Malaysia is a country rich in resources such as tin, rubber and palm oil making it a high tech infrastructure that is great for new businesses. Separated by the South China Sea into two landmasses, which are neighboured by Singapore, Indonesia, Thailand and the Philippines, the current population of Malaysia stands at 32,046,554 as of June 2018.
Investment in Malaysia has been increasing for over 50 years, with the government pushing to transform the country into a major financial hub. Some of the main reasons to invest in Malaysia include:
Financial initiatives: The Malaysian government is engaged in a number of initiatives to bring foreign direct investment into the country, including the set-up of Malaysian Investment Development Authority (MIDA), and the Malaysia External Trade Development corporation MATRADE, which work to help companies set up and find markets.
Business opportunities: Malaysia offers businesses opportunities in a range of diverse sectors such as banking, technology, pharmaceutical and many more.
Location advantage: Malaysia’s location at the heart of Southeast Asia, offers its businesses access to a range of valuable markets, and a consumer base of over 600 million people. Around 5000 companies from over 40 countries have established premises in Malaysia - and benefit from excellent communication and transport links (air and sea) to neighbouring regions.
Skilled workforce: 20,000 graduates enter the Malaysian labour pool each year, offering businesses a wide range of highly-skilled potential employees. The Malaysian workforce tends to be young and productive - ideal for roles in research and manufacturing sectors. Workers also tend to have strong grasp of English.
Companies are required to register as an employer for tax, Employees’ Provident Funds (EPF), Social Security Funds and HRDF (Human Resources Development Fund), if applicable. Employers must register with the Social Security Organization (SOCSO) when the first employee begins at the company. The principal and immediate employer who employs one or more employees is required to register and contribute monthly to SOCSO. Employers must register at the SOCSO office within 30 days from the date the new employee was employed.
There are currently no specific legal data protection requirements with regards to payroll data in Malaysia. For the time being, companies with a payroll function in Malaysia - either in-house or outsourced - will have to rely on internal or external company policies to ensure data protection principles are upheld. A typical implementation timeline will be two months including a one month payroll parallel run. However, implementation duration will vary depending on the complexity of payroll requirements and the headcount to be implemented.
Payroll processing in Malaysia normally takes place on a monthly basis. Payroll administration should take the following into account:
Mandatory Benefits: In Malaysia, mandatory payroll benefits include paid annual leave, statutory holidays, maternity or medical leave, and benefits for termination or unemployment.
Optional Benefits: Optional payroll benefits in Malaysia may include payment for Long Service, allowances for housing and transport, medical insurance schemes, commission and bonuses, and any retirement or pension schemes.
Statutory Contributions: Both employer and employee make statutory social security contributions to the EPF retirement and SOCSO scheme. Employees may also have to make PTPTN repayments (Malaysia’s student funding scheme), or Zakat donations (Muslim employees only).
Scheduler Tax Deduction: Monthly tax deductions in Malaysia are governed by the STD mechanism - which reduces the need for employees to pay tax in one lump sum.
Payslip: All employees in Malaysia should be issued with a payslip when they are paid, including information such as wages earned and deductions made.
Employee Records: Employers must maintain an employee register, with relevant payroll information for each staff member.
Employers in Malaysia must withhold employees’ monthly tax contributions - at rates ranging from 0%-28% depending on salary amount. The complexity of Malaysia’s tax regulations means it may be advisable for foreign businesses to outsource their payroll administration to a global payroll provider to benefit from compliance expertise and that ensure pay is delivered efficiently to their international employee populations. The standard payroll process in Malaysia includes the following steps:
The unemployment rate in Malaysia is considered to be relatively low and stable, however there are still challenges of being retrenched with no income coming in or adequate contingency fund to help them and their dependents (if any) get back on their feet.
With this sombre reality, in 2018 the government introduced the Employment Insurance System (EIS) as a new protection for workers and those looking to claim can only do so in 2019. EIS is a financial scheme aimed at helping employees who have lost their job, and it is managed by Social Security Organisation (Socso). This scheme is meant to enable retrenched workers to gain monetary funds that would help them get back on their feet for up to six months. The EIS will function similarly to the Employees Provident Fund (EPF), where the contribution will go into a pooled fund and then the fund will be invested.
The EIS is not only offered to those who have been retrenched but also those who resigned due to threats to the insured or even to their family. This even includes sexual harassment at work. Employers and employees will contribute 0.2% each of an employee’s salary, this means that the total contribution would be 0.4% of an employee’s monthly salary.
The minimum eligible monthly salary can be as low as MYR300, where the 0.4% will see them contributing MYR1.20 monthly. On the other hand, the maximum eligible monthly salary contribution is capped at MYR4,000. So even if you’re earning more than MYR4,000 a month, the contribution from you and your employer is fixed at 0.4% of MYR4,000, leading to the maximum amount of contribution capped at MYR16 per month. Currently, the scheme will involve 430,000 employers and 6.6 million employees.
As an important gateway to regional business interests, Malaysia has developed a thriving economy which has grown over the past half century at an annual rate of around 6.5%. Malaysia industrialised rapidly over the 20th century as it transitioned from traditional mining and agricultural sectors, and improved its business infrastructure.
The above insights was produced by Propay Partners for publication by Global Payroll Association - Click here to view article