A TO Z OF PAYROLL

A M A L AY S I A N G U I D E

2021
 INTRODUCTION
Welcome to this PayrollPanda guide which will take you through the do’s and don’ts of
Malaysian payroll.

Included among the topics are the different types of compensation, statutory
deductions and employer contributions, as well as payroll forms.

After completing this payroll guide you will know the basics of Malaysian payroll and
will be able to accurately run payroll for your company.

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 Table of contents
1 1 Type of Employment..................................................................................8

2 2 Type of Compensation..............................................................................9
2.1 Basic Salary...................................................................................................................9
2.1.1 Part Month................................................................................................................9
2.1.2 Unpaid Leave............................................................................................................9
2.1.3 Overtime................................................................................................................. 10
2.1.4 Basic Salary Example.......................................................................................... 11
2.2 Incentive Pay............................................................................................................. 12
2.3 Perquisites and Benefits-in-Kind (BIKs)........................................................... 13
2.3.1 Perquisites.............................................................................................................. 13
2.3.2 Allowances............................................................................................................. 14
2.3.3 Benefits-in-Kind (BIKs)........................................................................................ 15
2.4 Living Accommodation........................................................................................ 16

3 3 Statutory Deductions & Employer Contributions ....................... 18

3.1 PCB............................................................................................................................... 18
3.1.1 Tax Exemptions..................................................................................................... 18
3.1.2 Tax Deductions..................................................................................................... 20
3.1.3 Calculation............................................................................................................. 22
3.2 CP38 Deduction....................................................................................................... 27
3.3 EPF................................................................................................................................ 28
3.3.1 Contribution Rate................................................................................................ 28
3.3.2 Exempt Payments................................................................................................ 29
3.4 SOCSO......................................................................................................................... 31
3.4.1 Employment Injury and Invalidity Scheme ............................................... 32
3.4.2 Employment Injury Scheme............................................................................ 32
3.4.3 Exempt Payments ............................................................................................... 32
3.5 EIS ............................................................................................................................... 34
3.6 HRDF ........................................................................................................................... 35

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 Table of contents
4 Payroll Forms ................................................................................................. 36
4.1 Monthly .................................................................................................................... 36
4.2 Annual Forms ......................................................................................................... 37
4.3 Employee Movement Forms ............................................................................ 38

5 Payroll Solution ........................................................................................... 39

6 Benefits of Cloud ........................................................................................ 40

7 PayrollPanda Introduction ........................................................................... 41

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2021 Updates
PCB

Income Tax Rates

• Tax rate reduced by 1% (from 14% to 13%) for chargeable income band
from RM 50,001 to RM 70,000.

Tax Deduction for Disabled Spouse

• Tax deduction for disabled spouse increased from RM 3,500 to RM 5,000.

Tax Deduction for Medical Treatment,

Special Needs and Carer Expenses for
Parents
• Income tax deduction limit for medical treatment, special needs and carer
expenses for parents increased from RM 5,000 to RM 8,000.

Tax Deduction for Education Fees (Self)

• Scope of relief expanded to cover any course of study undertaken for
the purpose of up-skilling or self-enhancement and conducted by a body
recognized by the Director General of Skills Development. The tax relief is
limited to RM 1,000 for each year of assessment and this amount consti-
tutes part of the existing tax relief of RM 7,000.

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Tax Deduction for Medical Expense for
Serious Diseases
• Tax deduction limit on medical expenses for serious diseases (self, spouse
and child) and fertility treatment (self and spouse) increased from RM 6,000
to RM 8,000.

• Scope of relief expanded to include vaccination expenses (self, spouse and

child) up to RM 1,000.

• Tax deduction limit for complete medical examination expenses (self,

spouse and child) increased from RM 500 to RM 1,000.

Tax Deduction for Lifestyle Expenses

• Scope of relief expanded to include subscriptions to online newspapers.

• Additional tax deduction up to RM 500 for purchase of sports equipment,

rental/entrance fees to sports facilities and registration fees for sports com-
petitions licensed by the Commissioner of Sports (self, spouse and child)

Tax Deduction for Fees Paid To Child Care

Centres And Kindergartens
• Tax deduction limit for fees paid to child care centres and kindergartens
increased from RM 2,000 to RM 3,000.

Tax Deduction for Net Deposit into Skim

Simpanan Pendidikan Nasional (SSPN)
• Tax deduction for net deposit in SSPN up to RM 8,000 extended for another
2 years (2021 and 2022).

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Tax Deduction for Domestic Tourism
Expenditure
• New tax deduction of up to RM 1,000 for domestic tourism expenditure (in-
cluding entrance fees to tourist attractions) incurred between 1 March 2020
and 31 December 2021. Premises must be registered with the Commissioner
of Tourism Malaysia.

Tax Deduction for Contribution to Private

Retirement Scheme and Deferred Annuity
• Tax deduction for private retirement scheme contributions and deferred
annuity premiums up to RM 3,000 extended for another 4 years (2022 to
2025).

Tax Incentives for Returning Experts

• Application period for the Returning Expert Programme extended for another
3 years (until 31 December 2023).

EPF
• Employee EPF contribution rate reduced from 11% to 9% from January 2021
wages (February 2021 contribution) to December 2021 wages (January 2022
contribution).

