Do You Need To Make EPF Payments for Bonuses and Cash Allowances 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.
The Employees’ Provident Fund (EPF), also known as Kumpulan Wang Simpanan Pekerja (KWSP), is a part of life of most, if not all employees in Malaysia. The fund plays a crucial role in society, as the EPF essentially functions as a form of social security, as well as a (mandatory) pension plan for employees in the private sector here.
Consequently, employers bear the responsibility of ensuring that EPF contributions are made accurately and in a timely manner. For those of you who have made errors with contribution calculations, click here for a quick guide on how to rectify the mistakes; for employers refusing to make these contributions, click here to find out what the consequences are.
For today’s article, we’ll discuss an often-asked question when it comes to this area: Do you need to make EPF payments for bonuses and cash allowances in Malaysia?
Payments that are liable for EPF contributions
According to Section 43(1) of the EPF Act 1991, every employee and every employer must make monthly contributions to the EPF. As for the amount that needs to be contributed, this can be calculated based on the employee’s wages, and the Third Schedule of the Act — not by exact percentages, unless monthly wages surpass RM20,000.
Now, the next thing to consider here is whether payments like bonuses or cash allowances are considered to be a part of your wages. The answer, according to the official EPF website, is clear:
“Wages are all remuneration in money due to your employee under his contract of service or apprenticeship whether it was agreed to be paid monthly, weekly, daily or otherwise.”
In short — yes, bonuses and cash allowances are considered to be part of your wages. Additionally, the following list of payments must be included when calculating EPF contributions for employees in Malaysia:
- Salary
- Allowance
- Incentives
- Wages for study leave
- Payment for unutilised annual/medical leave
- Commission
- Arrears of wages
- Bonus
- Half-day wages
- Maternity leave wages
For example, employee A earns RM6,000 per month as their basic salary. For the month of September, they receive a bonus of RM250 as part of the company’s annual performance bonus. To calculate the contribution for the month of September, the monthly wages should be taken as a total of RM6,250.
What payments are not liable for EPF contributions, then?
However, there are a number of payment types that will not be subject to EPF deductions. These are covered by the EPF Act 1991, and have also been listed out on the official EPF website:
- Service charges
- Overtime payments
- Gratuity payments
- Retirement benefits
- Retrenchment, temporary lay-off, or termination benefits
- Travelling allowances/concessions
- Or any other payment that is exempted by the Minister
As such, it’s a good habit for employees to regularly check their monthly pay slips in order to ensure that their employers are making accurate EPF contributions on their behalf — and if the right payments are being included in the calculations.
To read our complete guide to EPF contributions for employers in Malaysia, click here.
Need more advice? We are ready to help!
Success!
Awesome, here's your download!
If you are interested to learn more about altHR, find out more here.
Or… automate the entire process 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.
Subscribe to the altHR Resources blog
Success!
Awesome, here's your download!
If you are interested to learn more about altHR, find out more here.
More Content Like This
Top 10 Fun and Unique Year-End Activities for Teams in Malaysia
.png)
Building Microcultures in the Workplace
Your Ultimate Guide to Long Weekends in 2025: Public Holidays in Malaysia
8 Lessons We Can Learn from Netflix HR
10 Easy Ways to Show Appreciation to Your Team at Work
How to Use AI Technology in HR for Malaysian Companies
How to Build a Solid Internship Experience
