Regulations of payroll in Malaysia are relatively transparent compared to their neighboring countries. However, managing payroll can be difficult especially for small to mid-size companies that do the payroll in-house with limited manpower.
Below are some of the regulations of payroll in Malaysia that business owners should know.
The Malaysian Employment Act defines the workweek as 48 hours, with a maximum of eight working hours per day and six working days per week. There are special restrictions, considered to be protection provisions, for women in the industrial or agricultural sector. They are not permitted to work between the hours of 10 p.m. and 5 a.m.
Based on Section 60A(3) of the Employment Act defines that ‘overtime work’ means the number of working hours carried out in excess of the normal working hours per day as provided in section 60A(1) of the Employment Act.
Of course, overtime work has a limit. The Employment (Limitation of Overtime Work) Regulations 1980 grants that the limit of overtime work shall be a total of 104 hours in any 1 month. This means an average of 4 hours in 1 day.
The employers should still remember that they cannot require any employee in any situation to work longer than 12 hours in one day.
According to Section 24(1) from the Employment Act 1955:
“No deductions shall be made by an employer from the wages of an employee otherwise than in accordance with this Act.”
Primarily, employers are not permitted to deduct employees’ wages or to impose a pay cut, without first obtaining the employees’ consent. However, employers may set a pay cut or deduct an employee’s salary under certain circumstances.
Types of Salary Deduction
1. Salary deduction that does not need the employee’s & Director General’s approval in writing
Section 24(2) of the Employment Act 1955 makes it lawful for an employer to make the following deductions (without needing to obtain the employee’s prior request in writing, nor the Director-General of Labour’s prior approval in writing):
- Deductions of any over-payment of wages made during the immediately preceding three months from the month in which deductions are to be made, by the employer to the employee by the employer’s mistake;
- deductions for the indemnity due to the employer by the employee under subsection 13(1);
- deductions for the recovery of advances of wages made under section 22 provided no interest is charged on the advances; and
- deductions authorized by any other written law.
2. Salary deduction that requires employee’s request
Meanwhile, the following deductions shall only be made at the request in writing of the employee:
- Deductions in respect of the payments to a registered trade union or co-operative thrift and loan society of any sum of money due to the trade union or society by the employee on account of entrance fees, subscriptions, installments and interest on loans, or other dues; and
- deductions in respect of payments for any shares of the employer’s business offered for sale by the employer and purchased by the employee.
3. Salary deduction that requires employee’s request and Director-General’s approval
These deductions shall not be made, except at the employee’s and the Director-General’s consent via writing:
- Deductions in respect of payments into any superannuation scheme, provident fund, employer’s welfare scheme/insurance scheme established for the benefit of the employee;
- deductions in respect of repayments of wage advances made to an employee under section 22 where interest is levied on the advances and deductions in respect of the payments of the interest so levied;
- deductions in respect of payments to a third party on behalf of the employee;
- deductions in respect of payments for the purchase by the employee of any goods of the employer’s business offered for sale by the employer; and
- deductions in respect of the rental for accommodation and the cost of services, food, and meals provided by the employer to the employee at the employee’s request or under the terms of the employee’s contract of service.
The tax year in Malaysia runs from 1 January to 31 December. The tax rate for non-residents is currently a flat 30%, whereas the tax rate for residents is on a sliding scale from 0% to 30%, depending on which income grouping they fall into. Typically, for an average paid worker residence tax is at 14%.
Some businesses will pay the tax on behalf of their staff, whereas others ask their workers to submit the payment themselves. There is also a fixed monthly SOCSO (Social Security Organization) fee for non-residents of 49.4 Malaysian Ringgit (RM) per month, which is similar to a national insurance fee.
If you have workers rotating in and out of Malaysia, they may still qualify for a residency tax rate providing they fit into one of the following criteria:
- If they have been in Malaysia for 182 days per calendar year
- If they have been in Malaysia for fewer than 182 days in a calendar year but have still been in the country for 182 consecutive days, linked to days from the year immediately preceding that calendar year
- If they have been in Malaysia for at least 90 days in a calendar year for three of the four
Once they are classified as a resident, if they are employed in Malaysia for fewer than 60 days per year, they are not liable to pay income tax. People who would be exempt from income tax include retired people over the age of 55, those receiving a pension from their employment in Malaysia, and those who are living off bank interest.
A common myth many contractors believe is that they can benefit from this by qualifying as a resident from day one. However, they will automatically be classified as a non-resident for their first six months in Malaysia and be liable to pay tax at 30% from their first day of work.
Based on Section 19(1) of the Employment Act 1955, employees need to be paid within 7 days after the last day of any wage period (usually a month). For example, if employees need to receive the salary on the last day of the month, then the next salary should be in before the 7th of next month.
Also, there are few periods of pay that shall be applicable in different circumstances upon the termination of contract:
|1 month||Normal cycle wage period. The contract of service shall specify the wage period or if not, it shall not be more than one month.|
|1 month (and additional 7 days)||Employers have additional 7 days to pay the monthly wages.|
|Within the next 1 month||The relevancy of the period additional 1 month for payment of wages in references to overtime pay, rest day pay, and public holiday pay.|
|On the day the contract is terminated||A fixed-term contract of service expires or|
A fixed-term contract of service is terminated with notice by either party
|On the last day of employment||This is applicable when an employer terminates the contract of service in cases of:|
-Paying salary in lieu of notice
-For breach of contract by the employee
-Dismissal for misconduct
|Not later than 3 days after the contract is terminated||This is applicable when the employee terminates the contract of service in case of :|
-Paying salary in lieu of notice
-For breach of contract by the employer
-When there is not-stated-in-contract of violence or disease exposure happens
All of these regulations seem complicated and take a lot of time to comply with. Worry no more! With HRMLabs payroll management feature, even small to mid-size companies can use our system to calculate their payroll and deductions such as EPF automatically! Our system enables companies to itemized their payslip based on their needs but still comply with government regulations. Payslip also can be a digital payslip so it will decrease paper consumption. In conclusion, HRMLabs will help companies to save time and cost.