What is EPF contribution?
Malaysia's (EPF) is a mandatory retirement savings scheme where both Malaysian employers and employees put aside a portion of monthly wages. The money provides financial security during retirement. The EPF system is an important part of Malaysia¡¯s economy, affecting millions of workers and thousands of employers across the country. As payroll systems become increasingly digital, understanding EPF requirements helps companies streamline operations while ensuring employees save enough for retirement.
The EPF system is an important part of Malaysia¡¯s economy, affecting millions of workers and thousands of employers across the country. As payroll systems become increasingly digital, understanding EPF requirements helps companies streamline operations while ensuring employees save enough for retirement.
Why are EPF contributions used in Malaysia?
Malaysia's EPF system helps workers save for retirement through monthly contributions from both employers and employees. The fund ensures every working Malaysian builds sufficient savings for their post-employment years without relying solely on government support or family assistance. EPF also helps Malaysia's economy grow by investing in important local community projects.
For employers, EPF provides a simple system that works easily with modern payroll and HR software. The same contribution rates apply everywhere, making financial planning straightforward, especially when using automated payroll solutions that handle calculations automatically.
Who is required to make EPF contributions?
All Malaysian employers must make EPF contributions when they hire Malaysian citizens or permanent residents. This applies to every business, from big companies and small businesses to partnerships and sole proprietorships.
An employee earning more than RM10 per month is eligible to make EPF contributions, no matter how long they work. This means almost all workers can participate in the system, including part-time and casual workers. Employees may voluntarily increase their personal contributions above 11%, allowing workers to accelerate their retirement savings if they choose.
Employers calculate and take money from the workers¡¯ pay for their EPF contribution, while adding their employer portion. Both amounts are then sent to the EPF together.
Starting October 2025, Malaysian employers will need to make with a valid work pass. Self-employed people can contribute to EPF through i-Saraan to build their retirement savings, but this is not mandatory.
How are EPF contributions calculated?
EPF contributions follow a . The calculation process involves determining the contributory wage, applying the appropriate percentage rate and ensuring employee and employer portions are correctly computed before submission to EPF.
For Malaysians and permanent residents below 60 years old, the employee contributes around 11% of their monthly wages. Employers also contribute at around 13% of the employee's wages for wages up to RM5,000 and 12% for wages above RM5,000.
Employees over 60 make reduced contributions as they have different financial needs approaching retirement. Malaysian citizens don¡¯t need to contribute to EPF, but employers still need to contribute around 4% of wages. For permanent residents and non-Malaysian citizens, employees above 60 contribute around 5.5% of wages and employers contribute around 6.5% for wages up to RM5,000 and 6% for wages above RM5,000.
How do employers pay EPF contributions?
Employers must pay EPF contributions by the 15th of every month for the previous month¡¯s wages in person or online. online through the EPF¡¯s website or app, internet banking or in person through EPF counters and bank agents.
EPF's electronic platforms integrate seamlessly with most payroll systems, enabling automated contribution calculations and monthly statement generation. This reduces administrative burden and minimises calculation errors, which is particularly beneficial for businesses managing larger workforces.
Employers must keep comprehensive documentation, including detailed employee wage schedules, contribution calculations and records of any changes to employee status or salary adjustments. Modern HR and payroll solutions automatically generate and store these records while ensuring proper EPF compliance, making record-keeping more efficient and supporting compliance audits and employee account inquiries.
What happens if an employer fails to pay EPF?
Not paying EPF on time comes with . This can damage relationships with staff and hurt the business¡¯ reputation. Employers can also be charged interest from the day payment was due, which adds up quickly and makes delays very expensive.
If employers don't pay, EPF can take them to court under the EPF Act. This can lead to fines, court orders and, in serious cases, they can even seize company assets or hold directors personally responsible for unpaid contributions.
Employees also get hurt when EPF payments are late or missing. Their retirement savings don't grow properly and they might not be able to withdraw money when they need it.
Short-term problems include having to pay expensive penalties and spending time fixing compliance issues. Long-term, employers might face restrictions on operations with increased scrutiny.
What impact do EPF contributions have on payroll?
EPF contributions add extra costs to hiring employees. For every RM100 employers pay in salary, they need an additional RM12-13 for EPF contributions. This means the total employment cost is 12-13% higher than the base salary.
Payroll systems also need to handle three things: take out the employee's contribution from their salary, calculate the employer contribution and work alongside other deductions like income tax and SOCSO. Most modern payroll software does this automatically, but employers need to keep it updated when rates change.
Every month, employers should check that their calculations match EPF's requirements and fix any mistakes quickly.
What is the current EPF contribution rate in 2025?
In 2025, EPF employee contributions sit at 11%, while employer contributions are either 12% or 13%, depending on salary levels.
The government sets these contribution rates to ensure workers save enough for retirement without making monthly salaries too small; employees lose 11% of their monthly pay to EPF, but this money typically grows more than that by retirement age. The government continues adjusting rates based on economic conditions and demographic trends.
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