What is Net Salary? Definition and How to Calculate

One of employees' biggest concerns about their salary is how much they will receive in their bank account after all deductions.

While the gross salary may look attractive, the net salary is what really matters because it shows how much they can spend.

In this article, we’ll explain net salary, how it’s calculated, and why businesses should focus on creating a well-structured salary package.

What is Net Salary?

Net salary, also known as take-home pay, is the actual amount an employee receives after all necessary deductions are made from their gross salary.

Gross salary is the total amount stated in the employment contract before any deductions are applied.

In Malaysia, net salary is affected by several statutory and non-statutory deductions. Some of the common deductions include:

EPF (Employees Provident Fund): A retirement savings fund.
SOCSO (Social Security Organization): Protects work-related injuries and disabilities.
EIS (Employment Insurance System): Helps employees in case of job loss.
PCB (Potongan Cukai Bulanan): Monthly tax deduction for income tax.

This means that even if an employee is offered a gross salary of RM5,000, the actual amount they receive may be lower after deductions.

What are the Benefits of Net Salary for Employers?

Some employees don’t understand how their salary is calculated and lead to confusion. Employers who manage net salary properly can:

1. Improve transparency

When employees understand their deductions, they will not be confused about their salary.

2. Make payroll planning easier

Employers can calculate actual salary costs, including mandatory contributions, to avoid budget issues.

3. Attract and retain employees

A well-structured salary package, including tax-free benefits and allowances, can make job offers more attractive.

What Kind of Businesses Use Net Salary?

Different industries approach salary structuring in various ways. Businesses that commonly use net salary calculations include:

Companies that provide structured salary packages

Large corporations and multinational companies usually offer structured payroll systems that clearly separate gross and net salary.

Industries with a focus on employee retention

Sectors like banking, healthcare, and IT provide competitive net salary structures to retain talent.

Businesses offering allowances and tax-exempt benefits

Some companies provide meal, transport, and medical allowances to reduce taxable income while maintaining a competitive net salary.

What is the Benchmark of Net Salary in Malaysia?

Net salary differs based on industry, job role, and experience level.

Here’s a general comparison that we gather through some sources such as Glassdoor and Ranstrad.

Please note that salaries below can vary based on factors such as experience, location, economic situation, and company size.

Sector	Position	Experience Level	Monthly Net Salary Range (MYR)
Food & Beverage (F&B)	Chef	Entry-Level	2,500 - 4,000
		Mid-Level	4,000 - 6,000
		Senior	6,000 - 10,000
	Kitchen Assistant	Entry-Level	1,500 - 2,500
		Mid-Level	2,500 - 3,500
		Senior	3,500 - 4,500
	Waitstaff	Entry-Level	1,500 - 2,500
		Mid-Level	2,500 - 3,500
		Senior	3,500 - 4,500
Retail	Store Manager	Entry-Level	3,500 - 5,000
		Mid-Level	5,000 - 7,000
		Senior	7,000 - 12,000
	Retail Supervisor/Executive	Entry-Level	2,500 - 3,500
		Mid-Level	3,500 - 4,500
		Senior	4,500 - 5,000
	Sales Assistant	Entry-Level	1,500 - 2,500
		Mid-Level	2,500 - 3,500
		Senior	3,500 - 4,500
Customer Service (CS)	Customer Service Executive	Entry-Level	2,500 - 3,500
		Mid-Level	3,500 - 4,500
		Senior	4,500 - 5,000
	Customer Service Advisor	Entry-Level	2,500 - 3,000
		Mid-Level	3,000 - 3,500
		Senior	3,500 - 4,000
Administration (Admin)	Administrative Executive	Entry-Level	2,500 - 3,500
		Mid-Level	3,500 - 4,500
		Senior	4,500 - 5,500
	Office Manager	Entry-Level	3,500 - 5,000
		Mid-Level	5,000 - 7,000
		Senior	7,000 - 9,000
	Personal Assistant to CEO	Entry-Level	3,500 - 5,000
		Mid-Level	5,000 - 7,500
		Senior	7,500 - 10,000
Manufacturing	Production Operator	Entry-Level	1,500 - 2,500
		Mid-Level	2,500 - 3,500
		Senior	3,500 - 4,500
	Site Executive	Entry-Level	2,500 - 3,500
		Mid-Level	3,500 - 4,500
		Senior	4,500 - 5,000
	Warehouse Supervisor	Entry-Level	3,000 - 4,000
		Mid-Level	4,000 - 5,000
		Senior	5,000 - 6,000

Several factors affect net salary benchmarks:

Tax rates: Higher-income earners pay more in PCB deductions.
Company benefits: Employers who provide medical insurance, transport, or meal allowances can help employees retain more take-home pay.
Industry differences: Some industries, like finance and tech, tend to offer higher net salaries than retail or hospitality.

