What Are the Mandatory Payroll Deductions in Malaysia? (2026 Complete Guide)
Posted on 09 April 2026 in Business | Suki Bajaj
Mandatory payroll deductions are statutory contributions required by Malaysian law including EPF, SOCSO, EIS, PCB income tax, and HRDF contributions.
To ensure payroll compliance in Malaysia, this guide explores what is deducted from the employee and what is contributed by the employer.
Key Takeaways:
- Employers must manage mandatory payroll deductions for EPF, SOCSO, EIS, PCB income tax, and HRD Corp levies to ensure full legal compliance.
- Employers and their foreign workers are required to contribute 2% each to the Employees’ Provident Fund (EPF).
- Both SOCSO and EIS contributions are subject to a monthly wage ceiling of RM6,000, capping the maximum payable amount for higher earners.
- Companies with 10 or more Malaysian employees must contribute to HRD Corp to fund workforce training and development.
- Utilizing automated payroll software like QuickHR eliminates manual calculation errors and ensures timely statutory submissions.
In this guide, we’ll talk about:
List of Mandatory Payroll Deductions in Malaysia (2026)
There are five primary mandatory deductions that every employer must manage. While most involve contributions from both the employer and the employee, the specific rates and requirements depend on the employee’s residency status, age, and your company's total headcount.
This ensures that working mothers have sufficient time for recovery and bonding without the stress of returning to work too early.
To help you manage your monthly payroll cycle, here is a quick-reference guide to the current statutory contributions in Malaysia:
| Statutory Deduction | Purpose | Who Contributes? | Key Compliance Note |
|---|---|---|---|
| EPF (KWSP) | Retirement Savings | Employer + Employee | Now mandatory for foreign workers (2% each). |
| SOCSO (PERKESO) | Workplace Injury & Disability | Employer + Employee | Wage ceiling capped at RM6,000. |
| EIS (SIP) | Unemployment Insurance | Employer + Employee | Fixed at 0.4% total (0.2% each). |
| PCB (Income Tax) | Monthly Tax Deduction | Employee | Calculated via LHDN’s MTD/PCB formulas. |
| HRD Corp Levy | Training & Development | Employer Only | Mandatory for employers with 10+ Malaysian staff. |
EPF Contribution (KWSP)
The Employees’ Provident Fund (EPF), or Kumpulan Wang Simpanan Pekerja (KWSP), is a mandatory retirement savings scheme for employees in the private sectors and non-pensionable public sectors in Malaysia.
EPF Contribution Table 2026 Rates
Based on the EPF Act 1991, the specific monthly EPF contribution rates sare strictly determined by the employee’s age, residency status, and salary bracket categorised as follows:
| Employee’s Status | Monthly Salary Rate | Stage 1 (Below 60 years old) | Stage 2 (Age 60 and above) |
|---|---|---|---|
| Malaysian | No limit | Employees share: 0% Employer’s share: 4% (Ref Third Schedule – Section E) |
|
|
RM5,000 and below | Employees share: 11% Employer’s share: 13%(Ref Third Schedule – Section A) |
Applicable for (ii) and (iii) only Employees share: 5.5% Employer’s share: 6.5% (Ref Third Schedule – Section C) |
|
More than RM5,000 | Employees share: 11% Employer’s share: 12%(Ref Third Schedule – Section A) |
Applicable for (ii) and (iii) onlyEmployees share: 5.5% Employer’s share: 6%(Ref Third Schedule – Section C) |
| Non-Malaysians (registered as member from 1 August 1998) | No limit | Employees share: 2% Employer’s share: 2% (Ref Third Schedule – Section A) |
Employees share: 2% Employer’s share: 2%( Ref Third Schedule – Part F) |
💡 See also: With EPF Contribution Table Malaysia Payroll Guide
For employees earning less than RM20,000 per month, the contribution amount is determined by referring to the Third Schedule of the EPF Act.
Therefore, if an employee’s salary falls within a particular range in the Third Schedule, the EPF contribution will be the fixed amount stated for that range, not a percentage of the exact salary.
For employees earning RM20,000 or more per month, EPF contributions are calculated as a percentage of their salary. The specific percentage applied depends on the employee's status (e.g., age, residency).
All EPF contributions must be paid in only ringgit denominations, without any cent value.
Mandatory EPF Contribution for Foreign Workers
Starting October 2025, both the employer and employee will be required to contribute 2% each of the monthly wages.
This applies to non-Malaysian citizen employees, below 75 years of age, with a valid work pass (excluding domestic workers) who are registered and have contributions made on their behalf by their employers.
💡 See also: With HR Guide to the Employees Provident Fund (EPF) in Malaysia
SOCSO Contributions (PERKESO)
The Social Security Organisation (SOCSO), also known as Pertubuhan Keselamatan Sosial (PERKESO) provides financial aid and medical benefits to eligible employees in case of workplace accidents, occupational diseases, invalidity, and death.
Types of SOCSO Coverage
SOCSO offers two main insurance schemes:
- Employment Injury Scheme:
Employment injury scheme provides coverage for workplace accidents and illnesses.
- Invalidity Scheme:
Invalidity scheme offers financial support in case of employee disability or death due to non-work-related causes.
