Payroll Statutory

A lot of your organization’s time, effort, and money go into ensuring that payroll is compliant through a statutory audit.

From employee’s fair treatment of labour to protecting the company from unreasonable earnings or benefit demands from trade unions or aggressive employees, every company faces a worrying number of potential legal issues relating to compliance. However, it may never be a company's intent to break these laws, but without necessary protection, it may easily slip through the cracks.

Importance of Statutory Compliance in Payroll

In every country, rules exist to ensure that all its organizations or corporate entities are created with the right structure of payroll schemes. This ensures the protection of both the employer and employee.

Malaysia has its own set of labour laws and rules that companies need to comply with. Companies are required to keep up to date with all the labour regulations within the state.

It is also mandatory for companies to adhere to them. When a company is in non-compliant with these regulations, it can get into legal troubles such as incurring penalties and fines. That is why every company invests a huge amount of money, effort and time to meet compliance requirements from professional tax to minimum wages act.

To help with this, the company seeks expert advice from labour law and taxation law experts. In order to manage with the demanding regulatory environment, every company should be well-versed and take note of all regulations in the country’s labour laws.

Benefits of Compliance to the Employee

Ensures fair treatment towards the employee.
Ensures they are paid fairly for the work they have done and their company complies with the minimum wage rate.
Prevents employees from being forced to work for long hours or under inhumane conditions.

Benefits of Compliance to the Employer

Avoids penalty or fines because of their timely payments.
Protects the organization from unreasonable wage or benefit demands from trade unions.
Prevents legal troubles as the company is fully compliant.
Mitigates risks and increases awareness about compliance.
With compliance in place, there is a lower risk of an adverse incident.

Need for Statutory Compliance

The complexity of doing business has increased tremendously and it has become very challenging to be in sync with the operational aspect of every business. As discussed earlier, organizations seek the help of statutory compliance experts whose main focus is to be compliant with the ever-changing regulatory environment.

InTune Outsourcing provides services on statutory compliance management; our consultants have a deep understanding of the regulatory settings and provide specialized services to organizations. The compliance process for different operations are streamlined, from the day-to-day maintenance of prescribed forms and registers to the filing along with reports.

Is it Different from One Organization to Another?

Statutory compliance for a partnership firm, private limited company, SDN. BHD., or any type of company does not change. Every organization that hires employees and pays salaries must comply with the labour laws.

A lot of your organization’s time, effort, and money go into ensuring that payroll is compliant through a statutory audit.

From employee’s fair treatment of labour to protecting the company from unreasonable earnings or benefit demands from trade unions or aggressive employees, every company faces a worrying number of potential legal issues relating to compliance. However, it may never be a company's intent to break these laws, but without necessary protection, it may easily slip through the cracks.

Importance of Statutory Compliance in Payroll

In every country, rules exist to ensure that all its organizations or corporate entities are created with the right structure of payroll schemes. This ensures the protection of both the employer and employee.

Malaysia has its own set of labour laws and rules that companies need to comply with. Companies are required to keep up to date with all the labour regulations within the state.

It is also mandatory for companies to adhere to them. When a company is in non-compliant with these regulations, it can get into legal troubles such as incurring penalties and fines. That is why every company invests a huge amount of money, effort and time to meet compliance requirements from professional tax to minimum wages act.

To help with this, the company seeks expert advice from labour law and taxation law experts. In order to manage with the demanding regulatory environment, every company should be well-versed and take note of all regulations in the country’s labour laws.

Benefits of Compliance to the Employee

Ensures fair treatment towards the employee.
Ensures they are paid fairly for the work they have done and their company complies with the minimum wage rate.
Prevents employees from being forced to work for long hours or under inhumane conditions.

Benefits of Compliance to the Employer

Avoids penalty or fines because of their timely payments.
Protects the organization from unreasonable wage or benefit demands from trade unions.
Prevents legal troubles as the company is fully compliant.
Mitigates risks and increases awareness about compliance.
With compliance in place, there is a lower risk of an adverse incident.

