Payroll in Malaysia: EPF, SOCSO, EIS and PCB explained

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Running payroll in Malaysia means deducting and paying four main items every month: EPF retirement savings, SOCSO social security, EIS employment insurance and PCB, the monthly tax deduction. Employers add their own EPF, SOCSO and EIS shares and, in many cases, the HRD levy. This guide explains each one with current rates, walks through examples, and covers leave, year-end forms and the software that makes payroll in Malaysia straightforward.

The monthly payroll at a glance

Each month, a Malaysian employer calculates gross pay, deducts the employee's EPF, SOCSO and EIS contributions and PCB, pays the net salary, and remits the deductions together with its own contributions to each agency by the 15th of the following month. Employers with enough employees also pay the Human Resources Development levy. At year end, employers issue EA forms to employees and file Form E with the Inland Revenue Board (LHDN).

Most of this is automated by payroll software, but understanding the rules helps you check the numbers and explain payslips to employees.

EPF: the Employees Provident Fund

EPF (KWSP) is a mandatory retirement savings scheme. For Malaysian employees under 60:

• Employee: 11% of monthly wages.
• Employer: 13% for employees earning RM5,000 or less, and 12% for those earning more than RM5,000.

Lower rates apply to employees aged 60 and above. EPF is calculated on wages including salary, bonuses, commissions and most allowances, but excluding some items such as overtime and certain gratuities. Contributions follow a schedule of wage bands. Employees can choose to contribute more than the minimum.

From October 2025, EPF contributions also became mandatory for non-citizen workers at a lower rate for both sides. Check current rules for foreign staff.

SOCSO: social security

SOCSO (PERKESO) provides protection for employment injuries and invalidity. Under the main category for employees under 60:

• Employee: about 0.5% of wages.
• Employer: about 1.75% of wages.

Contributions are based on a wage table with a monthly wage ceiling of RM6,000, which took effect in October 2024. Employees aged 60 and above are covered only for employment injury, with the employer paying 1.25%. Foreign workers are covered under SOCSO's employment injury scheme.

EIS: Employment Insurance System

EIS provides financial support and re-employment help to people who lose their jobs. Contributions are about 0.2% of wages from the employee and 0.2% from the employer, also capped at a wage ceiling of RM6,000 a month, using SOCSO's contribution table. EIS applies to Malaysian citizens and permanent residents aged 18 to 60, with exemptions for some groups such as domestic workers and those who started contributing after age 57.

PCB: monthly tax deduction

PCB (Potongan Cukai Bulanan), also called MTD, is the income tax employers deduct from employees' pay each month. It is calculated using LHDN's formula or tables, based on the employee's annual income projection, marital status, number of children and reliefs. PCB aims to match the employee's final annual tax as closely as possible, so many employees with simple affairs do not need to pay extra when filing.

The resident tax rates for year of assessment 2026 rise from 0% on the first RM5,000 of chargeable income through 1%, 3%, 6%, 11%, 19%, 25%, 26%, 28% and 30% on income above RM2 million. Residents get a personal relief of RM9,000 and relief for EPF contributions up to RM4,000 and SOCSO and EIS up to RM350, among others. A rebate of RM400 applies where chargeable income does not exceed RM35,000.

Worked example: RM6,000 a month

A resident, single employee earning RM6,000 a month with no other reliefs:

• EPF employee (11%): RM660. Employer EPF (12%, as salary exceeds RM5,000): RM720.
• SOCSO: about RM30 employee and RM105 employer.
• EIS: about RM12 employee and RM12 employer.
• Annual chargeable income: 72,000 − 9,000 personal relief − 4,000 EPF relief − 350 SOCSO/EIS relief = RM58,650.
• Annual tax: 150 + 450 + 900 + 11% of 8,650 (951.50) = about RM2,451.50, or roughly RM204 a month through PCB.

The PCB formula may give slightly different monthly figures. Try the Malaysia salary calculator for your own numbers.

Worked example: RM12,000 a month

• EPF employee: RM1,320. Employer EPF: RM1,440.
• SOCSO and EIS are capped at the RM6,000 ceiling: about RM30 and RM12 from the employee.
• Annual chargeable income after the same reliefs: about RM130,650.
• Annual tax: about RM17,062.50, roughly RM1,422 a month.

At higher salaries, EPF continues to rise with wages, but SOCSO and EIS stop at the ceiling, and the EPF tax relief remains capped at RM4,000.

HRD Corp levy

The Human Resources Development levy funds training through HRD Corp. Employers in covered sectors with ten or more Malaysian employees must pay 1% of monthly wages; those with five to nine employees may register and pay 0.5%. Registered employers can claim training grants from their levy balance, which makes it worthwhile to plan training around it.

Minimum wage and working hours

Malaysia's minimum wage is RM1,700 a month from February 2025 for most employers, with phased implementation for some smaller employers. Under the Employment Act 1955, as amended in 2022, normal working hours are up to 45 hours a week, and overtime is paid at at least 1.5 times the hourly rate on normal days, with higher rates on rest days and public holidays, for employees covered by those provisions.

