Statutory Contributions in Malaysia Explained for Employers and HR

Statutory contributions are part of every employer’s legal obligation in Malaysia. Missing a payment can lead to fines, audits, and even legal action. Whether you’re managing payroll for a small business or a large company, this article explains how statutory contributions work, how they differ from deductions, and how to handle them correctly every month.

What are Statutory Contributions in Malaysia

Every Malaysian employer must contribute to funds that protect employee welfare and future security. These payments are known as statutory contributions.

A statutory contribution is a mandatory payment made by employers and employees to government bodies such as the Employees Provident Fund (EPF), the Social Security Organisation (SOCSO), the Employment Insurance System (EIS), and the Human Resource Development Corporation (HRD Corp).

These contributions serve vital purposes, from retirement savings and injury protection to unemployment assistance and training development. They are the backbone of Malaysia’s social security system, ensuring employees have a safety net and employers remain compliant with the law.

Do not confuse between statutory contributions with statutory deductions. Contributions are shared by both employer and employee, while deductions are amounts withheld solely from the employee’s salary, such as income tax (PCB).

Difference Between Statutory Contributions and Statutory Deductions

While the two terms often appear together in payroll discussions, they mean different things.

Aspect	Statutory Contribution	Statutory Deduction
Definition	Payments made by both employer and employee to government funds.	Amounts deducted only from employee’s salary.
Examples	EPF, SOCSO, EIS, HRD Corp.	PCB (Potongan Cukai Bulanan), Zakat, loan repayments.
Who Pays	Shared between employer and employee.	Employee only.
Purpose	Supports welfare, social protection, and employee upskilling.	Fulfils individual employee obligations (tax or loan).

In short, contributions = shared responsibility, while deductions = employee-only obligations.

Types of Statutory Contributions Every Employer Must Know

Malaysia has several statutory contribution schemes that protect employees’ welfare, provide social security, and encourage professional development. Below are the main statutory contributions every employer must understand and manage correctly.

Employees Provident Fund (EPF / KWSP)

The Employees Provident Fund (EPF) is Malaysia’s national retirement savings scheme under the Employees Provident Fund Act 1991 (Act 452). Both employers and employees contribute monthly to ensure financial stability for workers after retirement.

Contribution Rates

Employer: 13% (12% for employees earning RM5,000 and above).
Employee: 11%.

Due Dates for Payment and Submission

Contributions must be paid on or before the 15th of the following month.
Late payments are subject to interest at EPF’s declared dividend rate + 1% (minimum RM10).

How to Pay EPF Online

Use the EPF i-Akaun Employer Portal to submit contribution details and make payment via FPX, cheque, or bank transfer.
Keep the payment confirmation slip as proof for payroll and audit purposes.

Employers can claim tax deductions up to 19% for EPF and Private Retirement Scheme contributions. Offering higher EPF contributions can also be positioned as an employee benefit.

Social Security Organisation (SOCSO / PERKESO)

The Social Security Organisation (SOCSO) provides protection to employees under two key schemes (the Employment Injury Scheme and the Invalidity Scheme) covering workplace accidents, illnesses, and permanent disabilities.

Coverage

All Malaysian employees below 60 years old.
Employees aged 60 and above are covered under the Employment Injury Scheme only.

Employer and Employee Contribution Rates

Employer: About 1.75% of monthly wages.
Employee: About 0.5%.

SOCSO Payment Methods and Claim Procedures

Payments must be made by the 15th of the following month through the PERKESO Assist Portal.
Late payments incur 6% interest per annum on the outstanding amount (minimum RM5).
Employers must report accidents within 48 hours using Form 21 and assist employees in filing medical or compensation claims with PERKESO.

Employment Insurance System (EIS)

The Employment Insurance System (EIS) is administered by SOCSO and supports employees who lose their jobs due to retrenchment, redundancy, or company closure.

Purpose and Eligibility Criteria

Provides temporary income replacement, career counselling, and training for retrenched employees.
Covers employees aged 18 to 60 who are already registered under SOCSO.

Employer and Employee Contribution Rates

Employer: 0.2%
Employee: 0.2%

Payment Schedule and Method

Submit contributions together with SOCSO payments via the PERKESO Assist Portal by the 15th of the following month.
Late payment penalty: 6% per annum.

How EIS Supports Employees During Retrenchment

Provides a monthly allowance for up to six months.
Offers training and re-employment programs through SOCSO’s Employment Services Division.

Human Resources Development Fund (HRDF / HRD Corp)

The Human Resources Development Fund (HRDF), now known as HRD Corp, funds employee training and upskilling programs under the Pembangunan Sumber Manusia Berhad (PSMB) Act 2001.

Who Needs to Register and Contribute

Employers with 10 or more Malaysian employees (mandatory).
Employers with 5 to 9 employees can register voluntarily at a reduced rate.

HRDF Levy Calculation and Payment

Mandatory levy: 1% of the employee’s monthly wages.
Voluntary levy: 0.5% for smaller employers.
Contributions are due by the 15th of the following month through the HRD Corp Portal.
Late payment penalty: 10% of the unpaid levy.

How to Claim Training Grants Under HRDF

Registered employers can apply for training grants or reimbursements for approved courses through HRD Corp.
These claims help employers convert mandatory levies into investments that improve employee skills and productivity.

Monthly Tax Deduction (MTD / PCB)

The Monthly Tax Deduction (MTD), or Potongan Cukai Bulanan (PCB), is a statutory requirement under the Income Tax (Deduction from Remuneration) Rules 1994. It ensures employee income tax is collected monthly rather than in a lump sum at year-end.

