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Tax season and EPF contribution calculations are critical aspects of financial planning for both employers and employees in Malaysia.
As an employer, understanding EPF (Employees’ Provident Fund) contributions is essential for compliance and supporting your employees’ financial security.
In this guide, we’ll cover everything you need to know about EPF contributions and how to handle tax season.
EPF (KWSP) in Malaysia
The EPF, known as Employees Provident Fund or Kumpulan Wang Simpanan Pekerja (KWSP), is a mandatory pension plan for Malaysian employees, ensuring social security for those without access to pensions, especially in the private sector. Employers must handle end-to-end EPF contributions for employees and ensure accuracy to avoid discrepancies or errors.
Eligibility and Contribution Rates Explained Discover who is eligible for EPF contributions and the current contribution rates. Gain insights into the specific criteria, including the minimum monthly salary requirement, applicable to both Malaysian and non-Malaysian employees.
Step-by-Step Contribution Procedures Follow a clear, concise outline of the contribution procedures to ensure compliance:
- Registering with the EPF: Understand the importance of promptly registering with the EPF as an employer. Learn about the available options, including online registration or visiting the nearest EPF office.
- Gathering Employee Information: Learn how to collect accurate and up-to-date employee information, including EPF numbers and salary details. This information is vital for calculating the correct EPF contribution amount.
- Deducting and Remitting Contributions: Discover the necessary steps to deduct the employee’s contribution from their salary and add the employer’s portion. Timely remittance of the total contribution to the EPF is crucial and must be done by the 15th of the following month.
Employer’s Responsibilities Made Easy In addition to contribution procedures, understand your responsibilities as an employer regarding EPF contributions:
- Maintaining Accurate Records: Discover the importance of maintaining comprehensive records of EPF contributions, including employee information, salary details, and monthly contributions. These records ensure compliance and facilitate smooth auditing processes.
- Effective Communication with Employees: Learn how transparent communication with your employees about EPF contributions can foster positive employer-employee relationships and enhance their understanding of their retirement savings.
- Staying Updated: Stay informed about any changes in EPF regulations, contribution rates, or statutory limits. Regularly check the EPF website or consult with professionals to ensure compliance with the latest guidelines.
Unlocking the Benefits for Employers EPF contributions offer advantages not only for employees but also for employers:
- Enhancing Employee Retention: Understand how offering EPF contributions demonstrates your commitment to employee welfare, leading to increased job satisfaction and higher employee retention rates.
- Tax Deductions: Discover the potential tax deductions available to employers for EPF contributions, providing valuable financial relief for your business.
Who Needs to Contribute to EPF?
EPF contributions are compulsory for Malaysian employees in the private sector and certain non-pensionable public sector employees. Non-Malaysian citizens can also choose to opt in. However, exemptions apply, such as domestic servants and individuals detained in prison.
Payments Liable for EPF Deductions
When calculating EPF deductions, include salaries (monthly, weekly, daily, or otherwise), bonuses, commissions, allowances, and payments for unutilized annual leave. Certain payments, like service charges, overtime, gratuity, retirement benefits, and more, are exempt from EPF deductions.
How to Calculate EPF Contributions
Employers must remit EPF contributions on or before the 15th of the following salary month. Use the Monthly Contribution Rate under the Third Schedule of the EPF Act 1991 for calculations, rounding cents up to the next Ringgit. For example, if an employee’s monthly salary is RM5,000, the employer’s contribution (12%) should be RM600, and the employee’s contribution (9%) should be RM450, resulting in a total monthly EPF contribution of RM1,050.
Payment Methods to EPF
Employers can submit EPF payments through various methods, such as e-Caruman, Mobile App, Internet Banking, Bank Agents, and EPF Counter. The e-Caruman method is recommended for faster and easier monthly contribution submissions and payments.
Deadline for Form EA
Employers must provide Form EA (or EA Form) to all employees contracted to the organization. This form contains crucial income information to assist employees in filing their tax return forms. The deadline to prepare EA forms for employees for YA 2022 is the 28th of February 2023. Failure to meet this deadline can result in fines and penalties as per the Income Tax Act 1967.
What about Form E
In addition to Form EA, businesses must submit Form E, a report containing specific employee details, to the LHDN. Form E should include information about the number of employees subject to deductions, new employees employed, employees who have resigned, and more. Form E must be submitted via LHDN’s e-PCB system, with manual submissions no longer accepted.
Temporary Reduction in Contribution Rate
Temporary reductions in the minimum statutory contribution rate occurred in 2020 and 2021, reducing it from 11% to 7% and 9%, respectively. EPF members had the option to opt out of the reduced contribution program and revert to the standard rate by submitting a Borang KWSP 17A (Khas 2021) form through their employer.
Correcting EPF Contribution Mistakes
If you’ve miscalculated EPF contributions for your employees, don’t worry. Here’s what to do:
If you overpaid, apply for a refund through Form 14 and necessary documents at an EPF counter within two years of the inaccurate contribution.
For underpayments, log into your i-Akaun employer account to make the shortage payment or pay manually at an EPF counter.
If you haven’t made payment yet, correct the Form A error by faxing a letter to KWSP contact center with required details; then submit the accurate Form A.
Bottom Line
As an employer in Malaysia, understanding and effectively managing EPF contributions is essential for legal compliance and maintaining positive relationships with your employees.
By following this guide and staying updated with EPF regulations, contribution rates, and your responsibilities, you can contribute to your employees’ financial well-being while ensuring the long-term success of your business.
For further assistance, consult professionals in EPF compliance to optimize your operations and fulfill your obligations as an employer.
Disclaimer: The information in this article is for general informational purposes only and not intended as legal or financial advice. The content may not reflect the most current EPF regulations. Readers should seek professional advice and verify information before making any decisions. We disclaim any liability for actions taken based on this article. There is no professional-client relationship established through reading this article. Use the information at your own risk.
