Malaysia

Registrations and Establishing a Payroll Entity

To run payroll in Malaysia, a company must be registered with the Inland Revenue Board of Malaysia (LHDN), the Employees Provident Fund (EPF), the Social Security Organisation (SOCSO), and the Employment Insurance System (EIS). Employers must also comply with regulations from the Human Resource Development Corporation (HRD Corp).

Employers are issued specific reference numbers required for compliance:

• E Number for Inland Revenue submissions
• EMPLOYER Number for SOCSO
• EPF Number for provident fund reporting
• EIS Number for insurance submissions

Banking

It is mandatory to pay employees and remit statutory contributions from a Malaysian bank account. Bank operations typically run from 9:00AM to 4:00PM Monday to Friday.

Working Week

The typical work week is Monday to Friday, 9:00AM to 6:00PM. Some businesses may operate half-days on Saturdays.

Employment Law

Holiday Accrual / Calculations

Employees are entitled to a minimum of 8 to 16 days of paid annual leave, depending on years of service. There are also 11 public holidays mandated under Malaysian law. Annual leave encashment is allowed for unused leave at the employer's discretion.

Maternity Leave

Employees are entitled to a minimum of 98 days of paid maternity leave, effective January 2023. Employers are responsible for paying maternity allowance for eligible female employees.

Paternity Leave

Fathers are entitled to 7 consecutive days of paid paternity leave for each confinement, up to five confinements.

Sick Leave

Sick leave entitlement varies depending on the length of employment:

• Less than 2 years: 14 days
• 2 to 5 years: 18 days
• More than 5 years: 22 days

For hospitalisation, employees are entitled to 60 days of sick leave.

National Service

National service in Malaysia is currently not compulsory.

Minimum Wage

The national minimum wage is MYR 1,500 per month as of 2025.

Flexible Working Arrangement

Employees have the right to apply for flexible working arrangements under the amended Employment Act, effective January 2023.

Tax, Employee Provident Fund, Social Security & Human Resource Development

Individual Income Tax

Tax residents are taxed at progressive rates from 0% to 30%. Non-residents are taxed at a flat rate of 30%. Employers are required to deduct tax monthly using the Monthly Tax Deduction (MTD/PCB) system. Supporting documentation includes Form PCB2(II).

EPF (Employees Provident Fund)

• Employer: 13% (for wages <= MYR 5,000); 12% (for wages > MYR 5,000)
• Employee: 11%

SOCSO (Social Security Organisation)

Covers Employment Injury Insurance Scheme and Invalidity Pension Scheme.

• Employer: 1.75%
• Employee: 0.5%

Employment Insurance System (EIS)

Provides financial assistance to workers who have lost their jobs.

• Employer: 0.2%
• Employee: 0.2%

Human Resource Development Fund

Applicable to employers with 10 or more Malaysian employees.

• Employer: 1% of monthly wages

PTPTN (National Higher Education Fund Corporation)

Employers may assist in repaying employees' student loans through payroll deduction.

Zakat

A religious tax payable by Muslims. Payroll deductions may be arranged.

ASB (Amanah Saham Bumiputera)

Voluntary investment contributions may be made through payroll.

Monthly Reporting

Employers must submit monthly forms and payments to the EPF, SOCSO, EIS, and Inland Revenue Board. Standard forms include:

• PCB2(II) for tax deductions
• Bank payment references for SOCSO, EPF, and EIS

Yearly Reporting

Annual tax returns (Form E) and employee remuneration statements (Form EA) must be filed. The deadline for Form E is 31 March. Employers must also submit:

• Form CP8D (employee tax data)
• Form CP8A (employer data summary)

Payroll

Payroll should account for:

• Public holiday pay
• Overtime (as per contract or statutory rates)
• Unpaid leave deductions
• Salary proration (for incomplete months)
• Encashment of unused leave
• Monthly deductions for MTD, EPF, SOCSO, EIS, Zakat, ASB, PTPTN

Employers must prepare and distribute itemised payslips.

Reports

Payroll records must be retained for at least 7 years.

Payslip Example

New Employees

Employers must register new employees with EPF, SOCSO, and EIS on or before their first day of work. Required documentation includes:

• Completed registration forms (e.g., KWSP 3, PERKESO 2, EIS 1)
• Photocopy of IC (identity card) or passport

Leavers

Upon termination, employers must notify the tax authorities via:

• Form CP22A for resignation or termination
• Form CP21 for expatriate departure

Termination Notice

Statutory notice periods are:

• Less than 2 years: 4 weeks
• 2 to 5 years: 6 weeks
• More than 5 years: 8 weeks

Termination can occur via resignation, dismissal, or mutual agreement. Final salary payments should account for unused leave and prorated salary.

Employee Benefits

Employees are entitled to various statutory and non-statutory benefits including:

• Medical insurance and outpatient claims
• Group personal accident coverage
• Mobile phone or communication allowance
• Transportation or housing allowances
• Meal or travel reimbursements
• Bonuses and incentives
• Dental benefits

Expenses

Employers must maintain proper documentation for reimbursable expenses to avoid tax liability. Personal income tax may be imposed on undocumented reimbursements.

Foreign workers must obtain a valid employment pass or professional visit pass.

For Expat New Employees

Required documents include:

• Copy of passport (all pages)
• Employment offer letter
• Educational qualifications and certifications
• One passport-sized photograph
• Immigration approval letter
• KWSP, PERKESO, and EIS enrollment (for local compliance)
• Medical screening (if applicable)

• PTPTN: Payroll can be used to deduct student loan repayments.
• Zakat: Religious contributions for Muslim employees can be processed via payroll.
• ASB: Employees may contribute voluntarily to investment funds.
• Flexible Working Arrangement: Malaysia allows employees to formally apply for flexible work schedules.
• Diversity of Workforce: Employers are incentivised to hire women returning from maternity leave and other vulnerable groups.

Further Information

For more information, or assistance with Malaysia Tax enquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.