Need for Statutory Compliance

The complexity of doing business has increased tremendously and it has become very challenging to be in sync with the operational aspect of every business. As discussed earlier, organizations seek the help of statutory compliance experts whose main focus is to be compliant with the ever-changing regulatory environment.

InTune Outsourcing provides services on statutory compliance management; our consultants have a deep understanding of the regulatory settings and provide specialized services to organizations. The compliance process for different operations are streamlined, from the day-to-day maintenance of prescribed forms and registers to the filing along with reports.

Is it Different from One Organization to Another?

Statutory compliance for a partnership firm, private limited company, SDN. BHD., or any type of company does not change. Every organization that hires employees and pays salaries must comply with the labour laws.

Employees Provident Fund

Established in 1951, the Malaysian EPF was a pursuant to the Employees Provident Fund Ordinance 1951, under the National Director of Posts. The EPF Act 1951 became a law in 1982, then the EPF Act 1991 in 1991. The latter requires employees and their employers to contribute towards their retirement savings and allows workers to withdraw these savings at retirement or for special purposes before then. The employee provident fund as of 2012, has 13.6 million members, of which 6.4 million are active contributing members and 502,863 contributing employers.

This fund is intended to help employees from the private sector save a fraction of their salary in a lifetime banking scheme to be used primarily as a retirement fund. It may also be utilized in the event that the employee is temporarily or no longer fit to work. Furthermore, it provides a framework for employers to meet legal and moral obligations to their employees.

The EPF as it stands now, functions by requiring a contribution of at least 11% of each member's monthly salary and storing it in a savings account, while the member's employer is required by law to additionally fund at least 12% of employee's salary to the savings at the same time (13% if salary is below RM 5,000).

This fund may be used as investments by the employee for companies deemed profitable and permissible by the organization, from which dividends are banked to respective members' accounts. Additionally, workers may opt to utilize their EPF savings in their own investments, although such activities are not covered by the EPF and the members are to bear any losses made.

Established in 1951, the Malaysian EPF was a pursuant to the Employees Provident Fund Ordinance 1951, under the National Director of Posts. The EPF Act 1951 became a law in 1982, then the EPF Act 1991 in 1991. The latter requires employees and their employers to contribute towards their retirement savings and allows workers to withdraw these savings at retirement or for special purposes before then. The employee provident fund as of 2012, has 13.6 million members, of which 6.4 million are active contributing members and 502,863 contributing employers.

This fund is intended to help employees from the private sector save a fraction of their salary in a lifetime banking scheme to be used primarily as a retirement fund. It may also be utilized in the event that the employee is temporarily or no longer fit to work. Furthermore, it provides a framework for employers to meet legal and moral obligations to their employees.

The EPF as it stands now, functions by requiring a contribution of at least 11% of each member's monthly salary and storing it in a savings account, while the member's employer is required by law to additionally fund at least 12% of employee's salary to the savings at the same time (13% if salary is below RM 5,000).

This fund may be used as investments by the employee for companies deemed profitable and permissible by the organization, from which dividends are banked to respective members' accounts. Additionally, workers may opt to utilize their EPF savings in their own investments, although such activities are not covered by the EPF and the members are to bear any losses made.

Social Security Organization (SOCSO)

The Social Security Organization regulates two social security schemes for workers earning salaries not exceeding RM 4,000 per month (with amendments effective 1 Jun 2016 under government guidance). If employees get covered once, they will remain covered irrespective of their wages. The maximum contribution, however, will remain to be based on wages of RM 4,000 per month.

The SOCSO Act has mainly two schemes:

The Employment Injury Scheme which provides social insurance coverage against workplace accidents, occupational diseases and commuting accidents to and from place of work.
The Invalidity Pension Scheme which provides 24-hour coverage against invalidity arising from any cause and not necessarily related to work environment.

