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Date: 9 April 2019 Statutory Requirements Governing Payroll Computation for 2019

Employment Act 1955 Summary of Employment Laws in Malaysia Definition of ‘Wages’ Under Section 2 of the Employment Act 1955, the term “wages” means basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but does not include:

• The value of any house accommodation or the supply of any food, fuel, light or water or medical attendance or of any approved service

• Any contribution paid by the employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme established for the benefit or welfare of the employee

• Any travelling allowance or the value of any travelling concession • Any sum payable to the employee to defray special expenses entailed on him by the

nature of his employment • Any gratuity payable on discharge or retirement • Any annual bonus or any part of any annual bonus.

Normal work hours Not exceeding eight (8) hours in one day or 48 hours in one week Paid holiday At least 11 gazetted public holidays ; National Day, Birthday of the

Yang Dipertuan Agong, Birthday of Ruler/Federal Territory Day, Labour Day and Malaysia day) in one calendar year and on any day declared as public holiday under section 8 of the Holiday Act 1951.

Paid Annual Leave for Employees

No. of Years of Service Entitlement (Days) Less than two years of service 8 days Two or more but less than five years of service 12 days Over five years of service 16 days

Paid Sick Leave per Calendar Year

Years of Service Entitlement (Days) Less than two years of service 14 days Two or more but less than five years of service 18 days Over five years of service 22 days Where hospitalization is necessary Up to 60 days (inclusive of the paid sick

leave entitlement stated above) Paid Maternity Leave 60 days

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Payment for Overtime Work Overtime Rate of Pay Normal working days One and a half(1½) times the hourly rate of pay Rest days Two (2) times the hourly rate of pay Public Holidays Three (3) times the hourly rate of pay

Income Tax Act 1967 Definition of Employment Income Section 13(1) (a) of the Income Tax Act 1967 reads as follows: *(1) Gross income of an employee in respect of gains or profits from an employment includes- (a) any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (whether in money or otherwise) in respect of having or exercising the employment.” Mandatory Statutory Forms need to be prepared by each Employer

Type Purpose

CP39 For employers to pay the Monthly Tax Deduction (MTD) e-Data PCB (Scheduler Tax Deduction Data System) e-Data PCB allows employers to check the format and upload the text file of CP39 online. This system helps employers to send data that meets the specifications and make payment online

CP8D For employers to submit Borang E online. In accordance to the Income Tax Act 1967, every employer must prepare and submit the Return Form of Employer (Form E) to the IRB by 31 March of every year.

EA Form This is a Yearly Remuneration Statement of an employee. Every employer is required by Income Tax Act to prepare and render to his employee the EA form before the last day of February.

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MONTHLY TAX DEDUCTION (MTD) (Potongan Cukai Bulanan PCB) Monthly Tax Deduction or MTD calculation is subjected to the following: Compulsory deductions Optional deductions Tax Exempt Allowance Benefits in Kind (BIK) and Value of Living Allowance (VOLA)

COMPULSORY DEDUCTIONS There are six (6) types of compulsory deductions in the MTD calculation:

Deductions

Amount limited to

(RM) a. Individual

Deduction of RM9,000.00 for an individual in respect of himself and his dependent relatives is granted automatically.

9,000.00

b. Husband/Wife i. Deduction of RM4,000.00 is given in respect of a husband living

together in the basis year on condition that the husband has no source of income/total income or has elected for joint assessment.

ii. Deduction of RM4,000.00 is given in respect of a wife living together

in the basis year on condition that the wife has no source of income/total income or has elected for joint assessment.

4,000.00

c. Child “Child” means an unmarried dependent legitimate child or stepchild or adopted child, under the age of 18 years or if above 18 years old, the child must be:

i. receiving full-time instruction at any university, college or other higher education institution (similar to a university or college); or

ii. serving under articles or indentures with a view to qualifying in a trade or profession.

Deduction of RM2,000.00 is given for each unmarried child under the age of 18 years in a current year. Deduction of RM2,000.00 is also given for each unmarried child of 18 years and above who is receiving full-time education in a current year.

