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Best Guide To Employers’ Contribution – EPF, SOCSO and EIS

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Employers in Malaysia need to contribute to EPF, SOCSO, and EIS of their employees according to the regulations, aside from paying monthly salaries.
As an employer, there are monthly contributions that you have to make towards Employee Provident Fund (EPF or KWSP in Malay) and Social Security Organisation (SOCSO or PERKESO in Malay) for your employees’ benefits as required by the laws in Malaysia, namely EPF, SOCSO, and EIS.
For employees working for Malaysia registered entities, be it local or foreigner (work pass holders), it is a norm to see in their monthly pay slip indications of monthly contribution deducted from their monthly salary as well as their employer’s.
This article is the detailed monthly deductions and why it is required by the Employment Act 1955

Why is EPF important in Malaysia?

EPF is a retirement saving scheme for employees who are liable to contribute EPF in Malaysia in which the savings contributed will be managed and invested under Simpanan Konvensional or Simpanan Shariah.
EPF is governed under the Employee Provident Fund Act 1991.
The intention of deducting EPF contribution monthly is to assist employees working in the private sector to save their retirement fund.
The saving is comprised of the employee’s and employer’s monthly contributions and yearly dividends earned.
With this, an employee will no longer need to be stressed about setting up a separate pension scheme with the limited fund they have.
It is also useful in the scenario where an employee is temporarily or no longer fit to work.

Objectives of EPF in Malaysia

EPF strives for three objectives:
  • Accumulation of retirement benefits.
  • Employee pension scheme (EPS) where the fund will generate pension for employees after the age of 58 years.
  • Employee Deposit Linked Insurance Scheme (EDLI) where it will cover an employee as life insurance.
Monetary payments that are subject to EPF contribution are:
  • Salaries
  • Payment for unutilised annual or medical leave
  • Bonuses
  • Allowances (with some exceptions)
  • Commissions
  • Incentives
  • Wages for maternity leave, study leave, half-day leave
  • Other contractual payments or otherwise
The following monetary payments are not subject to EPF contribution:
  • Service charges such as tips
  • Overtime payments, including payments for work carried out on rest days and public holidays
  • Gratuity (payment to employee payable at the end of a service period or upon voluntary resignation)
  • Payment in lieu of notice of termination of service (payment given when employee’s service is terminated)
  • Retirement benefits
  • Termination benefits
  • Travel allowances
  • Director’s fee
  • Gifts, including cash payments for holidays like Hari Raya, Christmas, etc.
  • Benefits-in-kind and non monetary perquisites

Employer’s responsibility on EPF contribution

  • Register with the EPF as an employer within 7 days upon hiring the first employee.
  • Register your employees as EPF members and keep their information updated.
  • Provide salary statements to employees.
  • Collect your employees’ share of EPF contribution and submit it to the EPF along with the employer’s share.
Your employees can volunteer to contribute to EPF even if they are not liable or contribute above the threshold stipulated.
Both you and your employees can choose to contribute more than the statutory contribution rate under Voluntary Contribution.

Employer’s responsibilities under EPF monthly contribution

  • It is mandatory for all SSM registered Companies or registered businesses such as Enterprises or Partnerships to register EPF as an employer within 7 working days upon hiring the first employee
  • Must register the employees as EPF members (if they are first time workers) and ensure their information is up to date
  • Provide monthly salary statements or pay slips to each employees indicating the deductions from employers as well as employee’s salary
  • Collect employee and employer’s share of EPF contribution and submit to EPF monthly

Employer’s and employee’s contribution rate for EPF (as of the year 2021)

Employee’s status Employer’s EPF contribution rate Employee’s EPF contribution rate
Monthly salary rate RM5,000 and below More than RM5,000 RM5,000 and below More than RM5,000
Malaysian age 60 and above 4% 0%
Malaysian below age 60 13% 12% 9%
Permanent resident below age 60 13% 12 9%
Permanent resident age 60 and above 6.5% 6% 5.5%
Non-Malaysian below age 60 RM5.00 9%
Non-Malaysian age 60 and above RM5.00 5.5%
*Following the Budget 2021 announcement, employee’s EPF contribution rate for all employees under 60 years old is reduced from 11% to 9% by default from February 2021 contribution to January 2022 contribution.
Should an employee choose to remain at 11% contribution rate, they’ll need to fill up Borang KWSP 17A (Khas 2021) which will then be submitted to EPF by their respective employer.
Instead of using the exact percentage calculation, the contribution amount should be calculated based on the contribution rate as stated in the Third Schedule of the EPF Act 1991, except for salaries that are more than RM20,000.00.