Leave entitlements

• Annual leave: 8 days a year for less than two years of service, 12 days for two to five years, and 16 days for five years or more.
• Sick leave: 14, 18 or 22 days depending on length of service, plus up to 60 days of hospitalisation leave a year.
• Maternity leave: 98 consecutive days.
• Paternity leave: 7 consecutive days for married male employees, for up to five births.
• Public holidays: at least 11 paid public holidays, including several fixed national holidays.

Many employers offer more than the minimum.

Payment deadlines

Salaries must be paid no later than the seventh day after the end of the wage period. EPF, SOCSO, EIS and PCB must be paid by the 15th of the following month. Late payment attracts penalties or late payment charges from each agency. Most employers pay all four online on the same day each month.

Year-end: EA forms and Form E

By the end of February, employers must give each employee an EA form (Borang EA) showing their remuneration and deductions for the previous year. Employers must also file Form E with LHDN by 31 March, listing all employees, through e-filing. Employees use their EA forms to file their own tax returns, generally by 30 April for those without business income.

Payroll software in Malaysia

Malaysian payroll software calculates EPF, SOCSO, EIS and PCB from current tables, generates payment files for each agency, and produces EA forms and Form E data. Compare options in our Malaysia payroll software ranking and Malaysia payroll software guide, including Swingvy pricing. For accounting and SST, see Malaysia accounting software, Bukku pricing, SQL Account pricing, AutoCount pricing and our SST calculator.

Hiring in Malaysia from abroad

Foreign companies without a Malaysian entity can employ through an employer of record, which registers with EPF, SOCSO, EIS and LHDN and runs payroll. Compare providers in the EOR ranking and see global payroll explained. Malaysia is also introducing e-invoicing in phases, which affects your invoicing if you set up a local entity.

Common mistakes

• Using the wrong employer EPF rate around the RM5,000 threshold.
• Forgetting the RM6,000 SOCSO and EIS ceiling introduced in October 2024.
• Not updating PCB for employees' marital status and children.
• Missing the 15th-of-the-month deadline.
• Late EA forms or Form E.
• Ignoring rules for foreign workers' EPF and SOCSO.

Registering as an employer

Before the first payroll, register your company with each agency: EPF (KWSP) as an employer, SOCSO (PERKESO) for both SOCSO and EIS, LHDN for an employer tax file number (E number) to handle PCB, and HRD Corp if you are in a covered sector and meet the employee threshold. Each new employee must be registered with EPF and SOCSO within the set time after joining, usually in the first month, and you need their identity card or passport number and tax number.

Registration is online for most agencies. Keep the registration numbers in your payroll software so payment files are accepted.

What counts as wages for each contribution

Each scheme defines wages slightly differently, which is a common source of errors:

• EPF: includes salary, bonuses, commissions, incentives, arrears and most allowances; excludes overtime, gratuity, retirement benefits, retrenchment pay, travel allowances and certain other items.
• SOCSO and EIS: include salary, overtime, commissions and most allowances; exclude bonuses, gratuity, travel allowances and some other payments.
• PCB: applies to all taxable remuneration, including bonuses and benefits in kind, with specific methods for additional remuneration such as bonuses.

Payroll software lets you flag each pay item for each scheme. Set this up carefully once and payroll becomes routine.

Bonuses and additional remuneration

Bonuses are subject to EPF and PCB, but not SOCSO or EIS. LHDN's PCB formula treats bonuses as additional remuneration and calculates the extra tax in the month they are paid, so that annual withholding remains close to the final tax liability. For large year-end bonuses, the PCB on the bonus month can be significant; explaining this in advance avoids surprise. Commissions paid regularly are generally treated as normal remuneration for PCB.

Benefits in kind and perquisites

Benefits such as company cars, accommodation, drivers and household help are taxable as benefits in kind, valued using LHDN's prescribed methods. Perquisites, cash or near-cash benefits such as allowances and vouchers, are generally taxable, though some have exemptions up to set limits, for example certain travel, parking, childcare and medical benefits. Employers can choose to include benefits in kind in PCB calculations so that employees' monthly tax reflects them. Report all benefits on the EA form.

Payslips and records

Employers must keep employee registers and wage records under the Employment Act, and LHDN expects payroll records to be kept for at least seven years. Payslips should show gross pay by item, each deduction (EPF, SOCSO, EIS, PCB and others), employer contributions, and net pay. Many Malaysian payroll systems also generate the payment files for each agency and keep a history of submissions, which makes audits and employee queries easier to handle.

Comparing Malaysia with neighbouring countries

If you employ in several Southeast Asian countries, Malaysia's structure is relatively high on employer retirement contributions and moderate on tax. Employers pay 12% or 13% EPF, compared with the Philippines, where the employer's main costs are SSS at 10% of a capped salary credit, PhilHealth at 2.5% and Pag-IBIG at 2% of a capped base, plus mandatory 13th month pay. Malaysia has no mandatory 13th month pay, though bonuses are customary. See payroll in the Philippines for comparison, and global payroll explained for running both.

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