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Employer Contribution

Employer Contribution in Malaysia

What do KWSP, PERKESO, and EIS mean for Employer Contributions in Malaysia?

Malaysia is a country located on the other side of the straits of Malacca which are crucial to the flow of global trade and strategically and commercially significant for several reasons. Malaysia is also one of the most diverse countries in terms of ethnicity in Asia which makes Malaysian talents highly attractive and one of the most sough after in the Southeast Asian countries.

However, as employers, there are few local labor regulations that you need to pay attention to when hiring in Malaysia. Aside from monthly salaries, employers in Malaysia need to contribute to KWSP and EPF according to the local labor law.

As an employee, you might have noticed some deductions from your monthly gross salary as stated on your payslips. However, as an employer, if you are planning to employ talents from Malaysia, there are some monthly contributions that you have to make towards Employee Contributions Fund and Social Security Contribution for your employee’s benefit as required by local labor law in Malaysia, namely Kumpulan Wang Simpanan Pekerja (KWSP) and Employee Provident Fund (EPF)

To ensure your compliance as an employer in Malaysia, let’s take a look at the cost breakdown of hiring a Malaysia talent from the following highlights:

KWSP (Kumpulan Wang Simpanan Pekerja) or Employees Provident Fund (EPF) is a retirement saving scheme for individuals who are employed, self-employed or business owners in Malaysia. A person employed by an employer under a service contract or apprenticeship is liable to contribute towards EPF, unless they are covered by the First Schedule, Second Section of the EPF Act 1991. EPF is governed under the Employee Provident Fund Act 1991. EPF contribution will be managed and invested under Simpanan Konvensional and Simpanan Shariah. The saving is comprised of the employee’s and employer’s monthly contributions and yearly dividends earned.

When hiring talents in Malaysia, employers are responsible to complete the EFP contributions for their employees. The following are the steps to provide EPF for your employee in Malaysia:

  • Employers are required to register the EPF as an employer within 7 days from the date of hiring workers. 
  • Once registered as an employer under the EPF, you will need to also register your employee as EPF members.
  • Bookkeeping, signed wages and salaries have to be kept in check.
  • As an employer, you are obligated to provide salary statements and payslips to employees.
  • Ensure EPF contributions are made for employees.
  • Inform EPF on the following items:

   i) Contrasting information between EPF statements with employer records.

  ii) Change of address and name/status of employers.

 iii) Termination of liability to contribute.

  iv) Temporarily not liable to contribute (No employees temporarily).

When hiring talents in Malaysia, employers are responsible to complete the EFP contributions for their employees. The following are the steps to provide EFP for your employee in Malaysia:

  • Employers are required to register the EPF as an employer within 7 days of hiring the first employees in Malaysia.
  • Once you are registered as an employer under the EPF, you will need to also register your employee as EPF members and keep their information updated.
  • As an employer, you are obligated to provide salary statements to employees.
  • Collect the employees’ share of EPF contribution and submit it to the EPF along with the employer’s share.

Your employees can volunteer to contribute to EPF even if they are not liable or contribute above the threshold stipulated. In addition, both you and your employees can choose to contribute more than the statutory contribution rate under Voluntary Contribution.

The monthly payment of EPF contribution comprising of both employee’s and employer’s share should be paid by the 15th of the month for the salary issued for the previous month. A late payment charge or a dividend will be imposed if the EPF contribution is not paid on time.


Your employees can volunteer to contribute to EPF even if they are not liable or contribute above the threshold stipulated. In addition, both you and your employees can choose to contribute more than the statutory contribution rate under Voluntary Contribution.

The monthly payment of EPF contribution consisting of both employee and employer’s share should be paid by the 15th of the month for the salary issued for the previous month. A late payment charge or a dividend will be imposed if the EPF contribution is not paid on time.

Unpaid contributions by employers will be considered outstanding contributions if they fail to pay within the prescribed time frame. Employers would be liable for late payments, with a minimum charge of RM10 in accordance with Section 49 (1) EPF Act 1991 for failing to pay the monthly EPF contributions within the specified period stipulated by the EPF. Apart from the Late Payment Charge, employers are also required to pay dividends accrued on late contributions received for each month of the current dividend rate set by the EPF Board for the year.

The Social Security Organisation (SOSCO) , PERKESO (Pertubuhan Keselamatan Sosial)

The Social Security Organization (SOCSO) , also known as PERKESO (Pertubuhan Keselamatan Sosial), one of the government departments under the Ministry of Human Resources, was established to administer, implement and enforce the Employees’ Social Security Act 1969 and the Employees’ Social Security (General) Regulations 1971.

There are 2 schemes that are governed under the Employees’ Social Security Act 1969 – 

  1. The Employment Injury Scheme :
  • Protects an employee against accidents encountered while at work or on a business day.
  • Commuting accident while on route to his place of work on anything directly connected to his employment.
  • Accidents which occur during an emergency at the employer’s premises while in the course of assisting, rescuing, or protecting other people from disaster or danger.  
  • Occupational diseases resulting from his occupation such as loss of hearing and occupational asthma due to work.
  1. The Invalidity Scheme :
  • Provides 24-hour coverage to employees who suffer from invalidity or death due to any cause and not related to his employment.