• Employees can maintain their contribution at 11% by submitting form KWSP

17A (Khas 2021) to their employer. Employers must submit their employees’
application via i-Akaun.

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Types of Employment
Full-Time Workers
• Working hours are as specified in the employment contract. According to the
Employment Act, working hours are limited to 48 hours per week.

Part-Time Workers
• The normal hours of work of a part-time employee do not exceed seventy
percent of the normal hours of work of full-time employees.

• They have similar rights to full-time employees.

Contract Workers
• An employment for a fixed period of time. Working hours, remuneration and
other benefits should be stated in the contract.

Freelancers
• Project-basis. Freelancers are generally hired to solve a short-term problem
and are often paid based on the number of hours worked. They are not
considered as employees and statutory deductions are not required.
Withholding tax may apply in some cases if the freelancer is not a tax
resident in Malaysia.

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Types of Compensation
2.1 Basic Salary
2.1.1 Part Month
A basic salary is usually set as a fixed amount paid on a monthly basis. What hap-
pens if the employee starts or ceases work partly through the month? Employers
will usually use either of these methods to prorate the employee’s salary;

Count the number of calendar days in the month

from the date the employee starts work, multiply
Calendar Days
by the basic salary and divide by the number of
calendar days in the month.

Count the number of workdays (including public

holidays) in the month since starting work, multi-
ply by the basic salary and divide by the number of
Workdays
workdays (including public holidays) in the month
(usually around 22 if working 5 days a week and
26 if 6 days a week).
2.1.2 Unpaid Leave
If the employee takes unpaid leave then an amount equivalent to the period
of leave should be deducted from the gross salary. It is not specified in
employment law how to calculate unpaid leave. The usual methods are as
follows:

Divide the salary by the number of workdays (including public holidays) in the
month to get the daily rate;

• around 22 workdays if the employee works 5 days a week;

• around 26 workdays if they work 6 days a week;

• it is also possible to use the average figures of 22 and 26 for the workdays;

• if preferred, you can divide by the number of calendar days in the month
instead of workdays.

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 In PayrollPanda, there are 3 options to choose from
Did You as basis for automatic Prorated Salary, Unpaid
Know? Leave and Overtime Calculations!

2.1.3 Overtime
The basic salary will usually be based on a fixed minimum number of hours as
defined in the employee’s contract of employment. In some instances (including
if the employee’s monthly basic salary does not exceed RM 2,000), the employer
is legally obliged to pay overtime to employees who exceed those minimum
hours.

The basic minimum guidelines for overtime pay is 1.5 x hourly rate of pay for
normal workdays, 2 x hourly rate for rest days and 3 x hourly rate for public
holidays.

The hourly rate can be calculated as follows: monthly wages / number of con-
tractual hours per day / 26 days. The formula based on 26 days is the minimum
hourly rate according to the Employment Act but employers can pay a more
favourable rate, eg based on 22 days for those working 5 days a week. Wages
are defined as all payments made to the employee except for such items as
accommodation, travelling allowance and annual bonus.

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 In PayrollPanda, Overtime can be calculated
Did You automatically with just a simple click! It is based on
Know? hourly wages times the OT multiplier rate.

2.1.4 Basic Salary Example

A new employee, Ms Mei, has joined this month:

• Joining date: 4 August 2021

• Basic salary: RM 3,600

• Contractual terms: 8 hours / day - 5 days / week - overtime to be paid

Using Workdays Method Using Calendar Days Method

Part-month salary = 3,600 (basic salary) x 20 Part-month salary = 3,600 (basic salary) x 28 (the
(the number of days worked) / 22 (the number of number of calendar days since starting work) / 31
workdays in the month) = RM 3,272.73 (total days that month) = RM 3,251.61

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Miss Mei took 1 day of unpaid leave that month to settle her new
accommodation.

• Unpaid leave to be deducted from gross pay = 3,600 x 1 (day of unpaid leave)
/ 22 (number of workdays in the month) = RM 163.64

The next month she worked overtime of 6 hours during normal work
days to catch up with some work.

• Hourly rate = 3,600 / 22 (workdays in the month) / 8 (daily working hours) =

RM 20.45 / hour

• Overtime = 20.45 x 1.5 (multiplier) x 6 (overtime hours) = RM 184.05

If the employee receives certain fixed allowances every month, these may also be
included in all the calculations above by adding them to the basic salary.

2.2 Incentive Pay

Incentives are performance-related payments and include:

Bonuses Usually paid quarterly or annually

Commission Usually paid monthly and based on sales

Payments dependent on company profitability

Profit Share
(can also consist of shares)

Gratuity (or tip) Paid to service workers

Incentive cash payments will be included in the employee’s payslips to make up

total gross pay.

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2.3 Perquisites and Benefits-in-Kind (BIKs)
Most people are familiar with what the terms basic salary, bonus, overtime or
commission represent, but can you tell the difference between a perquisite and
a benefit-in-kind?

• Perquisites are benefits in cash or in kind which are convertible into money.

• Benefits-in-kind are not convertible into money.

