Payroll in Malaysia

What does payroll cover?

Payroll is the process by which you pay your employees and contractors. When you hire a new employee, at home or internationally, you need to ensure you pay them correctly, keeping everyone (including the taxman) happy.

Once you’ve got all the relevant tax information from your employee, payroll involves:

• Calculating gross pay: based upon the hours worked, any overtime, and the employee’s hourly rate.
• Making deductions: including income tax, pension, and any social security contributions relevant to the country in which your employee is employed.
• Paying employees: once you’ve worked out the net salary, you pay your employee via their preferred payment method.
• Keep payroll records: in the US, employers legally have to keep payroll records for at least three years. In Malaysia, it’s seven.

As we’ve just seen, there’s a lot to learn when you’re processing international payroll — even if domestic payroll is second-nature to your in-house team.

As another example, did you know that as part of the payroll process in Malaysia, there are twelve separate tax bands? Or that tax rules differ depending on whether you’re employing a Malaysian resident or an expat?

Let’s take a closer look.

What do you need to know about payroll in Malaysia?

Wondering where to start when it comes to international payroll? Here’s our payroll guide for Malaysia.

Malaysia payroll statutory requirements

The currency in Malaysia is the Malaysia Ringgit (RM) and employees are usually paid on a monthly basis, no later than the 7 day of each month.

Working hours in Malaysia

Maximum working hours are 48 hours per week, spread over six days. Employees cannot work for more than 12 hours on any given day. Standard office working hours are usually around 45 hours per week.

Overtime rules in Malaysia

Employers have to pay overtime — 150% of the standard hourly rate as a minimum. This increases to 200% on rest days and 300% on public holidays. Employees aren’t allowed to work more than 104 hours of overtime in a single month.

Minimum wage requirements in Malaysia

Minimum wage requirements vary depending upon where in Malaysia your employee lives:

• In Kuala Lumpur (the capital of Malaysia) and other urban council areas, the minimum wage is RM1200 per month (approximately $290). This is equivalent to RM5.77 per hour (approximately $1.40).
• In rural areas, the minimum monthly wage drops to RM1100 (around $265).

Companies in Malaysia and in Asia generally give their employees a 13-month bonus — an additional month’s pay awarded at the end of the year. This is customary, but it’s not a legal obligation.

Malaysia payroll tax and deductions

To abide by Malaysian payroll statutory requirements, employers and employees need to make the following contributions.

Income tax

There are 12 income tax bands in Malaysia. The first RM5000 earned is exempt, and employees in the lowest band, earning up to RM20,000, are charged 1% income tax. Employees in the highest band, earning RM2,000,000 and over, pay 30% income tax.

Non-residents working in Malaysia pay 30% income tax, regardless of their income.

Employers are responsible for deducting income tax from employee income and for making Malaysia’s payroll tax payments to the Inland Revenue Board of Malaysia.

Social security (SOSCO)

Both the employer and the employee make social security contributions. For employers, the rate is 1.75%. For employees, it’s 0.5%

Provident Fund

The Provident Fund is an employee pension. Employers contribute 12%-13% for employees under the age of 60. Employees contribute 9%. This figure drops for employees over the age of 60. This contribution is optional for non-residents.

Employment insurance scheme (EIS)

EIS is designed to support employees who lose their job. Employers and employees contribute 0.2% each.

Employee leave entitlement in Malaysia

Public holidays

In Malaysia, employees are paid for at least 11 public holidays per year. Five of these days are given to national public holidays, including Malaysia Day, National Day, Labor Day, Federal Territory Day, and the Birthday of the King.  

Employers can then choose six additional state or national level holidays as paid holidays for employees.

Paid leave

Employers award paid leave entitlement based upon the number of years an employee has worked for them.

• 0-2 years in employment: eight days of paid leave per year
• 2-5 years in employment: 12 days of paid leave per year
• 5+ years in employment: 16 days of paid leave per year.

Sick days

Employees in Malaysia are entitled to paid sick days as long as they can provide a professional medical certificate. Again, sick leave entitlement depends upon the number of years in service.  

• 0-2 years in employment: 14 days of sick leave per year
• 2-5 years in employment: 18 days of sick leave per year
• 5+ years in employment: 22 days of sick leave per year.

For any health issues that require hospitalization, paid sick leave entitlement rises to 60 days.

Maternity / Paternity leave

Statutory maternity paid leave for employees in public and private sectors is 90 consecutive days, starting no earlier than 30 days before the due date.

Fathers who work in the public sector get seven days of paid leave following the birth of a child. Fathers who work in the private sector aren’t entitled to any leave at all, although this looks likely to change in coming years.

Severance pay

If for whatever reason an employer has to pay severance pay to an employee, calculations are based upon the following:

• 0-2 years in employment: 10 days of severance pay at the regular salary rate for every year of service
• 2-5 years in employment: 15 days of severance pay at the regular salary rate for every year of service
• 5+ years in employment: 20 days of severance pay at the regular salary rate for every year of service.

Want to get started with payroll management in Malaysia? Speak to one of Skuad’s payroll experts to understand exactly what’s expected.

3 potential pitfalls of payroll in Malaysia

As you can see from the above, there are lots of boxes to tick when it comes to payroll management in Malaysia — and a fair few pitfalls to avoid.

Pitfall #1 - Compliance issues

Malaysia has its own employment, salary, and tax laws. Fail to stick to just one of them and you could find yourself receiving a hefty fine or even a prison sentence.

Did you know that failure to make timely income tax payments to the Malaysian tax authorities could land you six months in jail?

You need to learn and understand Malaysian employment and payroll law — or find a payroll company with experience in Malaysia to do the hard work for you.  

Pitfall #2 - A protracted process

Paying Malaysian employees can be a time-consuming and error-prone process. Add in any other employees you’ve got based all over the world, and the risk of making a mistake goes through the roof.

You have to pay your team on time, with the right deductions, in their currency of choice — and, ideally, at the best possible exchange rate.

Sounds like a mountain to climb, right? But it’s easy to avoid this problem if you have a centralized payroll system. But with a payroll partner like Skuad by your side, you can run your payroll process in Malaysia plus all other countries from just one place.

Pitfall #3 - Unreliable payroll data

When you look at your international payroll data, you want to be sure that it’s reliable and up-to-date. And if you’re running a fragmented payroll recording system it’s more than likely not.

The solution? An international payroll platform that makes it easy for you to reference and report on payroll activity across all employee locations.

Outsourcing payroll in Malaysia: what are your options?

If running payroll in Malaysia yourself sounds daunting, you have two options.

Work with a payroll partner to run a payroll system in Malaysia

If you want, you can continue to run your own payroll system at the local HQ — plugging in additional payroll partners in any other countries where your employees are also living. 

This can be time-consuming and confusing, though. With so many payroll operations running alongside each other there’s a greater risk of error and non-compliance.

Work with a payroll partner like Skuad who can do all of the above

By running all of your payroll processes from the same dashboard, paying employees in the US, Malaysia, and beyond is simple, speedy, and streamlined.

Skuad’s international payroll platform offers payment and withdrawal flexibility, along with optimal exchange rates. Our team knows Malaysian payroll regulations inside out, so you can be sure that your payroll is always 100% compliant.

And we offer a range of really useful extras like international employee onboarding and benefits.

Want to see Skuad in action? Book a platform demo to start hiring and paying employees in Malaysia (and across the world!) today.