How To Calculate Chinese New Year Bonus 2025 for Employers

Chinese New Year (CNY) is more than just a festive celebration with red decorations and family reunions.

For employers, it’s also a chance to show appreciation to employees through bonuses.

A well-planned CNY bonus can boost employee morale, improve loyalty, and create a positive work culture.

If you’re an employer wondering how to handle CNY bonuses, this guide will help you.

It explains what a CNY bonus is, why it matters, how to calculate it, and how to follow tax rules. Read the explanation below.

What is a Chinese New Year Bonus?

A Chinese New Year (CNY) bonus is extra money employees receive during the festive season.

In Malaysia, this bonus is a common way for employers to show appreciation for their team’s hard work over the past year.

A CNY bonus is different from the 13th-month salary. The 13th-month salary is part of an employee’s yearly pay structure, while a CNY bonus is an additional reward.

Traditionally, this bonus aligns with the cultural practice of giving gifts during the Lunar New Year, symbolizing prosperity and goodwill.

Why Give a Chinese New Year Bonus?

Giving a CNY bonus isn’t just about tradition, it’s also good for business. Here’s why it matters:

Cultural Significance

Giving bonuses aligns with the season's spirit. It’s similar to the tradition of giving red envelopes (ang pau), symbolizing luck and prosperity.

Employees appreciate this gesture, which reflects the values of respect and generosity.

Boosting Employee Morale

A CNY bonus shows employees that their hard work is valued.

When employees feel appreciated, they are more motivated, productive, and loyal to the company.

It’s a simple way to thank your team and boost workplace happiness.

Building a Positive Culture

Offering bonuses during CNY reflects a supportive company culture.

It creates goodwill among employees and strengthens your reputation as a caring employer.

This can help retain talent and attract new employees.

How to Determine the CNY Bonus Amount

When deciding how much to give, there are a few common methods employers use:

1. Performance-Based Bonuses

Some employers tie bonuses to individual performance.

For example, employees who meet or exceed their targets may receive a higher bonus.

This method rewards effort and encourages productivity. However, you need to explain how the bonus is calculated so employees feel it’s fair.

2. Company-Wide Bonuses

Many companies give all employees the same bonus amount, such as one month’s salary.

This is an easy way to manage bonuses, especially for small businesses. Before choosing this method, consider your company’s profitability and budget.

3. Tiered Bonus Structures

For larger organizations, bonuses can vary based on the employee’s role, experience, or department.

For instance, senior employees or those in critical positions may receive a higher bonus.

Long-serving employees might also get extra rewards to recognize their loyalty.

Creative Alternatives to Cash Bonuses

While cash bonuses are common, some employers prefer creative alternatives to reward their staff:

Gift vouchers or hampers: A festive hamper or shopping voucher can be a thoughtful alternative to cash.
Extra paid leave: Giving employees additional time off during CNY allows them to enjoy the holiday with their families.
Celebrations and festive meals: Hosting a company CNY party or providing festive meals can bring employees together and create a sense of community.
Flexible work arrangements: Flexible schedules or remote work options during CNY help employees balance family time and work.
Skill development opportunities: Provide access to courses, workshops, or certifications to support employees’ career growth while showing your investment in their future.

Calculating Tax on Chinese New Year Bonus

When giving a CNY bonus, you must consider taxes. Bonuses are subject to Monthly Tax Deduction (MTD) or Potongan Cukai Bulanan (PCB).

Read the calculation step-by-step below:

1. Combine Salary and Bonus Amount

Start by adding the bonus amount to the employee's monthly salary. This combined total will be used to calculate the tax.

2. Determine Monthly Taxable Income

The combined income is then checked against the Monthly Tax Deduction (MTD), or Potongan Cukai Bulanan (PCB) schedule. This schedule helps identify the appropriate tax rate based on the combined income.

3. Apply Relevant Tax Rate

Use the PCB rate applicable to the combined income to calculate the total tax. Malaysia’s tax system is progressive, meaning higher earnings are taxed at higher rates.

4. Deduct Tax on Regular Salary

Subtract the tax already paid on the employee's regular salary. The remaining amount is the tax specific to the bonus.

Example

Let’s say an employee earns RM5,000 per month and receives a bonus of RM5,000. Here’s how the tax would be calculated:

Step 1: Combine Salary and Bonus

RM5,000 (monthly salary) + RM5,000 (bonus) = RM10,000 total income.

Step 2: Apply Tax Rate

Based on the PCB schedule, the combined income of RM10,000 is taxed at a specific rate. Let’s assume the tax for RM10,000 is RM650.

Step 3: Deduct Tax on Salary

The tax for the regular monthly salary of RM5,000 is RM130.

RM650 (total tax) - RM130 (salary tax) = RM520 (bonus tax).

Important Notes:

Bonuses are considered extra income and follow the same tax rules as salaries.
Employers can use PCB calculators or ask tax experts to ensure accurate calculations.
EPF (Employees Provident Fund) contributions are deducted separately from bonuses, which reduces the final amount employees receive.

Compliance with Malaysian Tax Regulations

To avoid problems, employers must follow Malaysian tax laws when handling bonuses. Here’s what you need to know:

Tax reporting: Bonuses must be included in Form E (employer’s return) and Form EA (employee’s income statement).
EPF contributions: Bonuses are subject to EPF deductions, which must be factored into your calculations.
Avoid penalties: Failing to report bonuses correctly or underpaying taxes can result in fines. Double-check your payroll processes to stay on track.

Frequently Asked Questions (FAQ)

Is a Chinese New Year bonus mandatory in Malaysia?

No, it’s not mandatory, but it’s a widely practiced way to show appreciation.

Are bonuses taxed at a higher rate than regular salary?

Yes, bonuses are considered additional income and taxed based on the PCB schedule for the combined income.

Can employers deduct EPF contributions from bonuses?

Yes, EPF contributions apply to bonuses, and deductions must be made accordingly.

By planning your Chinese New Year bonuses carefully, you can create a positive impact on your employees and your company culture.

A well-thought-out bonus strategy not only follows the rules but also strengthens your relationship with your team, setting a great tone for the year ahead.

Are you looking extra staffs during Chinese New Year?

AJobThing has the solution! Post your job ad instantly and hire within 72 hours. Start today and see results!