4 Key Things You Must Know About Payroll Operations in Malaysia

May 3 2021

A growing country with more than 32 million in population, Malaysia is best known for its multilingual resources and sustainable operational cost, making it one of the more attractive options for foreign companies to set up their operations.  

Whether you are growing your current workforce, expanding your business or setting up a new establishment in Malaysia, payroll is one of the critical aspect to consider. There are a few essential areas you should get acquainted with when setting up your payroll operations in Malaysia.    

Malaysia Employment and Labour Law

The employment law in Malaysia is generally governed by the Employment Act 1955 (“Employment Act”). Understanding the basic requirements of the Employment and Labour law of Malaysia will provide the structure for your payroll compliance. The different categories of employees to be governed under the Employment Act will give insights to employers into the employment protection and regulations provided under this Act. However, the Employment Act does not apply to all categories of employees. Employees that do not fall under any of the Employment Act category are governed by the terms of their employment contracts.

Wage Payments

It is mandatory for employers to comply with the minimum wage requirement which is applicable in the Peninsular Malaysia and East Malaysia, with different applicable rates. Employers also need to apply the relevant fixed rates to overtime entitlement when employees work beyond normal work hours, rest days, and on public holidays.

Statutory and Tax Deductions

It is the duty of the employer to make compulsory statutory deductions. This includes Employees Provident Fund, Social Security Organisation, Employment Insurance Scheme, and Monthly Tax Deduction. There are also other optional deductions, such as Human Resource Development Fund and the voluntary Zakat contribution. 

Leave and Benefits Entitlement

Employees are granted different types of leave entitlement as part of their employment benefits. The Malaysia Employment Act offers guidelines on the various leave entitlements. Employers may use these guidelines to outline leave and benefit entitlements for their employees. Leave entitlement is also a key component in payroll when employees resign.

On top of annual leave are the other leave types, such as sick leave, hospitalisation leave, maternity leave, and public holidays, which are equally important.

This article serves as general information only. 

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