SOCSO Contribution Rate 2026
Employees can be categorized into:
- Employment Injury Scheme and Invalidity Scheme: Covered under both schemes (most comprehensive protection)
- Employment Injury Scheme: Covered under Employment Injury Scheme only
PERKESO/SOCSO Contribution Table for 2026
Kindly refer to the official PERKESO website for the latest contribution table -
https://www.perkeso.gov.my/images/dokumen/151124-Rate%20Contribution%20ACT%204.pdf
📌 NOTE: Wages exceeding RM6,000: SOCSO contributions are capped at the RM6,000 bracket (Employee: RM29.75; Employer: RM104.15 for the first category).
PCB (Potongan Cukai Bulanan) – Income Tax
Potongan Cukai Bulanan, or PCB, is Malaysia's monthly tax deduction system where employers deduct a portion of their employees' salaries each month to remit directly to the Inland Revenue Board of Malaysia (LHDN). This prevents employees from facing a massive tax bill at the end of the year.
How is PCB Calculated?
HDN payroll deductions don’t have a one-size-fits-all formula. It depends on several factors that affect an employee’s taxable income and tax reliefs. These include:
- Total Monthly Remuneration:This includes basic salary, bonuses, commissions, and allowances.
- EPF Contribution: Mandatory EPF contributions are factored into taxable income calculations.
- Marital Status & Dependents:An employee's marital status and the number of children or dependents they have can increase their tax reliefs, lowering the PCB taxable amount.
- Other Tax Reliefs:Employees may claim other reliefs for things like education fees, lifestyle expenses, or medical costs.
💡 See also: Complete HR Guide to Tax Reliefs in Malaysia
Employment Insurance System (EIS)
The EIS contribution in Malaysia is managed by PERKESO to support workers who experience retrenchment. It provides temporary financial aid and job-hunting assistance.
Income Subject to EIS Contribution in Malaysia
| Subject to EIS (Include These) | Exempt from EIS (Exclude These) |
|---|---|
| Basic Salary & Overtime | Performance Bonuses & Director Fees |
| Commissions & Service Charges | Mileage & Traveling Allowances |
| Paid Leaves (Annual, Sick, Public Holidays) | Business Expense Reimbursements |
| Fixed Allowances (Housing, Food, Performance) | Gratuity, Retrenchment Pay, or BIK |
The EIS monthly wage ceiling is RM6,000. If an employee earns more, their contribution is still calculated based on this maximum limit.
The total EIS contribution rate remains 0.4% of the employee's assumed monthly salary, split equally between the employer (0.2%) and the employee (0.2%).
Employers are obligated to register their business and employees with PERKESO and remit the respective contributions on time.
HRDF Contribution (HRD Corp Levy)
The HRDF Malaysia collects a mandatory levy from registered employers and uses these funds to finance the training and development of the Malaysian workforce.
The available HRDF scheme grants are a direct incentive for companies to invest in their people without any significant financial burden.
HRDF Registration & Levy Requirements
Whether your company must register depends on your headcount of Malaysian employees:
| Category | Requirement | Levy Rate |
|---|---|---|
| 10+ Employees | Mandatory registration and contribution. | 1% of monthly wages |
| 5 to 9 Employees | Optional, can register voluntarily to access training grants. | 0.5% of monthly wages |
| Exempted | Government agencies, NGOs, and local authorities. |
✅ Smart HR Tip: If you fall into the mandatory category, ensure your monthly payments are timely. If you don't use them for approved training schemes, you're essentially leaving your talent development budget on the table.
How QuickHR Malaysia Automates Payroll Compliance
In Malaysia’s fast-paced regulatory environment, manually calculating mandatory payroll deductions for a diverse workforce is mostly prone to error risks and potential legal conflicts.
QuickHR Malaysia, an all-in-one HRMS and Payroll solution, automates your payroll compliance, ensuring accurate calculations, streamlined processing, and on-time submissions.
- Automated Calculations: QuickHR auto-calculates EPF, SOCSO, EIS, PCB tax contributions based on the current regulations and employee citizenship and age status.
- Seamless Submissions: Generate bank-ready files for KWSP, LHDN, PERKESO, HRDF with one click.
- directly with your monthly payroll cycle for smooth and accurate disbursements.
- Accounting Integration: Sync payroll data directly with QuickBooks Online and Xero.
- HRDF Management: Track employee training and manage levy claims in one place.
By automating your payroll with QuickHR, you eliminate manual risks and free up your HR team to focus on strategic growth. Book a free demo today to see how we simplify Malaysian payroll.
FAQs on Maternity Leave in Malaysia
Payroll deductions are calculated based on statutory contribution rates applied to the employee’s gross salary. Using payroll software like QuickHR automates EPF, SOCSO, EIS, and PCB calculations accurately.
HRDF contribution is mandatory for employer with 10 or more Malaysian employees. It is an employer-only contribution used to fund employee training programs.
Yes, both employers and employees contribute to the Employment Insurance System (EIS), which provides financial assistance to workers who lose employment due to retrenchment.
Failure to pay mandatory payroll contributions can result in penalties, interest charges, and legal action. Employers must ensure timely payments to avoid compliance issues.
Yes. Payroll software like QuickHR Malaysia automates statutory deductions, tax calculations, and compliance reporting, reducing manual errors and ensuring regulatory compliance.
Managing maternity leave in Malaysia requirements is simplified through automation. HRMS tools handle maternity leave payroll Malaysia adjustments, track the paternity leave Malaysia 7-day entitlement for fathers, and maintain digital records for compliance audits, significantly reducing the risk of legal disputes.
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