Why You Should Always Make EPF Payments on Time

Did you know what will happen if an employer fails to pay EPF contributions on time?

Employers should know the laws behind EPF contributions and the consequences of late or non-payments.

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What does the Employees Provident Fund Act 1991 say?

When it comes to EPF contribution laws, the Employees Provident Fund Act 1991 has it all. Under Section 43(1), all employees and employers are required to make EPF contributions:

‍"Subject to the provisions of section 52, every employee and every employer of a person who is an employee within the meaning of this Act shall be liable to pay monthly contributions on the amount of wages at the rate respectively set out in the Third Schedule."‍

Some exemptions exist, but most private sector employees and employers must contribute to EPF.

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When should employers make EPF contributions?

Employers must pay EPF contributions for any month by the 15th day of every succeeding month.

For instance, you must pay April 2022 contributions by May 15, 2022.

Late payment and non-payment penalties

Several factors decide the punishments and penalties, such as when and how late the employers make contributions and the offence's severity.

Section 43(2) of the Employees Provident Fund Act 1991 states that if an employer fails to make contributions by the 15th of every month, they are subject to the following:

A jail term of not more than three years,
A fine not exceeding RM10,000, or
Both.

If an employer fails to register a new employee with EPF within seven days from the employment date, they are liable for:

A jail term of not more than three years,
A fine not exceeding RM10,000, or
Both.

The same penalties also apply to false EPF oral or written statements.

Employers are also responsible for notifying the EPF whenever an employee leaves the company within 30 days. They are required to give an accurate wage statement to all employees, and if they fail to do so, they risk:

A jail term of not more than six months,
A fine not exceeding RM2,000, or
Both.

Employers who deduct EPF contributions from their employees' monthly salaries without contributing to their EPF account will receive heavy punishment:

A jail term of not more than six years,
A fine not exceeding RM20,000, or
Both.

The same penalties apply to employers who deduct their employees' wages to use as part of their share of contribution.

The penalties are more severe for larger companies. Section 46 states that if the company's director, partners, or association of persons fail to pay outstanding EPF contributions could leave the company liable to court action, which includes:

Bankruptcy,
Seizure and sale of assets, and
Passport retention.

Therefore, employers and HR professionals must familiarise themselves with the laws regarding EPF contributions.

If you fail to understand them, it could affect your employees and organisation.

There will be interest in late contribution payments

Any payment received by EPF for a specific contribution month after the 15th of that month is referred to as a late contribution payment.

If the employer fails to pay the contributions within the specified time frame, this contribution will be considered an outstanding contribution. Under certain situations, the EPF will assess the contribution.

The EPF officer will provide Form KWSP 7 (Form E) and Form KWSP 8 (Form F). The employer must pay using Form KWSP 8 (Form F).

The employer can use Form A to make payments on unpaid outstanding contributions.

Whether or not their employees opt for Simpanan Shariah, defaulting employers will be subject to the following penalties:

1. Late Payment Charge

The lower dividend rate between Simpanan Shariah and Simpanan Konvensional for every respective year with an additional one per cent.

The employer will receive an RM10 minimum late payment charge and will be rounded up to the nearest RM denomination.

For instance, the late payment charge imposed is RM13.21, and it must be rounded up to RM14.

2. Dividend

The dividend rate to be paid is based on the lower between that of Simpanan Shariah and Simpanan Konvensional.

For the years before Simpanan Shariah's introduction, the late payment charges and dividend calculation will be according to the EPF dividend rate declared for the respective years.

Late contribution payment includes:

Under-paid contribution
Overdue contribution

Late Payment Charge/Dividend Calculator

The EPF provides an online calculator as a guide to help employers calculate the late payment charge or dividend on contributions in arrears up to 36 contribution months.

But keep in mind that:

The Late Payment Charges or dividend amount is subject to the contribution payment's closing date and the date the actual payment is made.
The calculation of the dividend rate is subject to the following:
1. The dividend rate for the previous year if the dividend rate for the current year has not been declared, and
2. The lowest dividend rate between Simpanan Shariah and Simpanan Konvensional dividend rate.
For Late Payment Charges calculation, the percentage rate is equivalent to the dividend amount and a 1% additional rate.
The minimum amount for Late Payment Charges is RM10.00, and the minimum amount for the dividend is RM 1.00.
Any Late Payment Charges or dividends with cents value will be rounded up to the next RM.
The amount calculated is not conclusive. To avoid doubts, the final amount is stated in the KWSP1195 notice.

To learn more about the EPF payments enforcement aspect, click here. To learn more about the EPF Act of 1991, click here.

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