Example 1
Gardener - If an employer provides an employee with a
gardener who is employed by the employer this will be a
benefit-in-kind. But if the employer gives a sum of money for
the employee to employ a gardener then that is a perquisite.

Example 2
Recreational club membership - If the employee enjoys
the club facilities under a corporate membership owned
by the employer then you have a benefit-in-kind, but if the
employer pays for the employee’s individual membership
this will be a perquisite.

2.3.1 Perquisites
• Perquisites are benefits in cash or in kind which are convertible into money.
Examples include gift vouchers, petrol allowance, driver employed by the employee
but paid for by the employer, professional subscriptions.

• Perquisites which consist of cash payments will usually be included in the payslips
unlike non-cash perquisites. So, if the driver is paid directly by the employer this
will not appear in the employee’s payslips, but if the employee pays the driver,
then the employer will make cash payments to the employee to cover the cost and
these payments will appear in his payslips to make up total gross pay.

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 As we will see later on, perquisites (whether they appear on the payslips or not)
may affect the amount of statutory deductions payable by the employee.

2.3.2 Allowances
A type of perquisite which are usually fixed monthly cash payments for
specific purposes.

Example
• Attendance Allowance

• Travelling Allowance

• Phone Allowance

Allowances may be paid to cover certain expenses the employee incurs during
the performance of their employment duties. Paying allowances removes the
administrative burden on the employer and the employee of keeping a record
of their expenses as is the case when employees are reimbursed business
expenses based on the employee claiming actual expenses incurred.

As allowances are cash payments, they will be included in the payslips to arrive
at the employee’s total gross pay.

In PayrollPanda, allowances paid on a monthly basis can be added

Did You as Monthly Recurring Items. They will automatically appear in the
Know? payroll every month for that employee!

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 2.3.3 Benefits-in-Kind (BIKs)
BIKs are benefits which are not convertible into money. Common examples
include company car, driver or phone provided by the employer, and medical
benefits. As they are not cash payments, BIKs will not always appear on the
employee’s payslips but the value of a BIK may need to be determined for tax
purposes.

Two methods may be used to determine the value of BIKs

Formula Method Prescribed Value Method

Annual value of BIK = cost to the employer of

the asset / prescribed average lifespan of the Prescribed values are as per the LHDN ruling
asset (as provided in LHDN ruling).

The prescribed average lifespan should be used In the case of a motorcar more than 5 years
even if the asset is not new. old, the prescribed value is reduced to half.

In the case of motorcars, annual value of BIK

= cost to the employer of the car / 8 years
(prescribed lifespan for motorcars) x 80%, as Prescribed value is based on the cost of the
an abatement of 20% is given (deemed to be motorcar when new.
the value of the motorcar when it is returned to
the employer).

When using this method, the value of the BIK

may be reduced if the BIK is used for less than If this method is used, the BIK cannot be
a year, shared with another employee or used reduced for business usage.
for business.

Example
Mr John receives the following BIKs:

Fridge which cost the

Annual value of BIK = 2,000
employer RM 2,000 and Value of BIK for the period
/ 10 (prescribed average life
provided for April provided = 200 x 9/12 = RM 150
span) = RM 200
to December

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 Two-year old company car
Annual value of BIK (formula Annual value of BIK (prescribed
which cost the employer
method) = 80,000 x 80% / 8 = method) = RM 5,000 (based on
RM 80,000 (value when new
RM 8,000 RM 105,000)
RM 105,000)

If the business usage of the car is 60% then the value using the formula method
will be reduced to 8,000 x 40% = RM 3,200. The value as per the prescribed
method will remain the same as there is no deduction allowed for business
use. Sufficient records must be kept by the employee to substantiate claims of
business use in case of an audit.

Also note that if petrol is provided by the employer together with the motorcar
then the same method must be used to value the car and the petrol benefits.
The value used for the formula method will be the cost of the petrol and it
can be reduced for business use or if the employee contributes to the cost of
the petrol - these reductions are not available when using the prescribed value
method.

2.4 Living Accommodation

The rules explaining how to calculate the value of living accommodation (VOLA)
are set out in detail in a separate ruling issued by LHDN.

The general rule is that VOLA is calculated as follows:

Defined value of the living accommodation (usually

the market rent);

OR Whichever
30% of the gross income from employment (including
is lower
wages, allowances, perquisites but not benefits-in-kind
and share options perquisite);

Different rules apply to directors of controlled companies or employees living in

specific accommodation like hotels or plantations.

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Example
Ms Lina receives a gross income of RM 150,000 a year. She is also provided with accommodation
which her employer rents from the landlord for RM 4,000 a month.

VOLA is Defined value of 4,000

30% of 150,000 (45,000) AND RM 45,000
lower of x 12 (48,000)

The defined value can be adjusted if the employee shares the accommodation
or if the employer uses part of the premises.

So, in the above example if Ms Lina shares the accommodation with another
employee, the defined value becomes 48,000 / 2 = 24,000 and this will become
the lower value and therefore the value of the benefit.

VOLA will also be adjusted if the premises are occupied for part of the year only
or if the employee pays some rent to the employer.

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Statutory Deductions
& Employer Contributions
3.1 PCB
PCB (Potongan Cukai Bulanan) are monthly income tax deductions required by
the Inland Revenue Board (LHDN) and meant to spread the burden of income
tax over the year instead of being payable in one lump sum after the year end.

