Understanding Payroll Deductions In Malaysia and How To Stay Compliant To Them

Running payroll in Malaysia isn’t just about figuring out monthly wages. Every boss needs to know and put into action required payroll cuts like EPF, SOCSO, EIS, and Monthly Tax Deduction (MTD/PCB). The Inland Revenue Board (IRBM/LHDN), the Ministry of Human Resources (MOHR), and groups like EPF and SOCSO control these payments.  If you don’t follow the rules, you could face punishments, fines, court cases, and in the worst cases, jail time. Small and medium companies must grasp these rules to run payroll right and steer clear of legal trouble.  This fresh 2025 guide breaks down each part of payroll and gives you a hands-on plan to stay on the right side of the law. 

Why Business Owners Need to Know About Payroll in Malaysia 

Once you start hiring people, you have to run payroll. It’s the law. You must: 

• Take out the right amounts for taxes and other required payments 

• Pay your share as an employer 

• Keep records for 7 years 

• Send in payments before they’re due 

• Pay your workers the right amount when you’re supposed to 

Even if someone else handles your payroll knowing the basics keeps your business safe from big mistakes and helps you follow the rules.

1. How Employers Need to Sign Up

Every employer in Malaysia has to sign up with these government offices, no matter how big or small the company is: 

Statutory Body	Purpose	Mandatory For
EPF	Retirement savings contributions	All employers and employees
SOCSO (PERKESO)	Employment injury and invalidity protection	All employees except domestic workers
EIS (under SOCSO)	Financial assistance during unemployment	All employees under permanent and contract roles
IRBM (LHDN)	Income tax and Monthly Tax Deduction (PCB)	All employers

 Workers need to sign up for EPF and SOCSO to get their benefits. 

2. Components of Salary Structure in Malaysia 

A payroll system that follows rules must show clear salary parts:  Basic Salary  The set monthly amount written in the job contract.  Allowances  Some examples are money for travel, food, housing, and cell phone use.  Overtime  The Employment Act 1955 sets the overtime rates: 

• Normal working days: 1.5 times the hourly rate 

• Rest days: 2 times the hourly rate 

• Public holidays: 3 times the hourly rate 

Variable Pay  This covers performance bonuses, commissions, service points, and incentives. 

3. Mandatory Payroll Deductions in Malaysia

Each month Malaysian employers must take out and pay in the following required amounts.  Monthly Tax Deduction (MTD/PCB) 

• The system takes this out of employee pay based on IRBM’s income tax schedule. 

• When filing yearly taxes, employees can ask for tax relief and rebates. 

EPF (Employees Provident Fund) 

Category	Employee Contribution	Employer Contribution
Standard rate	11%	13% (for wages ≤ RM5,000)
		12% (for wages > RM5,000)

 EPF contributions are due by the 15th of the next month.  SOCSO Contributions  Two schemes form the basis:  Employment Injury Scheme + Invalidity Scheme 

• Employee: 0.5 percent 

• Employer: 1.75 percent 

Employment Injury Scheme only  This applies to employees 60 years and older.  Employment Insurance System (EIS) 

Contribution Type	Rate
Employee	0.2 percent
Employer	0.2 percent

4. Leave Entitlement Requirements (Employment Act 1955)

Leave Type	Entitlement
Annual Leave	8 to 16 days based on service length
Sick Leave	14 to 22 days based on job tenure
Hospitalisation Leave	Up to 60 days
Maternity Leave	98 days
Paternity Leave	7 days (private sector varies by company)

5. Benefits and Allowances Companies Often Provide

These aren’t required but many employers offer: 

• Health insurance or medical coverage 

• Transportation allowance 

• Performance bonuses 

• Mobile phone allowance 

• Work-from-home allowance 

• Paid time off above legal minimum 

Offering good benefits helps keep employees happy and reduces turnover. 

6. Payroll Cycle in Malaysia

Most companies pay their employees. Companies need to pay wages by the 7th day of the next month at the latest.  Workers who are part-time or paid by the hour might get paid or every two weeks. 

7. Legal Requirements for Keeping Records

Companies must keep payroll records for at least 7 years, including: 

• Personal info about employees 

• Work contracts 

• Records of when people work 

• Monthly pay stubs 

• Details about EPF, SOCSO, and EIS payments 

• Records of tax taken out (MTD/PCB) 

• Records of time off 

These records are needed for checks and inspections. 

8. Rules for Final Pay When Someone Leaves a Job

When a worker quits or gets fired, companies need to handle: 

Component	Description
Last month’s salary	Based on final working days
Unused annual leave payout	Paid at the ordinary rate of pay
Benefits and allowances	Any outstanding claims
Commissions/bonuses	If contractually agreed
Return of assets	Company laptop, phone, tools, etc.

How To Stay Fully Compliant: Automate Payroll with Info-Tech  

Manual payroll calculation increases the risk of:  

• Get legal deductions wrong 

• Pay into funds late 

• Forget to send in forms 

• Get fined by EPF, SOCSO or IRBM 

Info-Tech’s Paycheck Software takes care of: 

• EPF, SOCSO, EIS, MTD/PCB computations 

• Contribution adjustments in line with current statutory regulations 

• Creation of payslips 

• Connection with attendance and leave platforms 

• Reporting to authorities 

The system has IRBM approval and meets 2025–2026 standards. 

Conclusion 

Employers must understand payroll deductions in Malaysia. Many statutory bodies tight deadlines and changing rules make manual payroll risky and prone to expensive errors.  A compliant payroll system allows businesses to: 

• Steer clear of fines 

• Get monthly deductions right 

• Keep proper records 

• Work more 

• Earn employee confidence 

Info-Tech Payroll Software offers a automated, law-ready solution to help Malaysian businesses stay compliant.  Contact Us For a Free Consultation to Discuss Your Needs 

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