When should EPF contribution be paid?

EPF contribution should be paid by the 15th of the month for the salary issued for the previous month by both employee and employer.
A late payment charge or a dividend will be imposed if the EPF contribution is not paid on time.

How to make EPF payment?

The EPF contribution can be paid through the following channels:
  • e-Caruman website or mobile application
  • Internet banking
  • Bank agents of Bank Simpanan Nasional, Maybank, Public Bank, and RHB Bank
  • EPF counters nationwide

Social Security Organization (SOCSO)

The Social Security Organization (SOCSO) or otherwise known as “Pertubuhan Keselamatan Sosial – PERKESO” is a government agency formed in 1971 under the jurisdiction of the Ministry of Human Resource (MHR) in Malaysia.

Objective of SOCSO in Malaysia

The objective of SOCSO contribution is to provide social security protection to employees and their dependents through the Employment Injury Scheme and the Invalidity Scheme.
The protection is in terms of cash and benefits for employees deemed unable to work for a period of time due to workplace injuries, emergencies, occupational sickness and death.
There are 2 schemes that are governed under the Employees’ Social Security Act 1969 – the Employment Injury Scheme that protects an employee against occupational accident or disease, and the Invalidity Scheme that insures an employee who is unable to work due to incurable or unlikely to be cured condition or death.
It is compulsory for all Malaysian and permanent resident employees to register with SOCSO except for Federal and State Government permanent employees, domestic servants, and those who are self-employed.
Foreign workers are protected under SOCSO as well from January 2019.

Why is SOCSO contribution deemed important in Malaysia?

SOCSO contribution is to protect employees working in Malaysia by compensating them in the event that they suffer from work related injuries.
Any medical treatment as well as follow up treatments due to work related injuries will be covered fully by SOCSO.
Monetary payments that are subject to SOCSO contribution are:
  • Salaries
  • Overtime payments
  • Commissions
  • Wages for maternity leave, study leave, half-day leave
  • Other contractual payments or otherwise
The following monetary payments are not subject to SOCSO contribution:
  • Any contribution payable by the employer towards any pension or provident fund
  • Gratuity (payment to employee payable at the end of a service period or upon voluntary resignation)
  • Any sum paid to cover expenses incurred by the employee in the course of his duties
  • Bonuses
  • Travel allowances
  • Gifts, including cash payments for holidays like Hari Raya, Christmas, etc.
Employer’s responsibility on SOCSO contribution
  • Register yourself as an employer within 30 days upon hiring the first employee.
  • Register your employees as SOCSO members and keep their information updated.
  • Report all work-related accidents that befall their workers within 48 hours.
  • Maintain a monthly record of employees’ information and keep the information updated.
  • Collect your employees’ share of SOCSO contribution and submit it to the SOCSO along with the employer’s share.

Employer’s responsibility on SOCSO contribution

  • Register yourself as an employer within 30 days upon hiring the first employee.
  • Register your employees as SOCSO members and keep their information updated.
  • Report all work-related accidents that befall their workers within 48 hours.
  • Maintain a monthly record of employees’ information and keep the information updated.