Certain perquisites or BIKs received by an employee are exempt from PCB

and hence are not part of the taxable income of that employee. Those are tax
exemptions.

Certain payments made by an employee for particular purposes can be de-

ducted from the taxable income of that employee. Those are tax deductions.

3.1.1 Tax Exemptions

Most compensation items are liable to PCB, but certain perquisites and BIKs
are either fully or partially exempt:

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Payroll Category Example

• Travelling
• Petrol
Allowance
• Toll payment
exempt up to RM 6,000 per year if travel for official duties; more than RM 6,000
can be claimed if records are kept for 7 years

• Gift of mobile phone, fixed line telephone, pager, PDA

(limited to 1 unit per category of asset)
Communication • Monthly bills for subscription of broadband, telephone,
mobile, pager and PDA (limited to 1 line per category of
asset)

• Parking rate and parking allowance

Parking
* amount has to be reasonable

• Meal allowance
Meal
*amount has to be reasonable and given at the same rate to all employees

• Housing Loan
Subsidised • Education Loan
Interest on Loan • Car Loan
*if the amount of loan does not exceed RM 300,000

Childcare • Exempt up to RM2,400 per year (children up to 12 years old)

• In respect of certain awards (e.g. excellence, innovation, long

Awards
service of more than 10 years) exempt up to RM2,000

It should be noted that the exemptions above are not available to employees
who exercise control over their employer (i.e. they are the owner or a partner
or the affairs of the company are conducted according to their wishes due to
their shareholding or voting power). Also note that the amount chargeable to
tax in respect of payments by the employer can be reduced if the employee
makes use of such amenities in the performance of his official duties, on the
condition that such official duties can be substantiated with a certification by
the employer.

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 3.1.2 Tax Deductions
Certain deductions are available based on the employee’s marital status,
number of children, or certain payments the employee made during the year
and which can be claimed as a deduction up to certain limits. The amounts are
deducted from taxable income to arrive at the employee’s chargeable income.
Form TP1 should be submitted by the employee to their employer in order to
claim PCB deductions on their personal expenses.

PCB Deduction Amount

Personal Tax Relief RM 9,000

Disabled individual RM 6,000

Spouse has no income RM 4,000

Spouse is disabled RM 5,000

For each child under 18 - deduction can be

claimed by one parent (100%) or by both RM 2,000
parents if separated (50% each)

Deductions for children in higher educa-

tion/disabled child/disabled child in higher RM 8,000/RM 6,000/RM 14,000
education

EPF contribution [up to RM 4,000] and life

up to RM 7,000
insurance [up to RM 3,000].

SOCSO employee contribution up to RM 250

Lifestyle relief - additional deduction up to

RM 500 for sports equipment, facilities rent- up to RM 2,500
al, competition fees

Either Medical or Carer expenses for

parents resident in Malaysia OR a personal
deduction of RM 1,500 for each parent up to RM 8,000
above 60 years old with an income not
exceeding RM 24,000 per annum

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 PCB Deduction Amount

Basic supporting equipment for a disabled

up to RM 6,000
person (self, spouse, child or parent)

Higher education fees for self, limited to

certain qualifications/subjects - including up up to RM 7,000
to RM 1,000 for upskilling courses

Domestic Tourism Expenditure

(between 1 March 2020 and 31 December up to RM 1,000
2021)

Medical expenses for certain serious diseas-

es (self, spouse or child) or fertility treatment
(self and spouse) - including up to RM1,000 up to RM 8,000
for vaccinations and RM 500 for complete
medical examination

Fees to childcare centres or kindergartens

up to RM 3,000
(for children 6 years and below)

Breastfeeding equipment that can be claimed

up to RM 1,000
by women every 2 years

Payment of alimony to former wife up to RM 4,000

Education and medical insurance premiums

up to RM 3,000
(self, spouse and child)

Net deposit in Skim Simpanan Pendidikan

up to RM 8,000
Nasional (SSPN)

Private retirement scheme contributions and

up to RM 3,000
deferred annuity premiums

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 In PayrollPanda, we have 70+ preset payroll items,
Did You all set up according to the statutory regulations.
Know? Plus you can create your own custom payroll items!

3.1.3 Calculation
Income tax is based on residence and not nationality. If an employee
spends less than 60 days in Malaysia, they are exempt from income tax.
If the employee is considered non-resident (broadly if they spend less than
182 days in Malaysia in the tax year or less than 90 days per year over 4 years)
they will be taxed at a flat rate of 30% and not be entitled to the tax deduc-
tions enjoyed by residents. Residents are taxed at a graduated rate of 0% to
30%. Let’s have a look at how to calculate PCB for employees who have tax
residence status in Malaysia.

HR staff preparing payroll without payroll software may use the PCB table
(jadual PCB) to determine the PCB amount for each employee. The PCB table is
based on an employee having the same salary throughout the year, so in many
cases where salary varies or the employee starts or changes employment
during the year, the amount will not be an accurate reflection of their actual
income tax payable. The formula specified by LHDN for payroll softwares
is based on actual income received during the year and therefore a more
accurate reflection of the employee’s income tax liability.

