Payroll Compliance Checklist for Malaysia Employers: Essential Guide for Employers

Payroll compliance in Malaysia becomes challenging the moment you face strict contribution rules, monthly tax deductions, tight cut off dates, and frequent regulatory updates. A single mistake can disrupt your operations, delay payments, and lead to penalties that affect both your business and your employees’ confidence.

This checklist helps you stay on top of every requirement each month, so you stay compliant and maintain a smooth, reliable payroll experience for your team.

What is Payroll Compliance in Malaysia?

Payroll compliance in Malaysia refers to the full set of rules employers must follow when paying employees, calculating statutory contributions, deducting taxes, and submitting monthly and annual filings to government bodies. It covers how salaries are paid, how benefits are recorded, and how statutory contributions in Malaysia such as EPF, SOCSO, EIS, HRD Levy, and income tax are handled.

Payroll Compliance Checklist for Malaysia Employers

To stay compliant with Malaysia’s employment and tax regulations, employers should ensure the following key points are covered:

1. Salary Payments and Payslips

You need to pay employees no later than the seventh day after the end of each wage period. When determining daily wages, employers generally use either a 26-day or 30-day formula, depending on company policy and employment contracts. Make sure this is clearly stated to avoid misunderstandings.

Failure to comply is an offence under Section 19 and 99A of the Employment Act, and employers may be fined up to RM10,000 per employee.

In practice, employers usually apply the following methods based on the purpose of calculation:

• 30/31 days — commonly used to convert a monthly salary into a daily rate (e.g., when calculating pay for incomplete months).
• 26 days — typically used for leave encashment or for calculating wages for work done on rest days or public holidays, following the principles outlined in the Employment Act 1955.

Provide itemised payslips that show salary components, allowances, overtime, deductions, and statutory contributions. Clear and consistent documentation protects transparency and reduces payroll disputes.

2. EPF Contributions

The Employees Provident Fund is mandatory for eligible employees. Both employer and employee must contribute based on statutory rates set by EPF. Payments must be submitted by the fifteenth of every month through the EPF portal to avoid penalties or late charges.

3. SOCSO

SOCSO provides protection for workplace injuries, invalidity, and employment related risks. Employers must register eligible employees and contribute according to the correct category under the Employment Injury and Invalidity Schemes. Payments are due by the fifteenth of each month.

4. EIS

The Employment Insurance System supports workers who face retrenchment or unemployment. Employers must contribute monthly to all eligible employees. Contributions are calculated based on wages and must be submitted together with SOCSO payments.

5. HRD Levy

If your business falls under the Human Resources Development Corporation, you must contribute one percent of your employees’ monthly wages to the HRD Levy. This levy supports training and upskilling programs. Companies that qualify but fail to contribute may face penalties.

6. Income Tax

Employers must deduct Monthly Tax Deductions from employee salaries based on LHDN guidelines. Submit deductions through the e-PCB system by the fifteenth of each month. Issue EA forms annually to support your employees during their tax filing period.

How to Ensure Payroll Compliance in Malaysia

Here’s how to ensure your payroll process remains compliant in Malaysia:

1. Classify Employees Correctly

Determine whether your hires are full time, part time or a contract for service (freelancer/independent contractor), as this affects their eligibility for statutory deductions and contributions.

• Full-time and part-time employees: Generally subject to EPF, SOCSO, EIS, and PCB deductions, based on their earnings and employment terms.
• Contract or freelance workers (contract for service): Not subject to employer statutory deductions. They are responsible for their own tax payments and may contribute to EPF voluntarily. *Important Note:
• The classification must reflect the actual nature of the working relationship, not just what is written in the contract.
• Misclassifying an employee as a “contract for service” to avoid statutory contributions (e.g. EPF, SOCSO, EIS) may be deemed a violation under the Employment Act 1955 and related laws and could result in penalties and back payment of contributions.

2. Register with Statutory Bodies

Employers must register with Malaysia’s key statutory agencies, including EPF (Employees Provident Fund), SOCSO (Social Security Organisation), and EIS (Employment Insurance System) to remit mandatory contributions on time.

3. Stay Updated on Payroll Regulations

Payroll regulations in Malaysia can change due to government budget updates or policy revisions. Keep track of official announcements from LHDN (Inland Revenue Board), KWSP, and PERKESO to maintain compliance.

4. Automate Payroll Processing

Using payroll software or HRMS like Glints Talenthub can help calculate EPF, SOCSO, and PCB (Potongan Cukai Bulanan) automatically, minimizing errors. We offer compliant EOR and PEO services in Malaysia,and can streamline payroll management while ensuring statutory accuracy.

5. Maintain Detailed Payroll Records

Keep accurate and organized records of payslips, contributions, leave, and tax submissions. Employers are required to store these records for at least seven years in case of audits or disputes.

6. Conduct Regular Payroll Audits

Review your payroll data and statutory submissions periodically to identify inconsistencies early. Internal audits help you ensure contributions are submitted correctly and all legal requirements are met.

Consequences of Non Compliance

When payroll rules are not followed, it creates a chain reaction. Employees may lose trust, contributions can be rejected, and your company may face fines or audit issues. Payroll mistakes also take a toll on productivity because your HR team will spend hours fixing errors instead of supporting business growth.

If you ever feel unsure about Malaysia’s payroll rules or want a simpler way to stay compliant every month, you can speak with a Glints TalentHub expert to walk you through a compliant and stress free setup for your team.

You can schedule a session with our expert anytime to get guidance tailored to your team’s needs.

Make Payroll Compliance Easier with Glints TalentHub

Payroll compliance in Malaysia is largely guided by the Employment Act 1955, which outlines essential obligations such as wage periods, overtime pay, and statutory contributions. Following these regulations through a structured checklist ensures payroll accuracy, transparency, and timeliness, key factors that build employee trust and prevent costly compliance mistakes.

If you want a clearer and more dependable way to stay compliant, Glints TalentHub can support you with accurate payroll processing, timely statutory submissions, and proper employee documentation. You can also learn our Employee of Record solution to hire and manage talent across Southeast Asia without worrying about local payroll rules or compliance risks. This helps your team stay focused on growth while every requirement is handled with care.