2,000.00

Where a child falls within these conditions, the employee is treated as having the respective number of children:

In circumstances where

Deduction to be given as if the employee has this number of children

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Child over the age of 18 years and receiving full-time instruction at diploma level onwards in an institution of higher education in Malaysia

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Child over the age of 18 years and receiving full-time instruction at degree level onwards in an institution of higher education outside Malaysia

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Disable child as certified by the Department of Social Welfare

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Disabled child receiving further instruction at diploma level onwards in an institution of higher education in Malaysia or at degree level onwards in an institution of higher education outside Malaysia

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Deduction/ relief for: *1 child below the age of 18 or a child who is studying = RM2,000 -Child- 18 years and above and studying (diploma or higher) = RM8,000.00 (considered with 4 children) *Disabled child = RM6,000 (considered with 3 children) *Disabled child – 18 years and above and studying (diploma or higher) – RM4,000 (considered with 7 children)

d. Contribution to Employees Provident Fund (EPF) or Other Approved Scheme and Life Insurance or Takaful

1. Total deduction for the payment of contributions to the EPF or any other Approved Scheme is limited to RM4,000.00 per year

2. Life insurance premiums or Takaful contributions is limited to RM3,000.00 per year.

7,000.00

e. Disabled Person A disabled person will be allowed an additional personal deduction of RM6,000.00.

6,000.00

f. Disabled Husband/Wife Additional deduction of RM3,500.00 is given to an individual if a disabled husband/wife is living together.

3,500.00

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OPTIONAL DEDUCTIONS Employee can claim deductions and rebates in the relevant month subject to approval by employer by submitting TP1 Form to the employer. Below is a list of allowable deductions for MTD calculation stated in the Borang PCB/TP1 form.

Optional Deductions

Amount limited to (RM)

a. Medical Treatment, Special Needs or Carer Expenses of Parents Medical treatment, special needs and carer for parents are limited to RM5,000.00 in a basis year. Medical expenses which qualify for deductions includes:

i. medical care and treatment provided by a nursing home; and ii. dental treatment limited to tooth extraction, filling, scaling and

cleaning but not including cosmetic dental treatment.

The claim must be supported by a certified medical practitioner registered with the Malaysian Medical Council that the medical conditions of the parents require medical treatment or special needs or carer. The parents shall be resident in Malaysia. The medical treatment and care services are provided in Malaysia. In the case of carer, shall be proved by a written certification, receipt or copy of carer’s work permit. “Carer” shall not include that individual, husband, wife or the child of that individual. New personal deduction of RM1,500 for each parent is given to a resident taxpayer subject to the following conditions:

a) Such taxpayer does not claim expenses on medical treatment and care of parents;

b) Parents are residents and aged 60 years and above; c) Parents have an annual income not exceeding RM24,000 per

annum each; and d) Parents are the legitimate natural parents and foster parents in

accordance with the respective law subject to a maximum of 2 persons.

This relief can be shared with other siblings provided that the total relief claimed shall not exceed RM1,500 for each parent.

5,000.00 or 1,500.00 (Father) 1,500.00 (Mother)

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Optional Deductions

Amount limited to (RM)

b. Basic Supporting Equipment The purchase of any supporting equipment for one’s own use, if he/she is a disabled person or for the use of his/her spouse, child or parent, who is a disabled person may be claimed but limited to a maximum of RM6,000.00 in a basis year. Basic supporting equipment includes haemodialysis machine, wheel chair, artificial leg and hearing aid but exclude optical lenses and spectacles.

6,000.00

c. Higher Education Fees (Self) Payment of annual fee limited to RM7,000.00 is allowed as a deduction for any course of study in an institution or professional body in Malaysia recognized by the Government of Malaysia or approved by the Minister of Finance for the purpose of enhancing any skill or qualification:

i. up to tertiary level (other than Masters and Doctorate) in law, accounting, Islamic finance, technical, vocational, industrial, scientific or technology; or

ii. any course of study at Masters or Doctorate level.

7,000.00

d. Medical Expenses on Serious Diseases Medical expenses on serious diseases include the treatment of acquired immune deficiency syndrome (AIDS), Parkinson’s disease, cancer, renal failure, leukaemia and other similar diseases. ‘Other similar diseases’ such as heart attack, pulmonary hypertension, chronic liver disease, fulminant viral hepatitis, head trauma with neurological deficit, brain tumour or vascular malformation, major burns, major organ transplant or major amputation of limbs. Amount expended on own self, husband/wife or child is deductible up to a maximum of RM6,000.00.