How to Calculate Net Salary in Malaysia?

Employers need to know how to calculate net salary to prepare accurate payroll and avoid disputes with employees. The formula follows these steps:

Define the gross salary (total salary before deductions).
Deduct EPF Contribution from employees' side between 9% to 11% of their salary.
Deduct SOCSO (between 0.5% to 1.75%) & EIS (around 0.2%)
Deduct PCB (Income Tax Deduction) depends on the employee’s salary and tax bracket.
Account for Other Deductions such as Zakat, loan repayments, union fees, or other employer-agreed deductions.

Example Calculation for RM5,000 Gross Salary:

Category	Deduction (RM)
Gross Salary	RM5,000
EPF (9%)	- RM450
SOCSO	- RM70
EIS	- RM10
PCB (Income Tax)	- RM200
Net Salary	RM4,270

Net Salary Calculators to Help Employers Calculate

Calculating net salary can be complicated due to different tax rates and deductions. Employers can use various tools to simplify this process:

Payroll software, such as:
1. PayrollPanda
2. BrioHR
3. Employment Hero
4. Access Group Payroll Software
LHDN PCB calculator
Online salary calculators, such as
1. Talenox Malaysia
2. Talent.com
3. Payroll.my
4. Fincrew

How to Determine Net Salary for Employee

When deciding on an employee's salary, employers must consider a few key factors to ensure that the net salary (take-home pay) remains competitive and fair.

1. Industry Benchmarks

Employers should compare salaries with similar job roles in the same industry. Looking at market standards helps businesses stay competitive and attract skilled employees.

2. Employee Expectations

Offering a reasonable salary based on an employee’s skills, experience, and job responsibilities is important.

Employees expect fair compensation that reflects their qualifications and contributions to the company.

3. Mandatory Deductions

Employers must calculate the amount to be deducted from the salary for EPF, SOCSO, EIS, and PCB (Income Tax).

The final amount after these deductions is what employees receive as net salary.

4. Company Benefits

Instead of only increasing basic salaries, employers can offer tax-free benefits such as meal allowances, transport, medical benefits, and performance incentives.

These benefits help employees receive a higher take-home pay without raising overall payroll costs.

How Can Employers Optimize Employee Net Salary?

Employers can increase net salary without raising overall payroll costs by using these methods:

1. Offering Tax-Free Benefits

Instead of raising salary, employers can provide:

Medical insurance
Meal and transport allowances
Flexible benefits like childcare or gym memberships
Others

2. Structuring Salary Components Effectively

Some salary components, like bonuses and incentives, may have lower tax rates. Employers can design performance-based incentives to reduce taxable income.

3. Providing Non-Monetary Benefits

Giving benefits like remote work, extra leave, or flexible hours improves job satisfaction without increasing payroll expenses.

FAQ

How is net salary calculated in Malaysia?

Net salary is calculated by subtracting EPF, SOCSO, EIS, PCB, and other deductions from gross salary.

What deductions affect net salary?

The main deductions include:

EPF (9-11%)
SOCSO (0.5-1.75%)
EIS (0.2%)
PCB (varies by salary)

How do employers determine the right net salary?

Employers calculate net salary by considering gross salary, deductions, industry standards, and employee benefits.

What benefits can increase net salary?

Employers can offer tax-free allowances, bonuses, and insurance to help employees retain more take-home pay.

How does net salary affect income tax filing?

When filing income tax, employees must report their net salary and taxable income. Employers must also submit PCB deductions to LHDN.

Employees care most about their take-home pay, not just the gross salary in their contract.

Employers who structure net salary wisely by balancing deductions, benefits, and tax-friendly incentives, can create a more satisfied and motivated workforce.

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