net salary 

• Statutory deductions 

• Breakdown of allowances 

• Company name and employee details 

Payslips serve as legal proof of employment and help employees handle tax returns, apply for loans, or reconcile EA forms. 

Up-to-date payroll systems can send payslips to employees by email or keep them safe in employee self-service portals. 

Summary of Payroll Calculation Formula 

Step	Formula
Gross Pay	Basic + Allowances + Overtime + Bonus
Total Deductions	EPF + SOCSO + EIS + PCB + Others
Net Pay	Gross Pay – Total Deductions

Ways to Calculate Payroll 

1. Manual Calculation 

• Works well for tiny businesses 

• Mistakes happen often takes a lot of time, might not follow rules 

2. Using Excel for Payroll

• Less work than doing it by hand, but you still have to update things yourself  

• People can steal data, math can go wrong, and files can get mixed up 

3. Online Payroll Programs (Best Choice)

• Does EPF/SOCSO/EIS/PCB math for you 

• Makes pay slips & EA forms right away 

• Works with attendance, time off & online bills 

• Cuts down on mistakes & problems during checks 

Info-Tech’s cloud payroll system updates contribution tables and combines attendance, leave, and HR data to process payroll with one click. 

The Importance of Payroll Automation in 2025 

The launch of LHDN e-Invoicing (required by January 2026) and new PCB filing integrations make automation essential. Cloud payroll software makes sure your employee payments and statutory filings meet digital compliance standards — without any hassle. 

Automation Advantages: 

• No calculation mistakes 

• created statutory files (EPF, SOCSO, EIS, PCB) 

• Cloud storage to simplify audits 

• Quicker salary processing 

• Links to e-Invoicing workflows 

Closing Thoughts 

Calculating payroll forms the foundation of employee confidence and financial health. When you grasp the payroll equation, deduction framework, and software for automation, your company can remain compliant, mistake-free, and productive. 

With Info-Tech’s Payroll Software, employers in Malaysia can run payroll, follow LHDN and EPF rules, and avoid costly errors. 

Make Your Payroll Simple Today! Find out how Info-Tech’s HR & Payroll Software can help your company follow the rules, work better, and get ready for e-Invoicing. 

Contact Us For A Free Demo!! 

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