6,000.00

e. Complete Medical Examination Amount expended on own self, husband/wife or child for complete medical examination is deductible up to a maximum of RM500.00. The total deduction for medical expenses on serious diseases (d.) and complete medical examination (e.) is limited to a maximum of RM6,000.00 a year. Example : Claim for deduction in (d.) is RM5,900.00. Therefore, the balance of deduction that can be claimed in (e.) is only RM100.00

500.00

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Optional Deductions

Amount limited to (RM)

f. Net Deposit in Skim Simpanan Pendidikan Nasional (SSPN) Amount deposited in SSPN by an individual for his children’s education is deductible up to a maximum of RM8,000.00 per year. The deduction is limited to the net amount deposited in that basis year only. This deduction has effect for the years of assessment 2012 until 2017. Example: In a current year Deposit in a current year RM2,000.00 Less: Withdrawal in a current year (-) RM1,500.00 Allowable deduction to be claimed RM 500.00

8,000.00

g. Payment of Alimony to Former Wife Payment of alimony to a former wife is deductible provided that the total deduction for wife (in paragraph 4.4.1 (b)) and alimony payment is limited to RM4,000.00 per year. Voluntary alimony payment to a former wife under a mutual agreement but without any formal agreement does not qualify as a deduction. Note: Payment of alimony to former wife is not allowed in the case where the employee claimed deduction for wife.

4,000.00

h. Life Insurance Total deduction for the payment of life insurance premiums is limited to RM3,000.00 per year.

3,000.00

i. Contribution to a Private Retirement Scheme and Payment of Deferred Annuity Deduction on contribution to Private Retirement Scheme approved by the Securities Commission under The Capital Markets and Services Act 2007 or payment of deferred annuity premium or both limited to RM3,000 per year (for 10 years from year assessment 2012 until year assessment 2021).

3,000.00

j. Education and Medical Insurance A deduction not exceeding RM3,000.00 per year for insurance premiums in respect of education or medical benefits for an individual, husband, wife or child.

3,000.00

k. Interest on Housing Loan A deduction not exceeding RM10,000 for each basis year is given on housing loan interest for house purchased from developer or third party subject to the following conditions:

i. the tax payer is a Malaysian citizen and a resident; ii. limited to one residential house; iii. has not derived any income; and iv. sale and purchase agreement is executed between 10 March

2009 and 31 December 2010. The tax deduction is given for 3 consecutive years from the first year the housing loan interest is paid.

10,000.00

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Optional Deductions

Amount limited to (RM)

l. SOCSO Payment A deduction not exceeding RM250.00 per year for Social Security Organisation (SOCSO).

250.00

m. Tax Deduction For Lifestyle The purchase of reading materials including printed newspapers, computer, smartphones and tablets, internet subscriptions, sport equipment as well as gymnasium membership fees. The deduction is limited to RM2,500.00 per year

2,500.00

n. Tax Deduction For Purchase Of Breastfeeding Equipment The purchase can be made in complete set or separate parts. The new tax deduction is applicable to working women with child aged up to 2 years and can be claimed once every 2 years.

1,000.00

o. Tax Deduction For Fees Paid To Child Care Centres And Kindergartens Individual taxpayers who enroll their children below 6 years of age, in child care centres registered with the Director General of Social Welfare under the Child Care Centre Act 1984 or kindergartens registered under the Education Act 1996. This new deduction can be claimed by either parent of the children.

1,000 .00

TAX EXEMPT ALLOWANCES / PERQUISITES / GIFTS / BENEFITS Types of allowances, benefit-in-kind and perquisites that are exempted from tax are as follows:

Allowances / Perquisites / Gifts / Benefits Restricted amount (RM)

a Petrol card, petrol allowance, travelling allowance or toll payment or any of its combination for official duties. If the amount received exceeds RM6,000 a year, the employee can make a further deduction in respect of the amount spent for official duties. Records pertaining to the claim for official duties and the exempted amount must be kept for a period of 7 years for audit purpose.

6,000.00

b Child care allowance in respect of children up to 12 years of age. 2,400.00

c Gift of fixed line telephone, mobile phone, pager or Personal Digital Assistant (PDA) registered in the name of the employee or employer including cost of registration and installation.

Limited to only 1 unit for each category of assets

d Monthly bills for subscription of broadband, fixed line telephone, mobile phone, pager and PDA registered in the name of the employee or employer including cost of registration and installation.

Limited to only 1 line for each category of assets.

