What Payments Are Liable for EPF Contributions?

The Employees' Provident Fund (EPF), also referred to as Kumpulan Wang Simpanan Pekerja (KWSP), is a social security institution established per the Employees Provident Fund Act 1991 (Act 452). 

It manages the compulsory savings and retirement plans for private sector employees. EPF membership is required for all Malaysians working in the private sector and is optional for all other nationals.

 

EPF contributions

As we all know, contributions are a compulsory wage deduction that must be made within a certain time frame based on the rates listed in the Third Schedule and include both the employee's and employer's share.

The required contribution amount can be determined using the employee's wage and the Third Schedule of the Act. Precise percentages can only be determined if the employee's monthly salary is RM20,000.

However, what is considered part of the wage that must be deducted for EPF contribution?

 

Payments liable for EPF contribution

EPF states that wages are all remuneration in money due to the employee under their apprenticeship or contract of service, whether they agreed for it to be paid monthly, weekly, daily or otherwise.

There are 11 types of payment liable for EPF contribution, including:

1. Salary

2. Allowance

3. Bonus

4. Wages for half-day leave

5. Wages for maternity leave

6. Incentive

7. Wages for study leave

8. Payment for unutilised annual or medical leave

9. Commission

10. Arrears of wages

11. Other payments under contract of service or otherwise

For instance, Arif earns RM5,000 per month as his basic wage. For July, he received an RM300 bonus for his outstanding contribution to the organisation. The monthly wage contribution for July should be taken as RM5,300.

 

Payments not liable for EPF contribution

Of course, there are several types of payment that are not subject to EPF contribution. According to EPF, these are the seven types of payment not liable for EPF contribution:

1. Service charge: Any money or payment, be it in the form of a service charge, a service fee, a tip, or other payments, paid by, charged on, collected from, or voluntarily given by a customer or any other person (other than the employer) in connection with the employer's business. This payment may be made to an employee in whole or in part, directly or indirectly, and under any service contract between the employer and the employee.

2. Retirement benefits: Any payment paid to an employee for retirement, be it compulsory or optional or for health reasons, as defined under the employee's employment contract.

3. Overtime payment: Any payment paid to an employee for work carried out more than the regular working hours and includes any amount paid to them for work carried out on rest days and public holidays.

4. Retrenchment, temporary lay-off or termination benefits: Any payment made by the employer due to the termination or reduction of employees.

5. Gratuity: Any payment paid to the employee after the completion of service or voluntary resignation as a recognition of their service.

6. Any travel allowance or the value of any travel concession: Any payment paid to the employee for travel and transportation expenses.

7. Any other remuneration or payment that the Minister exempts.

 

Who is required to contribute?

As a refresher, these are the list of people for whom the employer must pay EPF contributions.

An employer is required to pay EPF contributions in regard to any person hired under a contract of service or apprenticeship, which includes:

• Employees on a part-time, temporary, or probationary basis

• Directors who receive salaries from the company;

• Employees until the age of 75 if they are still working, regardless of whether they have or haven't made the partial or full withdrawal after reaching the age of 55 or 60;

• Employees who have withdrawn their earnings under the Pensionable Employees and Optional Retirement Withdrawal and work with employers other than the Federal or State Governments or any statutory bodies or local authorities;

• Employees who previously took a full withdrawal under Incapacitation Withdrawal and who have since recovered and returned to work in any service.

 

Frequently Asked Questions

1. Does the EPF contribution include a driver's trip allowance?

Yes, in the wage elements, trip allowance is included.

Based on a High Court case, payments described as "travel allowance" or "reimbursement" paid by an employer to an employee for trips they made while working as a driver in the organisation were incentives covered under the EPF Act 1991 and subject to EPF contributions.

 

2. Is a part-time employee who works for more than one company or employer subject to EPF contribution?

Yes, they are still subject to EPF contribution.

 

3. Do non-Malaysian workers have to contribute to EPF?

As of now, no. But, non-Malaysian workers are given a choice to contribute to EPF. If they have chosen to contribute, the employer and the employee are liable to contribute and cannot revoke the option made.

 

4. Are wages paid for work during public holidays and annual leave subject to EPF contribution?

Answer:

Yes, unless the work is considered overtime.

 

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