Before we examine some common payroll compliance challenges in Malaysia, it’s useful to understand the essentials of the payroll process and the main compliance considerations. Let’s start with a primer on the fundamentals of payroll.

• Paid public holidays: Employees are entitled to be paid for 11 gazetted public holidays per year. Of these 11 days, five must be:

1. Hari Kebangsaan or National Day;
2. Birthday of Yang di-Pertuan Agong;
3. Birthday of the Ruler or Yang di-Pertua Negeri or Federal Territory day (varies per state);
4. Labour Day; and
5. Malaysia Day (16 September).

The remaining six paid public holidays are chosen at the discretion of the employer from the following list, and these must be communicated to employees either via written notice or as stated in their employment contracts:

• Birthday of the Prophet Muhammad (s.a.w);
• Chinese New Year (2 days, except 1 day in the states of Terengganu and Kelantan);
• Vesak Day;
• Hari Raya Puasa (2 days);
• Hari Raya Haji (1 day, except 2 days in the states of Terengganu and Kelantan);
• Deepavali;
• Christmas Day; and
• Awal Muharam.

However, the government can declare additional ad hoc, paid public holidays throughout the year. If these days are declared at short notice, employers can nominate a replacement day during the payroll process.

In addition, there are a number of state-based holidays observed around the country. However, employers are not required to pay employees for these holidays unless they have selected them to be included in their list of paid public holidays for their employees.

• Compulsory annual leave entitlements: Employees are typically entitled to between 8-16 days of paid annual leave, depending on their length of service with the company.
• Compulsory sick leave entitlements: Employees are entitled to between 14-22 days of paid sick leave, depending on their length of service with the company.
• Compulsory maternity leave entitlements: New mothers are entitled to 60 consecutive days of paid leave for each of their first five children.
• Optional leave entitlements: Employees can also apply for the following optional leave types, which are typically unpaid and subject to employer approval:
  • compassionate/bereavement leave;
  • marriage leave; and
  • study leave.
• Paternity leave: Most employers also offer 1-3 days of paid paternity leave, but this is not a statutory requirement.

• Employees’ Provident Fund (EPF): Employers and most employees (Malaysian citizens or permanent residents only) must contribute to the EPF retirement benefits scheme. The EPF contribution rate for employees varies depending on their monthly salary, whereas the employer contribution is 12%.
• Social Security Organisation (SOCSO): Employers must contribute to Malaysia’s mandatory social insurance schemes, which are administered by SOCSO. There are two schemes:
  • The Employment Injury Insurance Scheme (EIIS) provides cover for employees who experience work-related injuries or diseases. The EIIS applies to all Malaysian citizens, permanent residents, and foreign workers (excluding domestic servants).
  • The Invalidity Pension Schemes (IPS) provide coverage for employees who experience invalidity or die from causes unrelated to their work.

Employers must make a monthly contribution to SOCSO on behalf of each eligible employee.

• Employment Insurance Scheme (EIS): Employers are required to make monthly contributions for each employee. The EIS provides financial assistance to workers who have lost their job while they seek new employment.
• Human Resources Development Fund (HRDF) Levy: This is a compulsory levy paid by employers with 10 or more employees (Malaysian citizens only) working in the manufacturing, services, mining and quarrying sectors. The levy rate is 1% of each eligible employee’s monthly wage. It allows companies registered with the HRDF to receive financial assistance when they participate in specific training and upskilling programs delivered by HRDF training providers.
• Other contributions>: Some employees may also be required to make student loan repayments to the National Higher Education Fund Corporation, or make donations known as Zakat to fulfil their religious obligations.

When processing payroll for foreign employees in Malaysia, companies must pay close attention to specific regulatory requirements that differ from those for local employees. Although many payroll processes are the same, key differences include:

• SOCSO Registration: Foreign workers must be registered under the Employment Injury Insurance Scheme (EIIS) provided by SOCSO, unlike local employees who may also be covered under the Invalidity Pension Scheme (IPS).
• Documentation: Employers must integrate foreign employees’ passport and work permit details into the payroll system for accurate record-keeping.
• Tax Rates: Foreign employees (non-residents) may be subject to different income tax rates compared to Malaysian citizens or permanent residents. Non-residents working for 60-182 days in Malaysia are taxed at a higher rate.

To ensure smooth payroll processing and compliance with Malaysian regulations, businesses can refer to official resources provided by key government bodies:

• Inland Revenue Board of Malaysia (IRBM): The IRBM offers comprehensive guidelines on the Monthly Tax Deduction (MTD) system and employee income tax requirements, available on their official website. These guidelines help employers stay up-to-date on tax obligations and payroll procedures.
• Employees’ Provident Fund (EPF): The EPF website outlines the mandatory contribution rates for both employers and employees, helping businesses make accurate contributions towards retirement benefits.

To attract and retain top talent, employers should consider implementing competitive compensation packages and benefits in line with local practices:

• Allowances: Providing allowances for housing, transportation, or meals is common in Malaysia, and can significantly enhance the overall compensation package.
• Incentives: Offering performance-based incentives, such as bonuses or employee stock ownership plans (ESOPs), can motivate employees to perform at their best.
• Health and Retirement Plans: Regularly reviewing benefits to include comprehensive health insurance, retirement savings plans (such as EPF contributions), and flexible work arrangements will improve employee satisfaction and loyalty.

