The Complete Employer’s Guide to EPF Contributions in Malaysia

August 20, 2021
Nicholas K

Disclaimer: This article should not be considered to be legal advice, and altHR is not liable for any actions taken based on this article.

If you’re an employee, you’ll probably have a rough idea of how the Employees’ Provident Fund (EPF) — or Kumpulan Wang Simpanan Pekerja (KWSP) — works in Malaysia. Based on the EPF Act 1991, EPF is essentially a form of social security for Malaysian employees, and it functions as a mandatory pension plan for employees who don’t have access to pensions (such as those in the private sector).

Meanwhile, as employers, you’re expected to handle the end-to-end of EPF contributions for your employees. This means that you’re responsible for any potential errors or discrepancies here, which highlights the importance of understanding how to calculate contributions for your employees. 

Still, it’s important for both employees and employers to fully understand how EPF contributions are calculated.

As such, we’ve prepared this complete guide on everything you need to know about EPF contributions in Malaysia. 

Who needs to contribute to EPF? 

It is compulsory for Malaysian employees in the private sector and those holding non-pensionable posts in the public sector to make EPF contributions — although non-Malaysian citizens can also choose to opt in. 

As an employer, you’ll need to ensure that the correct amount of contribution is deducted from your employees’ salaries — and remitted to EPF. Employees include anyone that you have engaged to work under a Contract or Service, or even an Apprenticeship. 

There are exemptions to this, such as domestic servants, any person detained in prison, or, as mentioned earlier, those who are not Malaysian citizens of Permanent Residents. A full list of exemptions for EPF contributions can be found under the First Schedule (Section 2) of the EPF Act 1991

What payments are liable for EPF deductions?

According to the Act, you’ll need to include the following in your calculations for EPF deductions: 

  • Salaries (monthly, weekly, daily, or otherwise)
  • Bonuses
  • Commissions 
  • Allowances 
  • Payments for unutilised Annual Leave 
  • And other forms of monetary remuneration due to an employee under their contract

However, there are a number of exemptions here that are not considered to be liable to deductions for the purpose of EPF, including: 

  • Service charges
  • Overtime payments
  • Gratuity payments
  • Retirement benefits
  • Retrenchment, lay-off or termination benefits
  • Any travelling allowances or the value of any travelling concessions

Now that you understand the basics, let’s move on to the calculation of EPF contributions. 

How to calculate EPF contributions

Before we actually get into the calculations, it’s important to note that employers must pay their employees’ contributions on or before the 15th of the following salary month. This means that employers will need to contribute on behalf of the employees’ shares at first — although this can be recovered when the wage is actually paid out to the employee. 

To calculate contributions for your employees, you’ll need to take into account a number of factors, including monthly salary rate, as well as the age of your employees. As mentioned above, it’s also important to look into the citizenship/permanent residency status of the employee in question. 


Contributions should be calculated based on Monthly Contribution Rate under the Third Schedule of the EPF Act 1991, rather than by the exact percentage; the latter only applies to employees who receive monthly remuneration exceeding RM20,000. Additionally, do note that cents should be rounded up to the next Ringgit for all EPF contributions. 

To better understand this, let’s take a look at this example: 

  • Employee A’s monthly remuneration (including all liable payments, as mentioned above) stands at RM6,250. Based on the Contribution Rate within the Third Schedule, the employer’s contribution should be RM756 (12%), while the employee’s contribution stands at RM567 (9%). This brings the total monthly EPF contribution to RM1,323. 

How to make payments to EPF?

There are a number of ways that employers can make payments to EPF. These include: 

  • e-Caruman
  • Mobile App
  • Internet Banking
  • Bank Agents
  • EPF Counter

KWSP recommends that you use e-Caruman for “faster and easier” monthly contribution submission and payments. To find out more about individual payment methods, click here

Can employees contribute less than 11%?

In early 2020, the government announced that there would be a reduced minimum statutory contribution rate for employees — from 11% to 7%. This applied to EPF members until the end of the year 2020, although employees were also given the option to opt out of the reduced contribution programme. 

Following Budget 2021, a similar announcement was made, although the reduced minimum statutory contribution for the year 2021 was set at a slightly higher 9%. Again, EPF members have the choice of reverting to 11%; to do so, an application has to be made with a Borang KWSP 17A (Khas 2021) form via the employer in question. 

Automate your payroll processes — including EPF calculations — with altHR

In order to survive — and thrive — in the “new normal”, it’s crucial for Malaysian businesses of all sizes to digitalise their HR processes. Calculating EPF contributions for employees can be an arduous, tedious task for even the most experienced of HR professions — but it doesn’t have to be, with Digi’s super app, altHR.

Besides the automation of various other HR processes, altHR comes with a Payroll module that helps employers keep track of all forms of employee remuneration, while automatically calculating monthly salary deductions. This doesn’t just cover EPF contributions, with SOCSO, EIS, and monthly income tax (MTD/PCB) deductions also included. 

These deductions are also automatically adjusted when employers make changes to monthly remuneration of employees, including incentives, bonuses, and other allowances. This automation frees up time for HR professionals to focus on other important matters to the business, while ensuring that monthly payroll is calculated accurately for all employees. 

The best bit? Everything is seamlessly integrated with the other modules within altHR, such as Documents, and Expenses. For example, once payroll has run for the month, admins have the option to send payslips to the Documents module — all within altHR. 

Additionally, the account can also be set to send automated emails, so employees are notified the moment payslips are available. And finally, digital copies of payslipsl are always available — to employees via the Documents module, and admins via the Payroll admin panel. 

HR professionals are often faced with daunting, often tedious tasks on a daily basis — tasks that have become even more difficult to handle in light of the ongoing COVID-19 situation. 

But help is available, if you know where to look. Let us streamline your HR processes by managing and automating day-to-day tasks, so you won’t have to worry about things like paperwork, privacy concerns, time-tracking, or onboarding challenges.

Sign up for altHR, the all-in-one digital solution that covers everything from payroll and onboarding, to staff management and providing employees with information kits. You’ve done it the old way long enough.

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