What Happens When Employers Refuse to Make EPF Payments in Malaysia?

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’ve visited the altHR resources page, you’ll have found useful guides on how to (correctly) calculate payments or contributions to the Employees Provident Fund (EPF) for employers in Malaysia — as well as what to do if you’ve made a mistake in your payments or contribution forms. 

However, what happens if employers in Malaysia simply refuse to make these payments? 

If you’re an employee, you might have discovered this discrepancy when going through your i-Akaun on the official EPF/KWSP portal. And for employers, it’s crucial that you understand the legalities behind EPF contributions — and what the ramifications are if you fail to comply with the law. ‍

The Employees Provident Fund Act 1991

The various rules and regulations governing EPF contributions can be found under one single piece of legislation, the Employees Provident Fund Act 1991. The first thing you’ll need to take note of is that every employee and employer, as defined by the Act, is required to make EPF contributions. 

This is provided for in Section 43(1) of the Act: ‍

“Subject to the provisions of section 52, every employee and every employer of a person who is an employee within the meaning of this Act shall be liable to pay monthly contributions on the amount of wages at the rate respectively set out in the Third Schedule.”‍

There are a number of exemptions to this, but the vast majority of private sector employees and employers are required to contribute to EPF.‍

What are the penalties for late/non-payments? 

Penalties and punishments vary depending on a number of factors, including when or how late employers make payments, as well as the severity of the offence. 

For example, an employer who does not register a new employee with EPF within 7 days from employment date will be liable for an imprisonment term not exceeding 3 years or a fine not exceeding RM10,000 — or both. False EPF statements, both in the form of oral or written statements, could also result in the same penalties. 

Employers also need to notify the EPF whenever an employee leaves the business within 30 days, and as always, you are required to provide an accurate statement of wages to all employees. Failure to do so could lead to: 

• A jail term not exceeding  6 months; or 
• A fine not exceeding RM2,000; or
• Both. 
  

Additionally, according to Section 43(2) of the Act, employers who fail to make contributions by the 15th of every month shall be subject to: 

• A jail term not exceeding 3 years; or
• A fine not exceeding RM10,000; or 
• Both. 
  

Meanwhile, there is an even heavier punishment for employers who deduct EPF contributions from your monthly salary — without actually contributing to your EPF account. This offence, along with employers who deduct employee wages to use as part of the employer’s share of contribution, could lead to: 

• A jail term not exceeding 6 years; or 
• A fine not exceeding RM20,000; or 
• Both. 
  

For larger companies, the penalties are even more severe. According to Section 46 of the Act, failure on behalf of the company’s director, partners, or association of persons to pay outstanding EPF contributions may leave the company liable to court action, including: 

• Bankruptcy 
• Seizure & sale of assets
• Retention of passports
  

As such, it’s absolutely crucial for employers — and HR professionals — to familiarise yourselves with the various rules and regulations surrounding EPF contributions. Failure to understand the implications could affect your employees, as well as your own business. For more detailed information on the enforcement aspect of EPF payments, click here for the official website, and here for the EPF Act 1991. 

Avoid these problems by automating your payroll 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 professionals — 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 payslips 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.