Role of Employers

Deduct the correct PCB amount from each employee’s salary according to the LHDN tax schedule.
Submit the deductions to Lembaga Hasil Dalam Negeri (LHDN) promptly every month.

How to Calculate PCB

Use the LHDN PCB Schedule or Calculator available on LHDN’s website.
Payroll software such as Swingvy, Kakitangan, or HReasily can also automate PCB computation.

Submission and Payment Procedures

Submit and pay via the LHDN e-PCB or e-Data Praisi portal.
Deadline: 15th of the following month.
Keep all receipts and acknowledgement slips as proof of compliance for tax audits.

How to Calculate Statutory Contributions

Calculating statutory contributions correctly is essential for payroll accuracy and legal compliance. Contributions are based on an employee’s monthly wages, and both the employer and employee share responsibility for payment.

Example: Monthly Salary RM4,000 (Permanent Employee)

Statutory Body	Employer Contribution	Employee Contribution	Total Monthly Contribution
EPF (KWSP)	13% = RM520	11% = RM440	RM960
SOCSO (PERKESO)	~1.75% = RM70	~0.5% = RM20	RM90
EIS	0.2% = RM8	0.2% = RM8	RM16
HRD Corp	1% = RM40	–	RM40
PCB (Tax)	–	Based on LHDN schedule	Variable

Total monthly statutory cost for employer: RM520 + RM70 + RM8 + RM40 = RM638 (excluding PCB).
Total deduction from employee’s salary: RM440 + RM20 + RM8 + PCB = RM468 + PCB amount.

All contributions must be submitted by the 15th of the following month via the relevant online portals.

Different Employment Types

Permanent employees: Contribute to EPF, SOCSO, EIS, and HRD Corp (if applicable).
Part-time employees: Contribute to EPF and SOCSO based on hourly or daily rates as per PERKESO’s Part-Time Regulations 2022.
Foreign employees: Exempted from EPF and EIS (unless they opt in), but must contribute to SOCSO under the Employment Injury Scheme.

Employer Responsibilities and Compliance

Every employer in Malaysia must:

Register the company and all eligible employees with EPF, SOCSO, EIS, and HRD Corp (if applicable).
Ensure timely monthly submissions. Contributions are due by the 15th of the following month.
Maintain accurate payroll and contribution records for at least seven years.
Use official online portals for submissions (EPF i-Akaun, PERKESO Assist, HRD Corp, e-PCB).
Keep proof of payment and receipts for internal audits or government inspections.

Following these steps ensures your business remains compliant and trustworthy in the eyes of regulators and employees alike.

Penalties for Late or Missed Contributions

Failing to make timely payments can result in fines, compound interest, and even legal action.

Statutory Body	Late Payment Penalty	Possible Legal Action
EPF	Interest = Dividend Rate + 1%; Minimum RM10	Fine up to RM10,000 or imprisonment (EPF Act 1991)
SOCSO	6% per annum on overdue amount	Compound or court action under SOCSO Act
EIS	6% per annum on overdue amount	Included with SOCSO enforcement
HRD Corp	10% of unpaid levy	Fine up to RM20,000 or imprisonment up to 2 years

Tips for HR and Payroll Teams

Here are some tips for HR and payroll teams to prevent errors in paying statutory contributions and build confidence among employees that their welfare and benefits are well-protected.

Automate Payroll and Contributions

Use software that integrates EPF, SOCSO, EIS, PCB, and HRD calculations automatically.

Audit Regularly

Conduct quarterly payroll audits to identify missing or inaccurate contributions early.

Communicate Transparently

Show contribution amounts clearly in employee payslips to build trust.

Stay Updated

Always check for new circulars from EPF, PERKESO, EIS, and HRD Corp for rate or policy changes.

Train Your Payroll Team

Understanding statutory obligations reduces costly mistakes and ensures smooth operations.

Quick Reference Table

Statutory Body	Employer Share	Employee Share	Due Date	Submission Platform
EPF (KWSP)	12%–13%	11%	15th of next month	EPF i-Akaun
SOCSO (PERKESO)	~1.75%	~0.5%	15th of next month	PERKESO Assist Portal
EIS	0.2%	0.2%	15th of next month	PERKESO Assist Portal
HRD Corp	1% (or 0.5%)	–	15th of next month	HRD Corp Portal

Free Download: Employer Statutory Contribution Checklist

To make compliance easier, download our free PDF checklist that helps you:

Register new employees with all statutory bodies
Track monthly contributions and due dates
Record payment proofs and receipts
Stay compliant with EPF, SOCSO, EIS, and HRD requirements

Free Download Employer Statutory Contribution Checklist PDF

FAQ Section

1. What’s the difference between statutory contributions and deductions?

Contributions are shared payments by employers and employees (EPF, SOCSO, EIS, HRD), while deductions are employee-only (like PCB income tax).

2. What happens if an employer fails to pay EPF or SOCSO?

You may face late payment interest, legal fines, or even prosecution. Employees may also lose eligibility for benefits until contributions are updated.

3. Are freelancers or contract workers covered?

Freelancers and independent contractors aren’t considered employees, but employers can suggest voluntary EPF or SOCSO contributions for added protection.

4. How do employers register for EPF, SOCSO, and HRD Corp?

Visit each agency’s portal to register your company and employees:

5. Can employers claim tax deductions for their contributions?

Yes. Employer contributions to EPF, SOCSO, EIS, and HRD Corp are tax-deductible under the Income Tax Act.

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