Introduction
Performance bonuses have a big impact on how companies pay their employees in Malaysia. These bonuses reward workers for their efforts and boosts morale. But not every employee works a full year—some join halfway through, while others leave before bonus time. To keep things fair many businesses, use prorated bonus calculator based on how long someone has worked.
People who handle HR and payroll need to understand how performance bonuses work how to calculate prorated bonus, and how legal deductions like EPF and tax come into play. This guide will help you get a grip on these topics and make your payroll more accurate.
Do Companies Have To Give Bonuses To New Employees?
In Malaysia, the law doesn’t force employers to give performance bonuses. They need to do this if a job contract or group agreement says so. Companies can pick:
- Whether fresh hires can get performance bonuses
- Whether staff still in their probation period can receive them.
- Whether employers need to stay for a set time (like six months or a year) before they can get bonuses.
Even though it’s not a must, giving performance bonuses can make employees more eager to do well and stay with the company. This helps both the employees and the business.
How to Calculate and Adjust Performance Bonuses
To share performance and prorated bonuses in Malaysia, companies adjust them based on how long an employee has been with the company during the bonus time. Companies might work out these adjusted bonuses using different time scales—months, weeks, days, or workdays.
Method 1: Basic Proration by Months, Weeks, or Days
This approach figures out what part of the bonus period an employee worked.
Example:
- Employee starts on July 15, 2024.
- Bonus period: January 1, 2024 – December 31, 2024.
- Full-year bonus: RM5,000.
- Employee’s time at the company: 5.5 months, 24.14 weeks, or 169 days.
Insight: Prorating by weeks gives a more accurate calculation than using months, because months don’t have the same number of days.
Method 2: Work-day Calculation
A more exact approach calculates bonuses using actual working days, not counting weekends and public holidays.
Based on Malaysia’s 2024 working day schedule:
- A 5-day workweek includes 260 working days.
- A 6-day workweek includes 313 working days.
Insight: The work-day method gives more accurate results than calendar-based calculations because it takes into account the actual days worked.
Managing Performance Bonuses for Employees Who Quit
Companies typically give bonuses to employees still on the payroll when bonuses go out. Yet, some businesses opt to pay partial bonuses to leaving employees as a nice gesture. In these situations, they use the same method to calculate the partial amount based on the employee’s final day of work.
EPF Contributions and Tax Deductions on Bonuses
Performance and prorated bonuses in Malaysia fall under the category of Additional Wages (AW) and have EPF, SOCSO, and tax deductions (Potongan Cukai Bulanan or PCB) taken out. Employers need to factor in these deductions when they process payroll.
Example of EPF Deduction from Bonuses:
For an employee who makes RM5,000 monthly with a RM10,000 bonus:
Note: Employers need to follow statutory deduction rules when they process payroll.
Common Mistakes in Bonus Calculations
Mistakes in bonus calculations can create employee unhappiness, rule-breaking, and payroll errors. Avoiding these errors ensures fairness and compliance.
HRMS software lets HR teams work with accuracy, save hours, and follow Malaysian payroll rules.
Wrapping up
Prorating performance bonuses has an impact on fairness and payroll accuracy. When companies use the right calculation methods and make use of HRMS software tools, they can boost payroll productivity, stick to regulations, and make employees happier.
FAQs
- What does a performance and prorated bonus mean in Malaysia?
Performance and prorated bonuses give staff who haven’t worked the whole bonus period their fair share based on their time with the company.
2. Do Malaysian employers have to pay performance bonuses?
No, unless the job contract says so. But many firms hand out bonuses to keep their staff satisfied and productive.
3. How is a prorated bonus calculated?
Formula: Prorated Bonus = (Months on the Job / Total Bonus Time) × Full Bonus Amount.
4. Are bonuses subject to EPF and tax deductions?
Yes, performance bonuses that fall under Additional Wages (AW) have EPF, SOCSO, and PCB taken out.
5. How does HRMS software improve bonus calculations?
HRMS software makes bonus calculations easier. It does the math, follows the rules, and cuts down on payroll mistakes. This means the whole process goes quicker and works better.