We’ve recently covered some important elements of payroll for Malaysian employers — calculations for the Employees’ Provident Fund (EPF/KWSP), overtime pay rates, and even the types of paid leave that Malaysian employees are entitled to.
However, calculating and handling payroll can be a tedious process for many HR professionals, and mistakes and errors often creep in. With that in mind, we’ve compiled a list of crucial mistakes that you need to avoid when calculating payroll for employees in Malaysia.
Stick till the end, and we’ll also have some advice for how to absolutely kill any chance of these errors from happening for your business (again).
According to the Employment Act 1955, employers are required to payout monthly wages on the seventh day of the following month — or earlier. However, the Act only covers a number of select employee categories in Malaysia:
Employees not covered by the Act should still be paid by the seventh day of the following month, however, and those earning above RM2,000, for example, can still file a complaint with the Labour Department for late payments.
This is because Section 69 of the EA 1955 provides that the Director General of Labour in Malaysia has the authority to decide wage disputes between employers and employees who earn under RM5,000 per month.
Additionally, Section 2 of the Industrial Relations Act 1967 defines other employees as a “workman”, which means you’ll put your business at risk of legal action from your staff — even if they earn more than RM5,000 a month.
When calculating payroll, it’s hugely important to get the raw numbers correctly — including the daily wage of your employees. For one thing, the daily wage — also known as the ordinary rate of pay — is used when calculating elements like unpaid leave and prorated salaries, while it is also crucial to overtime pay calculations for employees.
So, how do you calculate daily wages for monthly/daily wage earners?
In general, the Employment Act 1955 provides a simple formula for calculating an employee’s “ordinary rate of pay” — which is basically an employee’s daily wage. For employees that are paid on a monthly basis, you need to divide the monthly wage by 26 days:
Meanwhile, you can calculate the daily wage of employees who are paid on a weekly basis by dividing the wage by 6 days:
When it comes to calculations for the Employees’ Provident Fund (EPF), it’s important to note that contributions and payments should not be calculated based on the exact percentage of the employee’s salary or remuneration. Rather, you should be referring to the Monthly Contribution Rate under the Third Schedule of the EPF Act 1991 to get the accurate amount of payment owed to the EPF.
Here’s an example of how that works:
There is an exception to this, however — if your employees earn more than RM20,000 per month, you should use the exact percentage to calculate EPF payments.
If you’ve made a mistake with EPF contributions, click here to find out how to fix the error with the EPF. Meanwhile, click here to find out about the legal consequences for employers who refuse to make EPF payments in Malaysia.
Besides EPF contributions, there are also a number of other deductions that you’ll need to include when calculating payroll for your employees. For one thing, you’ll need to be aware of the different categories for SOCSO/PERKESO contributions, along with deductions for the Employment Insurance System.
There are also two ways to calculate the MTD/PCB for your employees — basically, their monthly income tax deductions. The first method is to simply input the relevant numbers into a computerised LHDN calculator, although you can also use this contribution table to calculate the accurate deductions.
There are also a wide variety of online calculators that will calculate your payroll for you, although this usually requires HR professionals to manually input data into a web-based form. However, there is an option that is LHDN-approved, and seamlessly integrated into a HR super app that does a little bit of everything.
Keeping track of everything can be challenging, particularly for employers and HR professionals in the SME sector. What’s abundantly clear is that it’s crucial for Malaysian businesses of all sizes to digitalise their HR processes. Keeping track of payroll 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 covers EPF contributions, as well as 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. We can streamline your HR processes by managing and automating all of your 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.
If you are interested to learn more about altHR, find out more here.