Salary Deduction in Malaysia: Types, Rules, Limits & Employer Guide

When employees receive their salary, they don’t get the full (gross) amount.

Instead, they receive the net salary after deductions, such as statutory contributions (EPF, SOCSO, EIS, PCB) or salary cuts due to mistakes at work.

This is a common practice, but it’s important to communicate salary deductions clearly to employees to avoid misunderstandings.

In this article, we will discuss salary deductions, the different types, and when employers need employee consent before making a deduction. Keep reading to learn more.

What is Salary Deduction?

Salary deduction happens when an employer reduces an employee’s pay before giving the salary.

This is usually done for legal contributions, repaying loans, or covering costs for benefits provided by the company.

Some deductions, like EPF (Employees Provident Fund) and SOCSO (Social Security Organization), are required by law.

Others, like meal costs or accommodation, need the employee’s permission.

Knowing what deductions are allowed and what are not allowed is important to keep both businesses and employees safe.

Can Employers Deduct Employees’ Salaries?

Employers cannot simply deduct salaries whenever they want. The Employment Act 1955 controls salary deductions to prevent unfair practices.

Salary deductions are legal only if they meet these conditions:

Statutory deductions such as EPF, SOCSO, EIS, and income tax are required by law.
Court-ordered deductions must be followed if a legal directive is issued.
Employee consent is required for deductions like loan repayments or cooperative fund contributions.
Director General of Labour (DGL) approval is needed for deductions like housing rent, meal plans, or employer-provided benefits.

If an employer makes deductions that do not follow these rules, they can be fined or face legal action.

When Deductions May Be Required

There are situations where employers must deduct salaries, such as:

Statutory Contributions

Employers must deduct and submit contributions which have been decided by Malaysian government, such as EPF, SOCSO, EIS, and PCB.

Court-Ordered Deductions

When a court issues an order for an employee to pay debts or fines, the employer is required to deduct the specified amount from the employee's salary and transfer it to the authorities.

Repayment of Salary Advances or Loans

An employer who provides a salary advance or personal loan can recover the repayment through salary deductions.

However, the deduction must not exceed 50% of the employee’s monthly salary.

Compensation for Damage or Loss

If an employee damages company property or loses money they are responsible for, deductions can be made. However, before deducting, the company must:

Conduct an internal inquiry.
Allow the employee to explain their side.
Not deduct more than 25% of their monthly salary for damage costs.

Types of Deductions Allowed

There are three types of salary deductions employers can make:

1. Deductions Without Employee Consent

Employers do not need employee permission for these deductions:

Overpayment of salary (but only for the last three months).
Salary deductions for resigning without serving the notice period.
Wage advances given to employees (without interest).
Statutory deductions like EPF, SOCSO, EIS, and PCB.

2. Deductions at Employee’s Request

Employees can request in writing for deductions, such as trade union or cooperative society contributions or purchase of company shares (if available).

3. Deductions with Employee Request and Labour Office Approval

Some deductions must be approved by the Director General of Labour (DGL) before being deducted from salaries. These include:

Housing rent and meals provided by the employer.
Transport costs, insurance, and investment schemes.
Repayment of wage advances with interest.

Employers must apply to the Jabatan Tenaga Kerja (JTK) for approval, which usually takes 2-3 months. Deductions cannot be made until approval is received.

Maximum Amount of Deductions

Malaysian law limits salary deductions to 50% of an employee’s salary per month, except for:

Final salary payments when an employee leaves the company.
Housing loan repayments, which may increase the limit to 75% with DGL approval.

Employers who exceed these limits may face penalties.

Penalties for Non-Compliance

Employers who violate salary deduction regulations may face:

Fines up to RM10,000 per offence under the Employment Act 1955.
Blacklist from hiring foreign workers if found guilty of illegal wage deductions.
Potential lawsuits from employees or intervention from the Labour Department (JTKSM).

Deducting Salaries of Migrant Workers

Employers who hire foreign workers must follow strict rules when deducting their salaries.

1. Foreign Worker Levy

As per Immigration Regulations, the employer is responsible for paying the foreign worker levy (RM1,500–RM2,000 annually, depending on sector).

Employers cannot deduct this from wages.

2. FOMEMA Medical Screening & Work Permit Renewal

Employers must bear costs related to annual medical screening (FOMEMA) and work permit renewals.

Deducting these costs from workers' salaries is not allowed.

3. Food & Transportation

Deduction is permissible only with written employee consent and approval from JTKSM.

4. Salary Advances & Loans

If an employer provides cash advances, deductions must be structured so that it does not exceed the 50% wage deduction limit.

Employers should maintain proper documentation for transparency.

FAQ

Can an employer deduct salary for being late to work?

No, unless it is clearly stated in the employment contract. Even then, the deduction must be reasonable.

Are deductions for uniforms, meals, and accommodation allowed?

Yes, but only with the employee’s written consent and approval from the Director General of Labour.

Can an employee refuse salary deductions?

Employees cannot refuse statutory deductions like EPF, SOCSO, and income tax. However, they can refuse deductions that are not required by law.

How do employers record salary deductions in payroll?

All deductions should be clearly listed on payslips and recorded properly to avoid disputes.

What happens if an employer makes an illegal deduction?

Employers who make unauthorized deductions can face penalties under the Employment Act 1955, including fines or legal action.

How much EPF deduction is taken from an employee’s salary?

The percentage of EPF contributions varies between 9% and 11%, depending on the employee's selected rate and age.

How much SOCSO deduction is taken from an employee’s salary?

An employee's salary and the type of coverage determine the SOCSO deduction, which falls between 0.5% and 1.75%.

While salary deductions help businesses manage statutory contributions and recover costs, they should never burden employees unfairly.

Employers must strike a balance between compliance and fairness to ensure that deductions are legal, reasonable, and well-communicated.

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