The formula consists in calculating the provisional annual taxable income of

the employee, then deducting allowable tax deductions, and applying the tax
rates to the annual chargeable income. The tax rebates and PCB already paid
in previous months are deducted and the remaining PCB spread out over the
current and remaining months.

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The steps for calculating PCB are as follow:

Calculate chargeable income for the year

Step 1 (not including additional remuneration for the month)

Step 2 Apply tax rates

Step 3 Apply tax rebates and deduct PCB already paid in previous months

Step 4 Calculate PCB for the current month

Step 5 Calculate PCB on additional remuneration

Step 1 - Calculate the provisional annual chargeable income

• Calculate taxable income for previous months in the current year, including
income from any previous employment if the employee has joined during the
year. It is the employer’s responsibility to ensure all new employees provide form
TP3 informing the employer of their previous income during the year. Do not
include tax exempt salary items, unless the exemption limit for that item has been
exceeded. Deduct EPF previous employee contributions up to a maximum of RM
4,000 annually).

• Add taxable income for this month (again do not include exempt items and
for current month only include items which are paid on a monthly basis, not
one-off items like bonuses) and deduct EPF contributions for the month without
exceeding the RM 4,000 total annual limit.

• Add estimated taxable income for the rest of the year (take the taxable income
for this month as calculated above and multiply by the number of months left
in the year) and deduct estimated EPF contributions for the rest of the year
(again based on current month and ensuring the RM 4,000 total annual limit
is not exceeded).

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 • Substract tax deductions (including individual deduction of RM 9,000 and any
spouse/children deduction, or any other tax deductions for both previous and
current months, including SOCSO employee contributions).

Tax on additional remuneration (e.g. bonus) for the current month is calculated
separately as will be shown later so it is not included at this stage in the chargeable
income.

Example of chargeable income calculation:

• Payroll month: October 2021

• Date Mr Lim joined: 1 April 2021

• Married (spouse working), 1 child (100%)

Previous salary from Previous salary from

previous employment current employment Salary for October 2021
(Jan - March 2021) (Apr - Sept 2021)

Basic RM 9,900 Basic RM 24,000 Basic RM 4,000

Bonus RM 1,000 Bonus RM 2,000 Travel Allowance

RM 300 (Exempt)
Travel Allowance Travel Allowance
RM 900 (Exempt) RM 1,800 (Exempt) EPF (Employee)
RM 440
PCB RM 20 PCB RM 30

SOCSO RM 19.75
EPF (Employee) EPF (Employee)
RM 1,200 RM 2,640

SOCSO RM 45 SOCSO RM 120.25

Chargeable income = (9,900 + 1,000 + 24,000 + 2,000 - 1,200 - 2,640) + (4,000 - 160*) +
(4,000 - 0*) x 2 - (9,000 + 2,000 + 45 + 120.25 + 19.75) = RM 33,715
*current month EPF contribution is limited to RM160 and future months to 0 as the annual limit of
RM 4,000 has been reached

24
 PayrollPanda is officially approved by the Inland
Did You Revenue Board of Malaysia (LHDN) and calculates PCB
Know? automatically

Step 2 - Apply tax rates

The appropriate tax rates are applied to the chargeable income according to the
different tax bands it falls into.

Using Mr Lim’s chargeable income of RM 33,715

• 0% on the first RM 5,000 = RM 0

• 1% on the next RM 15,000 = RM 150

• 3% on the next RM 13,715 = RM 411.45

• Total tax = RM 150 + RM 411.45 = RM 561.45

Step 3 - Apply tax rebates and deduct previous PCB

Tax rebates are different from tax deductions in that tax deductions reduce the
chargeable income while tax rebates are deducted from the tax amount itself.

There are 3 types of Tax Rebate:

Personal Tax Rebate of RM 400 Zakat Departure Levy

Available for employees whose Muslim employees can deduct zakat Employees who perform umrah
chargeable income does not exceed paid directly to the zakat authorities or other pilgrimages to holy
RM 35,000. A further RM 400 rebate is from their income tax. Form TP1 places are entitled to income
available if the employee’s spouse has should be submitted to the employer. tax rebate on departure levy
no source of income. Zakat can also be paid through imposed on outbound air
payroll via salary deduction. passengers. Rebate can be
claimed twice in a lifetime. Not
available for departure levy
for hajj. Form TP1 should be
submitted to the employer.

25
In Mr Lim’s case the chargeable income of RM 33,715 does not exceed RM
35,000 so we can deduct the personal tax rebate of RM 400:

Annual tax = 561.45 - 400 = RM 161.45

• If the employee paid zakat/departure levy in previous months, it should be

deducted from the annual tax at this stage, but not zakat paid in the current
month as that is deducted from the PCB payable that month at a later stage.
If zakat is paid via payroll then it should also be shown as a deduction in the
employee’s payslip, reducing net pay.

Now to obtain the amount of tax still payable for the current month and the rest
of the year we deduct the PCB already paid in the previous months of the year:

z Remaining tax = 161.45 - (20 + 30) = RM 111.45

Step 4 - Calculate PCB on recurring remuneration

To calculate PCB for the current month, the remaining tax needs to be divided
by the number of months remaining in the year (including the current month),
so using our example: PCB for Oct 2021 = 111.45 / 3 = RM 37.15.