Employer’s responsibilities under SOCSO monthly contribution

  • It is mandatory for all SSM registered Companies or registered businesses such as Enterprises or Partnerships to register SOCSO as an employer within 30 working days upon hiring the first employee
  • Must register the employees as SOCSO members (if they are first time workers) and ensure their information is up to date
  • Provide monthly salary statements or pay slips to each employees indicating the deductions from employers as well as employee’s salary

Employer’s and employee’s contribution rate for SOCSO

Employee’s status Employer’s SOCSO contribution rate Employee’s SOCSO contribution rate
Age 60 and above 1.25% (Employment Injury Scheme only) 0%
Age below 60 1.75% (Employment Injury Scheme and Invalidity Scheme) 0.5%
Foreign workers 1.25% (Employment Injury Scheme only) 0%
*The contribution rates stated in this table are not applicable to new employees who are 55 years old and above who have no prior contribution. They are covered under the Employment Injury Scheme only.
Employees who are 60 years old and above do not need to contribute to the employee’s share to SOCSO.
The contribution amount should be calculated based on the contribution rate as stated in the Rate of Contribution table on the SOCSO website.
The monthly contribution is capped at a monthly salary of RM4,000.

When should SOCSO contribution be paid?

The monthly payment of SOCSO contribution consisting of both employees’ and employer’s share should be paid by the 15th of the month for the salary issued for the previous month.
A late payment interest rate of 6% per year will be charged for each day of contribution not paid.

How to make SOCSO payment?

The SOCSO contribution can be paid through the various channels:

How can employers make their SOCSO contribution payments?

Similar to EPF, SOCSO contributions will be deducted from both employee and employer’s funds and will be paid every 15th of each month.
A late payment interest rate of 6% per year is imposed for each day such contribution is not paid on time.
According to SOCSO, auto deduct contributions by employers may be made from these channels:
  • PERKESO ASSIST portal
  • Internet banking
  • Cheque, money order, or postal order
  • Bank counters
  • Bank agents of Maybank, RHB Bank, and Public Bank
  • SOCSO counters nationwide

Employment Insurance System (EIS) contribution

The Employment Insurance System (EIS) is relatively new compared to EPF and SOCSO schemes. It was first implemented in January 2018 by PERKESO itself.
It is an insurance that protects employees aged 18 to 60 who have lost their employment except in the case of voluntary resignation, expiry of the contract, unconditional termination of the contract, completion of a project specified in a contract, retirement, and dismissal due to misconduct.
EIS is also governed under the Employment Insurance System Act 2017.
The contribution is also deducted monthly within an employee’s salary as well as funds from employers.

Goal of EIS in Malaysia

EIS intends to help employees who lost their jobs until they are able to secure a new position.
The contributions are collected in a fund in order to provide financial assistance to retrenched employees.

Why is EIS contribution deemed important in Malaysia?

EIS is a scheme that specifically assists retrenched employees until they land another opportunity.
The temporary financial assistance is given to unemployed people for up to six (6) months.

Employer’s responsibility

You only need to register your employees once as SOCSO members and they are automatically entitled to EIS.

Employer’s responsibility on EIS monthly contribution

Since EIS is under the same roof of SOCSO, employers are not required to register as members separately.
As long as the employer has registered its SOCSO profile, the EIS profile will be automatically created.

Employer’s and employee’s contribution rate for EIS

Employee’s status Employer’s and employee’s EIS contribution rate
Age 18 to 60 0.2%
*The contribution rates stated in this table are not applicable to new employees who are 57 years old and above who have no prior contribution.
Similar to SOCSO, the contribution amount should be calculated based on the rate as stated in the Second Schedule of the Employment Insurance System Act 2017, instead of using the exact percentage calculation.
The monthly contribution is capped at a monthly salary of RM4,000.

When should an EIS contribution be paid?

The EIS contribution for employees’ and employer’s share is paid together with SOCSO contribution.

How to make EIS payment?

EIS contribution can be paid through the same channels as the SOCSO contribution.
Managing payrolls and contributions for EPF, SOCSO, and EIS for your employees can be a hassle as your business grows.
A payroll service provider that takes care of your employees’ registration with EPF, SOCSO, EIS, salary payments, payroll taxes, and also the mandatory contributions is recommended.

Masta can ease these processes.

From company name check, appointment of directors, assignment of Company Secretary, submitting document to SSM, we will take care of everything so that you can just focus on your business.

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