The EPF (Employees’ Provident Fund), or KWSP in Malay, is a government organisation which collects and invests employee and employer pension contributions, for employees to withdraw for use in retirement. The EPF aims to create a stable future for workers in Malaysia.
Employers are responsible for withholding the employee’s part from their salary and remitting it to EPF, together with their own employer part. They can incur fines for any errors. It’s therefore crucial for employers to really know their stuff when it comes to the EPF, and employees should also be literate regarding their rights and personal finances.
Lucky for you, our team of payroll experts at PayrollPanda – led by Isabelle Sterboul, a PwC-trained Chartered Accountant with a BA from the University of Oxford – have created this detailed, yet easy-to-understand guide so you’re clear on all there is to know.
This article covers:
- Who needs to contribute to EPF?
- What payments are liable for EPF deductions?
- Payment Contribution
- How to make EPF contributions
- Penalties for failing to comply with the EPF Act
- Withdrawal
Who needs to contribute to EPF?
Upon hiring your first employee, your company must register as an EPF employer within 7 days (here’s our step-by-step guide on how to register as an employer), and whenever a worker is officially employed, you are required to register them with the EPF within 7 days of their start date (yes, we’ve got a guide for that, too).
The EPF concerns employees, which is anyone who is working under an oral or written employment contract or contract of apprenticeship. It is compulsory for all Malaysian citizens, who are employed in the private sector, to make monthly contributions to the EPF. Those working in the public sector, but in roles without a pension, are also required to contribute. It is also mandatory for non-Malaysians who are permanent residents, while it is optional for other foreign employees.
Those required to make contributions to EPF:
- Private sector employees (including part-time, temporary or probationary employees)
- Non-pensionable employees in the public sector
- Directors who receive a salary from the company (but not directors’ fees)
It is important to note that contributions are made until the age of 75. However, from 60 years old, only employer contributions are required.
Those exempt from contributing to EPF:
- Foreign citizens who are non-permanent residents of Malaysia and choose not to contribute
- Those detained in prisons, detention centres, hospitals for mental health illnesses, or rehabilitation centres
- Employees who have reached 75 years of age
- Domestic servants such as maids, cooks, drivers and gardeners, who are not hired by corporations or businesses
- Members of the federal or state administration
- Nomadic aboriginal groups unless overruled by the Director General of the Department of Aborigines
- Self-employed individuals (though they can make voluntary contributions under the Self-contribution scheme)
- Outworkers, which is anyone who is given materials by their employer and work on them (such as ornamenting, altering, repairing) in premises not under the management of the employer
What payments are liable for EPF contributions?
Apart from basic salary, there are a few other earnings which are subject to EPF contributions, including:
- Bonuses
- Commissions
- Incentives
- Allowances (apart from exceptions listed below)
- Payments for unutilised annual or sick leave
- Wages for maternity, study, and half-day leave
- Wage arrears
These payments, on the other hand, are not subject to EPF contributions:
- Overtime wages
- Service charges (like tips)
- Travelling allowances or concessions
- Retirement benefits
- Termination or lay-off benefits
- Payments in lieu of notice of termination of service
- Gratuity payments (payment as recognition upon completion of service))
- Director’s fees
- Gifts (such as duit raya or ang pows)
How to calculate contributions?
The contribution rates depend on factors such as age, whether they fall under employee or employer part, and residence status. Please keep in mind that the percentages given below are approximate, and exact figures for specific salary ranges can be found in the EPF table.