Monthly PCB is rounded to the nearest upper 5 sen. Note that if the PCB before
zakat/departure levy rebate is less than RM 10, then the PCB should be reduced
to nil and no PCB is payable for the month.

If the employee paid zakat/departure levy in the current month the rebate is
deducted at this stage from the PCB for the month.

Step 5 - Calculate PCB on additional remuneration

If the employee receives additional remuneration (like a bonus or other non-

recurring payment) in the current month, the PCB on the additional remuneration
is calculated separately by calculating the remaining annual tax on total
chargeable income including the additional remuneration for the current month,
and deducting the remaining PCB payable on the recurring remuneration.

The reason the PCB on additional remuneration is calculated separately is that it

should be paid in the month the remuneration is received and not spread over
the remaining months as is the case with the PCB on recurring remuneration
(see step 4).

26
Let’s assume Mr Lim received a bonus of RM 2,000 in October 2021.

The EPF employee contribution at 11% on the bonus is RM 220. That is reduced to 0 in the
PCB calculation since the annual limit of RM4,000 for EPF contribution has already been
reached.

Total chargeable income

33,715 (chargeable income excluding bonus as calculated above)
including bonus (net of
+ 2,000 (bonus) - 0 (EPF on bonus) = RM 35,715
EPF on bonus)

Tax on total chargeable

income (rebate of RM
400 no longer available 5,000 x 0% + 15,000 x 1% + 15,000 x 3% + 715 x 8% = RM 657.20
as chargeable income is
over RM 35,000)

657.20 (tax on total chargeable income) - 37.15 x 3 (PCB on re-

PCB on bonus curring remuneration for the remaining 3 months) - 50 (previous
PCB) = RM 495.75

Total PCB for Oct 2021 = 37.15 + 495.75 = RM 532.90

3.2 CP38 Tax Deduction Order

If an employee has tax arrears payable for previous years, LHDN may issue an
instruction to their employer to deduct the tax from the employee’s salary in
monthly instalments.

LHDN will indicate how much to deduct monthly and for how many months.
This deduction eases the burden on the employee of having to pay the full tax
arrears in one lump sum.

The amount of CP38 deduction is added to the PCB for the month and paid over
by the employer to LHDN. However the amount of CP38 deduction paid should
not be added to the previous PCB for PCB calculation purposes in the following
months since the PCB does not relate to the current year.

27
3.3 EPF
The Employees’ Provident Fund (Kumpulan Wang Simpanan Pekerja), commonly
known by the acronym EPF (or KWSP), is a government agency under the Ministry
of Finance. It manages the compulsory savings plan and retirement planning for
private sector workers in Malaysia.

Unlike PCB, EPF is based on nationality and not tax residence status. EPF con-
tributions are mandatory for Malaysian citizens and permanent residents, while
foreigners can choose whether or not to contribute.

Both employee and employer contributions are payable. The employee contri-
bution is a deduction from gross pay in the employee’s payslip. The employer
contribution will also usually appear on the payslips but is not deducted from
the employee’s salary as it is the responsibility of the employer.

3.3.1 Contribution Rates

• Employee and employer contribution rates depend on the age of the
employee. For employees aged 60 to 75, the rate is 4% for employers and
employees no longer need to contribute.

• Employee contributions for employees under 60 are normally set at

11%. However, for wages from January to December 2021, the EPF
rate is temporarily reduced to 9%. Employees can opt to maintain their
EPF contribution at 11%. In order to do so the employee must submit
form KWSP 17A (Khas 2021) to their employer who should submit the
employee’s application via their Employer i-Akaun.

• Employer contributions for employees under 60 are set at 13% for employees
whose salary subject to EPF is RM 5,000 or below, and 12% for employees
with salaries above RM 5,000 (unless the salary is normally RM 5,000 or
below and only above RM 5,000 due to receiving a bonus - in that case the
rate should remain at 13%) .

• Foreigners who opt to contribute to the EPF have minimum employee

contributions set at 11% (reduced to 9% for 2021 wages), but their employers
are only required to contribute RM 5 monthly, though they may opt to
contribute more.

28
• Contribution rate percentages are approximate and employers must remit
contributions based on the Third Schedule of the Employees Provident Fund
Act 1991, which provides the contributions according to each salary range.

3.3.2 Exempt Payments

In general, all monetary payments that are meant to be wages are subject to EPF
contribution, including:

• Salaries • Incentives
• Payments for unutilised annual • Arrears of wages
or medical leave
• Wages for maternity leave
• Bonuses
• Wages for study leave
• Allowances (except a few,
• Wages for half day leave
see below)
• Other contractual payments or
• Commissions
otherwise

The following payments are not considered “wages” by the EPF and are not subject
to EPF deduction:

• Service charges (tips, etc) • Travel allowances

• Overtime payments (including • Payment in lieu of notice of ter-
payments for work carried mination of service Director’s
out on rest days and public fee
holidays)
• Gratuity (payment to employee
• Gift (includes cash payments
payable at the end of a service
for holidays like Hari Raya,
period or upon voluntary
Christmas etc.)
resignation)
• Benefits-in-kind and
• Retirement benefits
non-monetary perquisites
• Termination benefits