These arrangements guarantee workers entitlement to medical benefits; temporary and permanent disablement benefits; constant attendance allowance; dependent’s benefit or survivors’ pension; funeral, rehabilitation, education benefits; invalidity pension and additional benefits.

The employer is solely responsible for the Employment Injury Scheme fund with the contribution of 1.25% and the Invalidity Scheme is funded with the contribution of 1% which is shared equally by employers and employees. This contribution is mandatory by law and its rate of contribution is capped at the invaluable wage of RM 4,000.

All Malaysian employees including permanent residence who have been employed by an employer or a big entity under a contract of service or apprenticeship are liable under SOCSO’s act.

Categories of employees exempted from SOCSO’s coverage are:

Federal and State Government Employees (except employees who are employed as temporary or contract employees. They are liable under the Act effective from 1 June 2013)
Domestic servants
Self-employed
Spouse of a sole proprietor or partners
Foreign workers (since 1 April 1993)

Payroll-Statutory-Services-Seri-Kembangan

The Social Security Organization regulates two social security schemes for workers earning salaries not exceeding RM 4,000 per month (with amendments effective 1 Jun 2016 under government guidance). If employees get covered once, they will remain covered irrespective of their wages. The maximum contribution, however, will remain to be based on wages of RM 4,000 per month.

The SOCSO Act has mainly two schemes:

The Employment Injury Scheme which provides social insurance coverage against workplace accidents, occupational diseases and commuting accidents to and from place of work.
The Invalidity Pension Scheme which provides 24-hour coverage against invalidity arising from any cause and not necessarily related to work environment.

These arrangements guarantee workers entitlement to medical benefits; temporary and permanent disablement benefits; constant attendance allowance; dependent’s benefit or survivors’ pension; funeral, rehabilitation, education benefits; invalidity pension and additional benefits.

The employer is solely responsible for the Employment Injury Scheme fund with the contribution of 1.25% and the Invalidity Scheme is funded with the contribution of 1% which is shared equally by employers and employees. This contribution is mandatory by law and its rate of contribution is capped at the invaluable wage of RM 4,000.

All Malaysian employees including permanent residence who have been employed by an employer or a big entity under a contract of service or apprenticeship are liable under SOCSO’s act.

Categories of employees exempted from SOCSO’s coverage are:

Federal and State Government Employees (except employees who are employed as temporary or contract employees. They are liable under the Act effective from 1 June 2013)
Domestic servants
Self-employed
Spouse of a sole proprietor or partners
Foreign workers (since 1 April 1993)

Employment Insurance System (EIS)

In 2018 the local government introduced the Employment Insurance System (EIS) as a new protection for workers. EIS can be defined as a financial scheme aimed at assisting employees who have lost their job, and it is managed by Social Security Organization (Socso).

This scheme is meant to enable retrenched workers to gain monetary funds that would help them get back on their feet for up to six months. This fund will function similarly to the Employees Provident Fund (EPF), where the contribution will go into a pooled fund and then the fund will be invested.

This insurance system is not only offered to those who have been retrenched but also those who resigned due to circumstances of threats to the insured or even to their family. This includes sexual harassment at work. In every organization, both the employer and employee will contribute 0.2% each of an employee’s salary, this means that the total contribution would be 0.4% of an employee’s monthly salary.

The minimum eligible monthly salary can be as low as MYR 300, where a standard 0.4% will see them contributing MYR 1.20 monthly. The maximum eligible monthly salary contribution is capped at MYR 4,000. So even if you’re earning more than MYR 4,000 a month (or four weeks), the contribution from you and your employer is calculated at a fix rate of 0.4%, leading to the maximum amount of contribution capped at MYR 16 per month. Recent data indicates that the scheme currently involves 430,000 employers and 6.6 million employees.