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Allowances / Perquisites / Gifts / Benefits Restricted amount (RM)

e Perquisite (whether in money or otherwise) provided to the employee pursuant to his employment in respect of:- (i) past achievement award; (ii) service excellence award, innovation award or productivity award; and (iii) long service award (provided that the employee has exercised an employment for more than 10 years with the same employer).

2,000.00

f Parking rate and parking allowance. This includes parking rate paid by the employer directly to the parking operator.

Restricted to the actual amount expended

g Meal allowance received on a regular basis and given at the same rate to all employees. Meal allowance provided for purposes such as overtime or outstation / overseas trips and other similar purposes in exercising an employment are only exempted if given based on the rate fixed in the internal circular or written instruction of the employer.

Restricted to the actual amount expended

h Subsidised interest for housing, education or car loan is fully exempted from tax if the total amount of loan taken in aggregate does not exceed RM300,000. If the total amount of loan exceeds RM300,000, the amount of subsidized interest to be exempted from tax is limited in accordance with the following formula: Where; A x B C A = is the difference between the amount of interest to be borne by the employee and the amount of interest payable by the employee in the basis period for a year of assessment; B = is the aggregate of the balance of the principal amount of housing, education or car loan taken by the employee in the basis period for a year of assessment or RM300,000, whichever is lower; C = is the total aggregate of the principal amount of housing, education or car loan taken by the employee.

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BENEFITS IN KIND (BIK) AND VALUE OF LIVING ACCOMMODATION (VOLA) Employee who has benefits-in-kind (BIK) and value of living accommodation (VOLA) as part of his monthly remuneration shall deduct PCB as per normal remuneration. Amount OF BIK/VOLA are used only for the purpose of MTD calculation. These amounts shall not appear in the payslip and EA form as gross salary/ remuneration. In the EA form it is shown in Part B

(3). Benefits in kind (4). Value of Living Accommodation

Examples of Benefits in kind 1. motor car and other related benefits 2. driver provided 3. household furnishings, apparatus and appliances 4. gardener 5. household servant 6. holiday 7. recreational club membership

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EMPLOYEES PROVIDENT FUND (EPF ACT 1991) Definition of “Wages” for the purpose of EPF contribution: All remuneration in money due to an employee under his contract of service or apprenticeship whether it was agreed to be paid monthly, weekly, daily or otherwise. Among the payments that are liable for EPF contribution:

• Salary • Payment for unutilised annual or medical leave • Bonus • Allowance • Commission • Incentive • Arrears of wages • Wages for maternity leave • Wages for study leave • Wages for half day leave • Other payments under services contract or otherwise

http://www.kwsp.gov.my/portal/en/employers/employers-responsibility EPF CONTRIBUTION RATES STARTING 01/01/ 2019

Rate of Contribution Employee Employer Total Malaysian citizen up to 60 years old Wages: RM5000 & below 11% 13% 21% Wages: Over RM5000 11% 12% 20% Malaysian citizen over 60 years old Wages: RM5000 & below 0% 4% 4% Wages: Over RM5000 0% 4% 4%

http://www.kwsp.gov.my/portal/en/employers/employers-responsibility

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SOSIAL SECURITY ORGANISATION (SOCSO ACT 1969) Pertubuhan Keselamatan Sosial (PERKESO) Definition of ‘Wages’ Any remuneration payable in money to an employee is taken as wages for purposes of SOCSO contributions. This includes the following payments:

i. Salary ii. Overtime payments

iii. Commission and service charge iv. Payments for leave; such as annual, sick, maternity, rest day, public holidays and etc v. Allowances such as incentives, shift, food / meal, cost of living, housing and etc

All payments made to an employee paid at an hourly rate, daily rate, weekly rate, piece or task rate is considered as wages. However the following payments are not considered as wages:

i. Payments by an employer to any statutory fund for employees ii. Mileage claims

iii. Gratuity payments or payments for dismissal or retrenchments iv. Annual bonus

https://www.perkeso.gov.my/index.php/en/social-security-protection/employer-employee-eligibility/employer-employee-registration Contributions Coverage of the Workers Social Security Act 1969 Employers are required to pay monthly contributions for each eligible employee according to the rate specified under the Employees’ Social Security Act, 1969. These contributions are divided into two (2) types, namely: Contributions of the First Category For employees who are less than 60 years of age, contributions payable by employers and employees are for the Employment Injury Scheme and the Invalidity Scheme. The rate of contribution under this category comprises 1.75% of employer’s share and 0.5% of employees’ monthly wages according to the contribution schedule. Note: All employees who have not reached the age of 60, must contribute under the First Category except for those who have attained 55 years of age and have no prior contributions before they reach 55 due to non-eligibility under the Employees’ Social Security Act, 1969. Contributions of the Second Category The rate of contribution under this category is 1.25% of employees’ monthly wages, payable by the employer, based on the contribution schedule. All employees who have reached the age of 60 must be covered under this category for the Employment Injury Scheme only. Note: For eligible new employees who are 55 years of age, they must be covered under the Second Category.