29
Example
An example of calculation of EPF employer and employee contributions - Ms Anita:

• Age: 30 - maintained contribution at 11%

• Basic salary: RM 5,100

• Overtime: RM 500 (exempt)

• Travel allowance: RM 800 (exempt)

• Bonus: RM 1,230

Salary subject to EPF Referring to EPF Table

Salary subject to EPF = 5,100 + 1,230 =RM 6,330 EPF employee = RM 704

Salary subject to EPF = 5,100 + 1,230 =RM 6,330 EPF employer = RM 768

30
 In PayrollPanda, EPF is calculated automatically.
Did You It’s also possible to add additional rate if the
Know? employee or employer wishes to increase their
contribution.

3.4 SOCSO
SOCSO (Social Security Organisation), also known as PERKESO (Pertubuhan
Keselamatan Sosial), is a government agency that was established to provide
social security protections to Malaysian employees. Since June 2016 all Malaysian
and permanent resident employees must contribute to SOCSO. As of Jan 2019,
foreign workers must contribute as well.

SOCSO has two insurance schemes for its members:

Employment
Provides coverage for workplace accidents
Injury Scheme

Provides coverage to employees who suffer from

Invalidity
invalidity or death due to any cause and not relat-
Scheme
ed to their employment

31
Members of SOCSO are divided into two categories:

1. Receive coverage under both schemes.

2. Receive coverage under the Employment Injury Scheme only.

• The contribution values for both schemes can be found in a table provided by
PERKESO: PERKESO Contribution Table

3.4.1 Employment Injury and Invalidity Scheme

• All employees below 60 contribute under this category, unless they began
contributing at the age of 55 or above.

• Under this category, the employer makes a contribution based on the

employee’s monthly salary up to a maximum value of RM 69.05, while the
employee contributes up to a maximum value of RM 19.75.

3.4.2 Employment Injury Scheme

• Employees who are 60 and above, and those who began contributing
to SOCSO at the age of 55 or above, contribute under this category, as
well as insured people receiving an invalidity pension while still working,
and receiving less than one third of their average monthly salary before
invalidity.

• As of January 2019, foreigners are covered under this scheme.

• Under this category, the employer makes a contribution based on the

employee’s monthly salary up to a maximum value of RM 49.40. There are
no employee contributions.

3.4.3 Exempt Payments

• “Wages” for contribution purposes refers to all remuneration payable in
money by an employer to an employee, and include:

• Basic Salaries • Payments in respect of leave

• Overtime payments • Service charges
• Commissions

32
• The following payments are not considered “wages” and are not included in
the calculations for monthly contributions:

• Any contribution payable by • Annual bonus

the employer towards any
• Gifts - e.g., cash payments
pension or provident fund
for holidays like Hari Raya,
• Any travelling allowances Christmas
• Any gratuity payable on • Benefits-in-kind and
discharge or retirement of the non-monetary perquisites
employee
• Any sum paid to cover expens-
es incurred by the employee in
the course of his duties

Example
Using the example of Ms Anita for EPF above:

• Age: 30

• Basic salary: RM 5,100

• Overtime: RM 500

• Travel allowance: RM 800 (exempt)

• Bonus: RM 1,230 (exempt)

Salary subject to SOCSO contributions = 5,100 + 500 = RM 5,600

SOCSO employee (based on SOCSO table): RM 19.75

SOCSO employer (based on SOCSO table): RM 69.05

33
3.5 EIS
The Employment Insurance System (EIS) was first implemented in January 2018
as a social security network aimed at helping workers who lost their jobs with
financial assistance and seeking new jobs. It is administered by PERKESO.

All Malaysian and permanent resident employees aged 18 to 60 years old have
to contribute except for employees aged 57 years and above who have never
contributed before.

The contribution rate is ~0.2% of gross pay for the employee’s share and
~0.2% for the employer’s share, and is capped at a monthly salary of RM 4,000.
Payments exempt from EIS are the same as for SOCSO.

Example:
Using the example as for SOCSO above:

• Age: 30

• Basic salary: RM 5,100

• Overtime: RM 500

• Travel allowance: RM 800 (exempt)

• Bonus: RM 1,230 (exempt)

Salary subject to EIS contributions = 5,100 + 500 = RM 5,600

EIS employee (as per EIS table): RM 7.90

EIS employer (as per EIS table): RM 7.90

• The contribution amount can be found in a table provided by PERKESO:

EIS Contribution Table

34
Did You When using PayrollPanda, Socso & EIS contributions
Know? are calculated automatically.

3.6 HRDF
Employers in the specified manufacturing, services and transportation sectors
must contribute to the Human Resources Development Fund in order to devel-
op the technical skills of their employees through training schemes.

The HRDF levy payable by the employer amounts to 1% of their local

employees’ monthly wages (basic salary + fixed allowances apart from travel
allowances) for employers with 10 or more Malaysian employees. For com-
panies with 5 - 9 Malaysian employees the rate is 0.5% of monthly wages and
registration is not compulsory.