EIS Coverage

Private sector employers are required to pay monthly contributions for each of their employees. (Government employees, domestic workers and the self-employed are exempted).
The definition of an employee is a person who is employed for wages under a contract of service or apprenticeship with an employer. The apprenticeship or contract of service may be expressed or implied and may be oral or in writing.
All workers who are Malaysian citizens / permanent residents are covered by EIS.
All workers aged 18 to 60 are required to contribute. However, workers aged 57 and above who have no prior contributions before the age of 57 are exempted.
Rates of contribution are capped at insured salary of RM 4000.00.

There are Five Types of Monetary Benefits:

Job Search Allowance (SE)
Reduced Income Allowance (RIA)
Training Fee (TF)
Training Allowance (TA)
Early Re-Employment Allowance (ERA)

In 2018 the local government introduced the Employment Insurance System (EIS) as a new protection for workers. EIS can be defined as a financial scheme aimed at assisting employees who have lost their job, and it is managed by Social Security Organization (Socso).

This scheme is meant to enable retrenched workers to gain monetary funds that would help them get back on their feet for up to six months. This fund will function similarly to the Employees Provident Fund (EPF), where the contribution will go into a pooled fund and then the fund will be invested.

This insurance system is not only offered to those who have been retrenched but also those who resigned due to circumstances of threats to the insured or even to their family. This includes sexual harassment at work. In every organization, both the employer and employee will contribute 0.2% each of an employee’s salary, this means that the total contribution would be 0.4% of an employee’s monthly salary.

The minimum eligible monthly salary can be as low as MYR 300, where a standard 0.4% will see them contributing MYR 1.20 monthly. The maximum eligible monthly salary contribution is capped at MYR 4,000. So even if you’re earning more than MYR 4,000 a month (or four weeks), the contribution from you and your employer is calculated at a fix rate of 0.4%, leading to the maximum amount of contribution capped at MYR 16 per month. Recent data indicates that the scheme currently involves 430,000 employers and 6.6 million employees.

EIS Coverage

Private sector employers are required to pay monthly contributions for each of their employees. (Government employees, domestic workers and the self-employed are exempted).
The definition of an employee is a person who is employed for wages under a contract of service or apprenticeship with an employer. The apprenticeship or contract of service may be expressed or implied and may be oral or in writing.
All workers who are Malaysian citizens / permanent residents are covered by EIS.
All workers aged 18 to 60 are required to contribute. However, workers aged 57 and above who have no prior contributions before the age of 57 are exempted.
Rates of contribution are capped at insured salary of RM 4000.00.

There are Five Types of Monetary Benefits:

Job Search Allowance (SE)
Reduced Income Allowance (RIA)
Training Fee (TF)
Training Allowance (TA)
Early Re-Employment Allowance (ERA)

Human Resources Development Fund (HRDF)

A levy/grant system is the basis of which HRDF operates on. Employers who have paid the Human Resources Development levy will qualify for training grants from the HRDF to defray or subsidize training costs for their Malaysian employees.

It can also be described as a pool of funds that consists of Human Resources Development elements collected from employers of the manufacturing and service sectors as listed in the First Schedule of the Pembangunan Sumber Manusia Berhad Act 2001 (liable registrants) as well as optional registrants.

There are few rules of DOs & DON’Ts for EPF/SOCSO/HRDF contributions and Monthly Tax Deductions (MTD) submissions

Must be paid by 15th of the following month or the immediately preceding day if it falls on a weekend or Public Holiday.
Advisable to include a reasonable time frame for payment clearance. Otherwise any subsequent payments after the deadline due to payment(s) returned (which is to be included in any form of financial reporting the company follows) will be subjected to late payment penalty.

Compliance, when done right, does not add profit to the organization, but saves the company from the heavy consequences of penalties and fines. When looking for an accounting outsource partner, make sure the accounting firm fully understands statutory compliance so that they can help you to avoid any legal troubles.

If you’re looking for an accounting firm whose consultants are fully-trained to meet statutory compliance, call or email us today and find out how InTune can help you.