Malaysia has remained competitive for international business investment and operation with its natural resources, growing economy and neighbouring massive consumer markets. After you register a company Malaysia, as a new business operator with staff on payroll, it is imperative that you understand and abide by all local payroll and labour laws related to payroll compliance so that you can operate without any fear of penalties. Payroll compliance ensures that employees are paid and treated fairly, and that the government receive the funds it needs to run national programmes such as healthcare and education.

Register a Company Malaysia

We can approach understanding payroll in Malaysia from two directions: Tax and Human Resource

Tax

All workers in Malaysia are required to pay tax. The highest rate of tax on personal income is 30%. Companies in Malaysia should withhold income tax payments at source from employees under a Pay-As-You-Earn (PAYE) system, although employees are still required to complete self-assessments each year. Malaysia has 12 progressively increasing bands of income tax rates. Only the first Rm5000 made each year is fully exempt, although the next three bands above this are only 1%, 3% and 8%. The highest band of 30% is applied to all earnings in excess of Rm2 million. The general corporate income tax rate is 24%. Under Malaysian tax law, those classified as non-residents are individuals who work in Malaysia for more than 60 days but less than 182 days in a year. Non-residents pay a flat-rate tax of 30% of their income. Zakat is an obligatory religious deduction in Malaysia. Employers can make deductions on behalf of their employees, and if a Zakat deduction is made through payroll, it is treated as a pre-tax deduction.

Non-resident companies are taxed at a flat rate of 24% for corporate tax.

Employees and employers must make contributions towards the Social Security Organization (SOCSO), which is a health benefits scheme (expats excluded). Additionally, employers and Malaysian employees must make contributions towards the Employees Provident Fund (EPF) for retirement benefits. Non-Malaysian employees can become members if they wish.

Employers have a responsibility to ensure that their corporate tax return, Social Security Organization and Employees Provident Fund forms are submitted correctly and on time.

Human Resource

Malaysian workers are paid for 11 days of public holidays each year. Five are the main official ones: Malaysia Day, National Day, Federal Territory Day, Workers’ Day and Birthday of the Yang Dipertuan Agong. Employers can choose which other six national or state-level holidays their employees can have paid time off for.

Initial paid leave entitlement is eight days per year, rising to 12 days after two years of service and 16 days after five years.  The structure is similar for sick leave and an employee who has given less than 2 years of service is entitled to 14 days of sick leave per year. An employee who has given more than 2 but less than 5 years of service is entitled to 18 days of sick leave per year. And an employee who has given more than 5 years of service is entitled to 22 days of sick leave per year. In any case requiring hospitalization, the paid entitlement increases to 60 days.

Paid maternity leave entitlement is set to increase from 60 days to 90 as of January 1 2021. This can start at any time from 22 weeks into the pregnancy through to the day after the birth. There is no legal requirement to provide paternity leave, although many companies voluntarily provide a few days’ leave to new fathers. Furthermore, the possibility of a legal entitlement has been discussed publicly in Malaysia, and so may be introduced in years to come.

Special Note

On 1st February 2020, the Minimum Wages Order 2020 came into effect for employees working in the country’s 56 city and municipal council areas as a way of addressing the high cost of living in these locations. The minimum monthly wage is RM1,200.00, with the minimum hourly wage being RM5.77.

Malaysia Corporate Services Provider specialising in JB and KL Company Registration Malaysia can assist you with understanding and successfully completing the incorporation of your new Malaysia company.