Our team of payroll experts can guide you through the complexities of the payroll process in Malaysia to help make your business expansion more successful. We can set up your company’s payroll so that you get it right the first time, every time.

It doesn’t matter whether you are a large multinational corporation or a fast-growing SME. From managing complex payroll in the manufacturing industry to supporting SMEs, outsourcing to an global payroll processing company like BoardRoom ensures your company benefits from an efficient, accurate, and compliant payroll process right from the start.

Speak to our team of payroll specialists in Malaysia today about how outsourcing payroll can free up your time to focus on what really matters: your company’s growth and profitability.

Outsourcing payroll is the low-hanging fruit for increasing company efficiency. Instead of spending hours every pay cycle on payroll processing, an administratively heavy task, HR teams can focus on achieving more strategic objectives, like increasing employee engagement to boost organisational productivity.

Regulatory changes that affect payroll happen at break-neck speeds, which can make staying compliant a challenging, time-consuming process. In Malaysia, four regulatory bodies develop payroll processing rules. They each issue notifications when a change to the law is made and your company needs to ensure that these changes are accurately translated into payroll formulas.

It is easy to make mistakes when updating payroll formulas, especially if they involve IF, AND, OR logical functions. If the formula is wrong, payroll is calculated incorrectly which can cause problems like under or over paying wages and tax. Chances are, you may not even realise that an error has occurred until after receiving an expensive non-compliance fine.

Outsourcing your payroll to a specialist service provider, like our team of experts here at BoardRoom, can minimise your exposure to these compliance and regulatory risks because we take care of it all for you, including updating payroll formulas correctly. We also ensure a quick, timely turnaround that meets all the statutory requirements of employee payment, further helping you avoid risk.

Having a dedicated team of professionals with local knowledge of Malaysia’s labour laws is essential for your company. It means your business can take advantage of the team’s years of payroll experience without being exposed to the strict protocols and multi-level cross-checking that they’re subject to.

BoardRoom can deliver payroll outsourcing services across 19 countries and regions in APAC, with the option to coordinate your administration via BoardRoom Malaysia or decentralise coordination across all our local business sites. This is especially beneficial for companies that operate in different states or across multiple countries because our dedicated team will work with you to ensure compliance in each area, freeing up your in-house HR team.

Some companies operate payroll systems that require staff to be on-site in order to process payroll. If the unexpected happens, as an example; your payroll staff can’t get to the office to perform their duties, or a key member of your team responsible for payroll approval resigns, how will your employees get paid? Payroll that is outsourced to an expert provider guarantees payroll continuity so that your employees are paid on time, every time.

Getting your employees paid accurately and on time is critical to the success of your company. And as every HR professional knows, there is no room for error when it comes to payroll. However, managing payroll effectively can be challenging for in-house teams when they are trying to keep up with local regulatory compliance while simultaneously managing the needs of a growing workforce. This is especially true if your company operates in multiple countries across the APAC Region.

Our team of payroll experts here at BoardRoom will take care of payroll management for you, ensuring that pay runs are efficient, accurate, and compliant at your office in Malaysia and any other branches you may have in the region. Our team has worked across multiple industries, countries, and situations, so you can rest assured knowing that your payroll is in the best of hands. Ultimately, this means less stress for your HR teams.

Another advantage of outsourcing payroll services is that you can stay flexible in rapidly changing business environments. Outsourcing allows you to quickly scale your payroll service requirements as needed, instead of having to recruit, onboard, train and retain additional in-house staff.

As the saying goes, ‘two heads are better than one’. When you outsource payroll, your company gains access to a pool of payroll knowledge specialists without the expense of retaining them in-house. Our team of experienced payroll experts have managed payroll for businesses of all sizes, types, and industries across the APAC Region, making sure you meet legal requirements and stay compliant in multiple localities. Take advantage of their vast experience and knowledge to really build your business so you can take it to the next level.

The best payroll outsourcing vendors are not only experts in all things payroll, but also offer a variety of integrated, value-add corporate services, including:

• human resources;
• accounting and financial;
• corporate secretarial;
• tax advisory;
• share registry;
• share issuing; and
• employee stock options plans.

By consolidating all your back office functions into one vendor you stand to gain greater efficiencies and business productivity.

Spend less time sorting out pay runs and more time on your company’s growth and profitability by outsourcing your payroll function to our team of experts at BoardRoom.

Whether you are a large multinational corporation or a fast-growing SME, our team makes processing your payroll in Malaysia and across the APAC region easy.

Our comprehensive payroll outsourcing services include:

• Determining gross to net salary
• Producing variance reports, payroll journals, and payroll details
• Transferring net salary into bank accounts and providing pay slips securely (soft or hard copy)
• Preparation of year-end reporting forms and appendices (soft or hard copy)
• Digital management of staff leave entitlements and expense claims
• Regional payroll administration across 19 countries in APAC
• Streamlined support by Ignite payroll software, our cloud-based HRMS solution

So if you want efficient, accurate, compliant payroll processing that saves costs and alleviates stress from your team, speak to our specialists today about how our outsourced payroll services can best benefit your company.