35
 Payroll Forms
4.1 Monthly Forms
Payroll forms together with appropriate payments must be submit-
ted monthly for all statutory contributions by the specified deadline.
Fines and/or imprisonment may be imposed for failure to make payment on
time. Payments can be made at LHDN/EPF/SOCSO counters, bank or post
office, or through online banking.

• Form CP39 online submission only via LHDN portals (e-CP39,

e-PCB or e-Data PCB) or bank files
PCB
• To submit by the 15th of the following month (or previous
working day if 15th is a holiday)

• Form A at counter or online via Employer i-Akaun or bank files

EPF • To submit by the 15th of the following month (or following
working day if 15th is a holiday)

• Form 8A at counter or online via Assist Portal or bank files

SOCSO • To submit by the 15th of the following month (or previous
working day if 15th is a holiday)

• Form SIP 2A or online via Assist Portal or bank files

EIS • To submit by the 15th of the following month (or previous
working day if 15th is a holiday)

• Payment must be made to PMSB collection agents using Form

HRDF
2A by the 15th of the following month.

With PayrollPanda, statutory and bank payment

Did You files are automatically generated for upload to the
Know? statutory portals or to your bank portal for easy
online submission and payment.

36
4.2 Annual Forms
The following annual forms are required by LHDN:

Statement of remuneration paid to employees and

Form E PCB deducted during the year; must be submitted
to LHDN by 31 March of the following year.

Statement of remuneration paid to an employee

during the year; must be issued to the employee
Form EA
by the last day of February of the following year
(C.P. 8A)
in order for them to prepare their tax return; not
submitted to LHDN.

37
PayrollPanda helps you to generate Yearly forms too! These are the examples:

4.3 Employee Movement Forms

Notification for those leaving Malaysia for an
CP 21
extended period or permanently

Notification of new employee subject to income

CP 22
tax (Applicable for Public & Private Sector)

Notification for those retiring from employment

CP 22A
(Only Applicable for Private Sector)

Notification for those retiring from employment

CP 22B
(Only Applicable for Public Sector)

38
 Payroll Solution
There are a few options for running the monthly payroll for your company.

Desktop Cloud Outsource

Excel
Software Software Payrol

Any computer
1 computer; 1 computer; No access
Accessibility with internet
offline access offline access needed
access

Minimum RM30
High one-off Monthly
per employee
Free with MS payment subscription,
Affordability per month, with
Office with yearly varies according
a minimum
maintenance to headcount
threshold

Statutory Software
No to little train- No training
Usability requirement training
ing required required
training needed required

Strong after
sales support
Low to no Strong after
Support - (depends
support sales support
on software
provider)

Updates provided Free automatic No update

Updates -
with a fee updates required

Protected by Depends on
Security - -
server host service provider

Synced to Depends on
e-Leave - -
payroll service provider

Integrates with
Integrations - - other cloud -
solutions

39
Benefits of Cloud
Save time and effort: No installation or setup
needed. Work on the latest data with seamless
updates.

Affordable: Pay-as-you-go. Don’t worry about

getting a cumbersome software that comes
with a huge upfront cost.

Accessibility: Have access to your data

anytime, anywhere, all you need is an active
internet connection.

Automation: System updates are done auto-

matically. No more waiting hours in front of
your computer for an update to be completed,
get work done without any disruptions.

Integrations: Cloud solutions seamlessly inte-

grate with other cloud solutions. Which allows
you to save time and reduces the chance of
manual errors, no more double entry needed.

40
PayrollPanda Introduction
7.1 Company Intro
PayrollPanda.my is Malaysia’s leading online payroll and HR software, enabling
business owners and HR managers to run LHDN approved payroll in just a few clicks.
It makes payroll simple and quick - it’s so easy-to-use that no training is required.

In addition to payroll management, PayrollPanda comes with leave manage-

ment and an employee database. We are continuously improving our product,
typically releasing new updates every two weeks.

PayrollPanda is used by thousands of Malaysian SMEs from all industries and

has been highly-rated by various review sites.

Our team is made up of 70+ passionate staff that aim to bring the efficiency
of cloud HR to Malaysian businesses. We pride ourselves with our excellent
customer service, all based in Malaysia, and readily available to offer support
via chat, email and phone.

PayrollPanda.my is part of Jibble Group Sdn Bhd. At Jibble Group, we’re build-
ing the next world-class HR apps through our two products, Jibble (jibble.io)
and PayrollPanda (payrollpanda.my).

For further information, you may visit our quick facts help article.

41
7.2 PayrollPanda App
The PayrollPanda app makes payroll and HR simple, by automating the hard stuff. It
comes with free customer support, and includes the following features:

• Monthly Payroll & Payslips

• Statutory Forms

• Bank Integrations

• Leave Management

• Employee Self-Service (ESS)

• Overtime & Timesheets

Trusted by over 1,000 SMEs

If you’re interested to find out how PayrollPanda can help you with your
monthly payroll or if you would like to start doing payroll for your clients, get in
touch at www.payrollpanda.my to book an in-person demo session.

42
The Simplest Way To Manage Your Payroll & HR.

Payroll Panda Sdn Bhd. (1160306-A) | 2021 | admin@payrollpanda.my

+60 3 2787 9168 43