https://www.perkeso.gov.my/index.php/en/social-security-protection/employer-employee-eligibility/employer-employee-registrationhttps://www.perkeso.gov.my/index.php/en/social-security-protection/employer-employee-eligibility/employer-employee-registration

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EMPLOYMENT INSURANCE SYSTEM (EIS) Sistem Insurans Pekerjaan (SIP) EIS Contribution Rate The contribution rate for Employment Insurance System (EIS) is 0.2% for the employer and 0.2% for employee based on the employee’s monthly salary.

Contribution Rate MONTHLY WAGES EMPLOYER EMPLOYEE

All employees aged 18 to 60 are required to contribute. However, employees aged 57 and above who have no prior contributions before the age of 57 are exempted.

Contribution rates are capped at insured salary of RM4000.00.

0.2% 0.2%

RM4000 and above RM7.90 RM7.90

Social Protection for Foreign Worker (SOCSO) EMPLOYMENT INJURY (EI) SCHEME FOREIGN WORKER SKIM BENCANA KERJA PERKESO UNTUK PEKERJA ASING (SBK) The rate of contribution is 1.25% of the insured monthly wages and to be paid by the employer only, referring to the Second Category Contribution Schedule for EMPLOYMENT INJURY (EI) Scheme only.

AMOUNT OF WAGES FOR THE MONTH

RATE OF CONTRIBUTIONS (PAID BY EMPLOYER ONLY)

RM1.00 – RM4,000.00

1.25%

RM4,000.01 and more RM49.40 Method of submission and payment – Combine with SOCSO contribution – upload SOCSO text file at PORTAL ASSIST.

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HUMAN RESOURCE DEVELOPMENT FUND (PSMB ACT 2001) PEMBANGUNAN SUMBER MANUSIA BERHAD (PSMB) Pembangunan Sumber Manusia Berhad (PSMB) is entrusted by the Malaysian Government to administer and manage the Huuman Resource Development (HRD) Levy for the purpose of training, retraining and skills upgrading of the Malaysian workforce.

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The content of this article constitutes part of Aplus Payroll Training Slides. The aim of this article is to summarise the basic rule of law governing the employees payroll calculation. This is to ensure that Aplus Payroll users comply with the Statutory requirements to avoid penalty or fine due to non-compliance. REFERENCE: EMPLOYMENT ACT 1955 INCOME TAX ACT 1967 SOCSO ACT 1969 EPF ACT 1991 PSMB ACT 2001 IRBM Public Ruling No. 3/2013 Benefits in kind IRBM Public Ruling No. 3/2005 Living Accommodation Benefit Provided For The Employee By The Employer https://www.hrdf.com.my/wp-content/uploads/2016/12/4.Slide-for-the-1st-April-2017-Amendment-latest-160317.pdf https://www.perkeso.gov.my/index.php/en/social-security-protection/employer-employee-eligibility/employer-employee-registration http://www.kwsp.gov.my/portal/en/employers/employers-responsibility

Any feedback or comments will be greatly appreciated.

Kindly email your feedback or comments to yukbee@aplus.com.my

https://www.hrdf.com.my/wp-content/uploads/2016/12/4.Slide-for-the-1st-April-2017-Amendment-latest-160317.pdfhttps://www.hrdf.com.my/wp-content/uploads/2016/12/4.Slide-for-the-1st-April-2017-Amendment-latest-160317.pdfhttps://www.perkeso.gov.my/index.php/en/social-security-protection/employer-employee-eligibility/employer-employee-registrationhttps://www.perkeso.gov.my/index.php/en/social-security-protection/employer-employee-eligibility/employer-employee-registrationhttp://www.kwsp.gov.my/portal/en/employers/employers-responsibilitymailto:yukbee@aplus.com.my