Understanding EPF Company Contributions
Navigating the intricacies of Employee Provident Fund (EPF) contributions in Malaysia can be quite a challenge for employers. EPF (KWSP or Employee Provident Fund, is a mandatory retirement savings scheme in which employers contribute to their employees' retirement funds which is governed under the Employee Provident Fund Act 1991 (EPF Act 1991). Employers are responsible for deducting monthly EPF contributions from employees' salaries and contributing an additional amount as required by the Act.
This article aims to explain on the employer responsibilities and how the contribution rates work.
Employer's Responsibilities for EPF Contributions
Employers are required to register with EPF in Malaysia as an employer within 7 days upon hiring of the first employee, assess employees' eligibility for EPF contributions, register eligible employees, pay monthly contributions based on the contribution rate set by EPF, perform the necessary submission, update and maintain the employer and employees records. An employer is defined as a person(s) with whom an employee has a contract of service or apprenticeship.
Determining eligibility for contribution
Employers hold the responsibility to assess their employees' eligibility for EPF contributions. An employee is defined as a person who is employed to work under a contract of service or apprenticeship. This assessment typically includes all employees regardless of employment status, be it full-time, part-time, or temporary staff.
Understanding the basic salary structure forms a critical aspect of this process.
Payments liable for EPF contributions
Employers have the obligation to pay EPF contributions based on their employees' wages. Many types of payments fall into this category such as basic monthly salaries, bonuses, allowances (with some exceptions), commissions, incentives, payment for unutilised annual leave or medical leave, arrears of wages and other contractual payments.
Exemptions from EPF contributions
Certain payments made by employers are not subject to the EPF contributions. These include service charge collections such as tips, overtime payments, gratuity, retirement benefits, retrenchment benefits, termination benefits, travelling allowances, director's fees.
Understanding EPF Contribution Rates
Contribution rates for employers and employees
Both employers and employees have specified statutory rates that they need to contribute.
The table above serves as a general guide for both employee's and employer's share of EPF contribution based on the status, age, and monthly salary rate of the employee. The EPF calculations are determined based on the rate of contribution table in accordance with the Third Schedule of the EPF Act 1991, except for salaries that exceed RM 20,000.00. For salaries that exceed RM 20,000.00, the contribution amount should be calculated based on exact percentage. The total contribution which includes cents shall be rounded up to the next ringgit. Please bear in mind that the contribution amount and rates may be subject to change based on the prevailing announcements and legislations at the time.
This table shows the mandatory contribution rates for different wage levels. Note, however, that both you and your employees have the option to make additional voluntary contributions to the EPF.
Option for voluntary excess contribution
Both employers and their employees can choose to contribute more than the statutory contribution rate to the EPF. These extra inputs provide an avenue for faster accumulation of retirement savings.
While the mandatory contribution rates are set as a percentage of monthly wages, there is no fixed amount or percentage required for these voluntary excess contributions. Employers offering this option often see better employee retention and improved job satisfaction levels due to their enhanced financial security. Employers can make the voluntary excess contribution by completing Borang KWSP 17 (MAJ).
Statutory contribution and payment process for EPF contributions
Making EPF contributions is a straightforward process employers must undertake. Here are the necessary steps:
- You need to calculate the amount of EPF contribution based on your employees' wages using the monthly contribution rate from the official EPF contribution table. Your responsibilities include paying EPF contributions in respect of your employee's and employer's share of contribution. Your employees' EPF contribution shall be deducted from your employees' wages to be remitted to EPF.
- Prepare the monthly contribution submission and payments.
- Make sure to follow the published EPF contribution deadlines to avoid penalties. Employers are required to pay the employee and employer contribution on or before the 15th of the month. A late payment charge or dividend will be imposed if the contribution is not paid on time.
- Utilise electronic payment platforms for quick and hassle - free transactions. The EPF contribution can be paid through the following channels: e-Caruman website and mobile application, internet banking including FPX and direct debit facilities, bank agents, EPF counters.
- Keep track of each payment made as part of your employer obligations and ensure proper records are kept.
Other Mandatory Contributions for Employers
Employers are also required to make contributions to the Social Security Organisation (SOCSO) and the Employment Insurance System (EIS), in addition to EPF contributions.
Social Security Organisation (SOCSO) contributions
Employers in Malaysia are also responsible for making Social Security Organisation (SOCSO) contributions as required by the Employees' Social Security Act 1969. SOCSO is a social security scheme that provides protection to employees against occupational injuries, invalidity, and death.
The contributions made by employers help ensure that employees receive financial support in the event of workplace accidents or incidents.
The rate of SOCSO contribution depends on the employee's monthly salary range and is determined according to the contribution table on the SOCSO website. It is important for employers to be aware of these rates so they can accurately calculate and make the necessary deductions from their employees' salaries each month.
Failure to comply with SOCSO contribution requirements may result in penalties and legal issues for employers.
Employment Insurance System (EIS) contributions
Employers in Malaysia are also required to make contributions to the Employment Insurance System (EIS), which is governed by the Employment Insurance System Act 2017. This is a mandatory contribution aimed at providing financial assistance to employees who have lost their jobs.
The EIS contributions, along with the EPF and SOCSO contributions, help ensure that employees have access to support during times of unemployment. It's important for employers to understand the EIS contribution rates and guidelines so they can fulfill their obligations and provide this additional safety net for their employees.
Managing EPF, SOCSO and EIS for your employees
Employers in Malaysia have important responsibilities when it comes to statutory contributions such as EPF, SOCSO and EIS. Failure to comply will result in hefty penalties and fines. It is recommended to engage a Human Resource (HR) or payroll service provider such as Centry to assist you with the EPF, SOCSO and EIS registration, calculating the necessary contributions, deductions and employees' monthly tax deductions, distributing of payslips and statements to your employees, as well as mandatory submission and payment to EPF, SOCSO and EIS on your behalf.