For all Malaysian and permanent resident employees, it is compulsory to register with SOCSO, except for Federal and State Government permanent employees, domestic servants, and those who are self-employed. Since January 2019, SOCSO also provides some protection for foreign workers.

Monetary payments that are subject to SOCSO contribution are:

  • Employee’s wages
  • Overtime payments
  • Commissions
  • Service charge
  • Annual leave emoluments
  • Wages for maternity leave
  • Public holidays
  • Incentives
  • Meal allowance
  • Cost of living and housing allowance

The following monetary payments are not subject to SOCSO contribution:

  • Any contribution payable by the employer towards any pension or provident fund
  • Gratuity or compensation to an employee at the end of a service period or upon voluntary resignation.
  • Any sum paid to cover expenses incurred by the employee in the course of his duties
  • Bonuses
  • Travel allowances
  • Gifts, including cash payments for holidays like Hari Raya, Christmas, etc.

Employer’s responsibility for SOCSO contribution

  • Employers must register with SOCSO within 30 days upon hiring their first employee.
  • Employers are required to complete the Employer’s Registration Form (Form 1) and Employee’s Registration Form (Form 2)
  • Employees need to be registered as SOCSO members and ensure that their information stays updated via the Assist Portal.
  • All the work-related accidents that befall employees within 48 hours must be reported
  • Maintain a monthly record of employees’ information and keep the information updated.
  • Collect employees’ share of SOCSO contribution and submit it to the SOCSO along with the employer’s share.

Employer’s and employee’s contribution rate for SOCSO

More detailed information on contribution for Employees Social Security Act 1969 (Act 4) can be found here

All contributions due for any given month must be paid by the 15th of the following month. 

Contributions not paid within the stipulated period will be charged interest at a rate of 6% per annum. 

Employment Insurance System (EIS) Contribution

Insured Persons (IP) who have lost their jobs are covered by the EIS. Employment Services Officers (ESO) provide reemployment assistance to IPs who apply to SOCSO.  

Main objectives of EIS are:

  • Providing immediate financial assistance as income replacement.
  • Providing employment services through the Re-employment Placement Program. 
  • Act as a job brokerage to match job seekers to vacancies based on their skills and competencies
  • Train IPs to equip them with the relevant skills required by the labor market.
  • Provide Labor Market Insights (LMI) to the public and policymakers.

Governed under the Employment Insurance System Act 2017 and administered by SOCSO, this insurance protects employees who are Malaysian citizens, permanent residents and temporary residents aged 18 to 60 who are working in the private sector and are contributing to EIS or working under a contract of service. 

Insured Persons (IP) are eligible to receive benefits if :

  • The application is submitted within 60 days of the date of loss of employment
  • They satisfy the Contributions Qualifying Conditions (CQC) that have paid contribution for a minimum number of months.
  • A loss of employment (LOE) such as bankruptcy or closure of the business, normal retrenchment, constructive dismissal or resignation after being ordered to perform dangerous duties that are not within the job scope. 

A dismissal for misconduct, voluntary resignation, retirement, expiration of a fixed-term contract, or completion of a project cannot be accepted as LOE.

Employer’s responsibility

Employers are required to register with EIS and pay with ASSIST. Employers in the private sector who have at least one employee must register their company and their employees and pay contributions according to the specified rates.

Employers only need to register employees as SOCSO members once and the employees will be automatically entitled to the Employment Insurance System (EIS) Contribution.The EIS contribution for employees’ and employer share is paid together with the SOCSO contribution. The EIS contribution can be paid through the same channels as the SOCSO contribution.

Employers will be held accountable and may be prosecuted if they do not carry out their responsibilty. 

Employer’s and employee’s contribution rate for EIS

All employers in the private sector are required to pay monthly contributions on behalf of each employee. 

Contribution rates are capped at an assumed monthly salary of RM 4000.00 . Government employees, domestic workers and the self-employed and employees aged 57 and above who have no prior contributions before the age of 57 are exempted. Rate of Contribution Employment Insurance System (Act 800) chart will give you a better understanding of the contributions needed to be made according to the monthly wages.

The above highlights are the main scope of contributions that employers need to take on for hiring employees in Malaysia. Since Malaysia’s social insurance and labor acts are more rigid and complicated than in other countries, the cost may vary depending on the salary interval of employees; in addition, the extra bonus will increase the cost of tax for employers as well. Handling employer contribution and salary calculations in foreign countries are prone to error if not handled properly by the experts. If you would like to learn more about the Malaysia Labor act and process a payroll in Malaysia, get connected with our experts to consult further!

Slasify is designed for remote worker. We provide payroll calculation, social security payment and tax filing in more than 150 countries around the world, allowing business owners/talents to seamlessly connect with the world. We have practical experience in serving the world’s top 100 companies. If you have relevant needs, please feel free to contact us.

In addition, if you are a “remote worker” or are on the way to becoming a “remote worker”, and if you want to know more about it, you are welcome to visit Slasify’s website. If you have any questions, you are welcome to write an email to us.

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