Which Allowances Are Subject to EPF in Malaysia?

Not sure whether a meal allowance, petrol allowance, commission, or bonus is subject to EPF contribution?

You're not alone. Many employers and HR professionals face challenges when determining which payments should be included when calculating Employees Provident Fund (EPF) contributions.

Getting it wrong can result in payroll errors, under-contributions, and potential compliance issues with the Employees Provident Fund (EPF) or Kumpulan Wang Simpanan Pekerja (KWSP).

This guide explains which allowances are generally subject to EPF, which payments are exempt, and how employers can determine the correct EPF treatment for different types of employee payments.

What Does "Subject to EPF" Mean?

When a payment is subject to EPF, both the employer and employee must contribute EPF based on that amount.

For example, if an employee receives:

Basic salary: RM3,000
Fixed allowance: RM300

EPF contributions are generally calculated based on RM3,300 instead of RM3,000.

It is important to note that EPF treatment differs from income tax treatment. A payment may be subject to EPF but treated differently for tax purposes.

According to KWSP, contributions are generally payable on wages such as salary, bonus, allowance, commission, incentive payments, arrears of wages, and payments for unutilised leave. Certain payments such as overtime, travelling allowance, service charge, gratuity, and retrenchment benefits are not liable for EPF contribution.

Quick Reference: EPF Allowance Table

Allowance / Payment Type	Subject to EPF?
Basic salary	Yes
Fixed monthly allowance	Yes
Bonus	Yes
Commission	Yes
Incentive payment	Yes
Fixed meal allowance	Yes
Fixed petrol allowance	Yes
Payment for unused annual leave	Yes
Overtime payment	No
Travelling allowance	No
Travel concession	No
Service charge	No
Gratuity	No
Retirement benefit	No
Retrenchment benefit	No
Payment in lieu of notice	No

Sources: KWSP Employer Guidelines and KWSP Mandatory Contribution Information.

Allowances That Are Subject to EPF

Fixed Monthly Allowances

Most fixed allowances paid regularly as part of employment are generally subject to EPF contributions.

Examples include:

Fixed meal allowance
Fixed housing allowance
Fixed transport allowance
Fixed cost-of-living allowance (COLA)
Fixed site allowance

For example:

Basic salary: RM3,000
Fixed transport allowance: RM300

EPF contributions are generally calculated based on RM3,300 instead of RM3,000.

Likewise, a fixed meal allowance of RM200 paid every month would generally be included when calculating EPF contributions.

Bonus and Incentive Payments

Annual bonuses, performance bonuses, and incentive payments are generally subject to EPF contributions.

Many employers overlook bonuses when processing payroll, which can result in under-contributions.

Commission

Sales commissions and other commission-based earnings are generally subject to EPF because they form part of an employee's remuneration.

For example:

Basic salary: RM2,500
Commission: RM800

EPF contributions are generally calculated on RM3,300.

Payment for Unused Leave

Payments made for unutilised annual leave are generally subject to EPF contribution and should be included in payroll calculations.

Allowances That Are Not Subject to EPF

KWSP identifies several payments that are generally not liable for EPF contribution.

Overtime Payments

One of the most common misconceptions among employers is that overtime pay is subject to EPF.

According to KWSP's current guidance, overtime payments are generally not subject to EPF contribution.

Travelling Allowances

Travelling allowances and travel concessions are generally not subject to EPF contribution.

This typically applies to genuine business travel expenses and work-related travel arrangements.

Service Charges

Service charges distributed to employees, commonly found in the hospitality industry, are generally not subject to EPF contribution.

Gratuity and Retirement Benefits

Gratuity payments and retirement benefits are generally exempt from EPF contributions.

Retrenchment Benefits

Benefits paid due to retrenchment, temporary lay-off, or termination of employment are generally not subject to EPF contribution.

Payment in Lieu of Notice

Payments made in lieu of notice of termination of employment are generally not liable for EPF contribution under KWSP guidelines.

Fixed Petrol Allowance vs Petrol Reimbursement

This is one of the most frequently asked payroll questions.

Type of Payment	Subject to EPF?
Fixed petrol allowance	Yes
Petrol reimbursement with receipts	No

Fixed Petrol Allowance

If an employee receives a fixed petrol allowance every month regardless of actual fuel usage, the payment is generally treated as part of wages and is subject to EPF.

Example:

Fixed petrol allowance: RM300 per month
Paid regardless of mileage

EPF generally applies.

Petrol Reimbursement

If an employee submits fuel receipts and the employer reimburses the actual amount spent, the payment is generally treated as a reimbursement rather than wages.

In such cases, EPF generally does not apply.

How to Determine if an Allowance Is Subject to EPF

If you're unsure about a payment, ask these three questions:

Is the Payment Part of the Employee's Remuneration?

If the payment forms part of the employee's compensation package, it is more likely to be subject to EPF.

Is It a Fixed and Regular Payment?

Fixed monthly payments are generally more likely to be treated as wages.

Is It Specifically Listed by KWSP as Exempt?

Certain payments, such as overtime, travelling allowances, service charges, gratuity, retirement benefits, payment in lieu of notice, and retrenchment benefits, are specifically excluded under KWSP guidelines.

If you're still unsure, consider contacting KWSP directly or consulting a payroll professional.

Want to Calculate EPF Contributions?

Use this free EPF Calculator to estimate employee and employer contributions based on the latest contribution rates.

Try the EPF Calculator here.

Conclusion

Understanding which allowances are subject to EPF is essential for accurate payroll processing and compliance with KWSP requirements.

As a general rule, salary, bonuses, commissions, incentives, and most fixed allowances are subject to EPF contributions. On the other hand, payments such as overtime, travelling allowances, service charges, gratuity payments, retirement benefits, payment in lieu of notice, and retrenchment benefits are generally exempt.

If you're unsure how a payment should be treated, refer to the latest KWSP guidance or seek advice from a qualified payroll professional.

FAQs

Which Payments Are Not Subject to EPF?

Payments generally not subject to EPF include:

Overtime payments
Travelling allowances
Travel concessions
Service charges
Gratuity payments
Retirement benefits
Retrenchment benefits
Payment in lieu of notice

How Do I Know If an Allowance Is Subject to EPF?

Ask yourself these questions:

Is it part of the employee's remuneration?
Is it paid regularly?
Is it listed by KWSP as an exempt payment?

If the answer is yes to the first two questions and no to the third, EPF generally applies.

Are Fixed Allowances Subject to EPF?

Yes. Fixed allowances are generally subject to EPF, including:

Meal allowance
Transport allowance
Housing allowance
Cost-of-living allowance (COLA)

Is Overtime Subject to EPF?

No. Overtime payments are generally not subject to EPF contribution according to current KWSP guidance.

Is Bonus Subject to EPF?

Yes. Bonuses and incentive payments are generally subject to EPF contribution.

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