For those aged below 60, the contribution rates are:
- Malaysian citizens and permanent residents
- Employee: ~11% of wages subject to EPF
- Employer: ~12% for employees who earn wages subject to EPF over RM5,000 a month, and around ~13% for employees who earn RM5,000 or less
- Foreign citizens and non-permanent residents registered as members from 1 August 1998
- Employee: ~11% of wages subject to EPF
- Employer: RM 5 per employee
For those aged 60 and above, the contribution rates are:
- Malaysian citizens
- Employee: 0%
- Employer: ~4% of wages subject to EPF
- Permanent residents
- Employee: ~5.5% of wages subject to EPF
- Employer: ~6% for those who earn wages subject to EPF over RM5,000 a month, and ~6.5% for those who earn RM5,000 or less
- Foreign citizens and non-permanent residents registered from 1 August 1998
- Employee: ~5.5% of wages subject to EPF
- Employer: RM 5 per employee
How to submit and pay EPF contributions?
The first step is to submit your contributions which can be done either through the EPF i-Akaun website, or through the e-Caruman mobile app. You can submit your contributions via individual data input, or via file upload if you are using a payroll system that generates the required csv file.
You then have several options to make payment:
- Directly via the bank website (Maybank customers only)
- Via FPX (non-approval flow).
- Through direct debit (only for employers who have registered DDA).
- At EPF/Bank counters.
Alternatively, you can submit and pay contributions via your bank portal. If you are using a payroll system, you can check whether statutory files are generated for your bank.
If those options look a little overwhelming, here’s our step-by-step guide on actually submitting and paying EPF contributions. Employers need to be aware that it is obligatory to make payments by the 15th of the following month. For example, the May EPF contributions for Apr wages must be paid by 15 May. However, if the 15th is a public holiday, then the deadline will be the next working day instead.
What are the penalties for failing to register or pay contributions?
If employers do not comply with the rules of the EPF Act and fail to make monthly contributions, they may be liable to various penalties:
- If an employer does not register an employee with the EPF within 7 days of the start date they can face a prison term of up to 3 years and/or a fine of up to RM10,000 (Section 41(1)).
- If an employer fails to pay the EPF contribution on or before the required deadline, the 15th of the following month, they can face a prison term of up to 3 years and/or a fine of up to RM10,000 (Section 43(2)).
- If an employer deducts the contribution from the employer from the wages of the employee, they can face a prison term of up to 6 years and/or a fine of up to RM20,000 (Section 47(1) and 47(2)).
- If the employer fails to pay the EPF contribution despite having deducted the employee’s contribution from their salary, they can face a prison term of up to 6 years and/or a fine of up to RM20,000 (Section 48(3)).
- If an employer fails to notify the EPF within 30 days from the date an employee leaves the company, they can face a prison term of up to 6 months and/or a fine of up to RM2,000 (Section 41(3)).
- If an employer fails to furnish the statement of wages to his employee, they can face a prison term of up to 6 months and/or a fine of up to RM2,000 (Section 42(1)).
- If the Company’s Director, Partner of the Firm or an Association of Persons fails to pay the outstanding EPF contribution, claims may be filed in court and actions that can be taken against them include bankruptcy, seizure of assets, and retention of passport (Section 46(1)).
In addition to these fines, if contributions are made later than the deadline as explained above, interest is charged for late payment of contribution as follows:
- The interest rate imposed is calculated based on the dividend rate declared by the EPF Board for each respective year with an additional 1%. The minimum interest imposed is RM 10. Any total for the interest with sen must be rounded up to the nearest Ringgit. That means that if the interest imposed is RM 13.21, it will round up to RM 14.
If the contribution is made after the last day of the following month, there will be a dividend charge in addition to the interest. This dividend charge will be added to the employee’s EPF saving account.
- Dividend: The dividend rate imposed is calculated based on the dividend rate declared by the EPF Board for each respective year.
When can employees withdraw their EPF funds?
At the age of 50, Malaysian citizens and permanent residents can withdraw up to 30% of their EPF savings, they can withdraw their full savings at the age of 55.
Full savings can also be withdrawn if an EPF member emigrates or becomes disabled.
Foreigners who opt to contribute to the EPF can fully withdraw their funds when they’ve terminated their employment and are about to leave Malaysia.
Important Cautionary Note
This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.
