What founders should know about employer’s obligations

As a founder, there will be a point in your startup journey that you have to hire somebody to help you grow your business. In this post, I hope to share some ideas about your statutory obligations that you should be aware of as an employer.

Monthly Tax Deduction (MTD/ PCB) to Lembaga Hasil Dalam Negeri (LHDN)

Under Malaysian tax laws, the employer must deduct a portion of the employee’s income as monthly tax deduction to  LHDN if the employee earns above RM2,851 nett (ie less EPF/SOCSO contributions) per month. As such, if your full time employee currently earns a monthly  net income exceeding RM2,851, as an employer, you must deduct and remit a portion of the salary (according to the scale that LHDN provides) to LHDN. You can find a copy of the scale of MTD here.

Employees Provident Fund (EPF)

EPF manages the compulsory savings plan and retirement planning for private sector workers in Malaysia.

As an employer, you are liable to pay EPF contributions for any person engaged to work in a “contract of service” (ie full time staff) compared to a “contract for service” (ie freelancers). To illustrate, a freelancer is someone that you engage on an “independent contract” basis, such as a web developer, social media / PR consultant, trade mark agent etc.

This obligation to pay EPF contribution covers:

  • part time, temporary and probationary employees
  • directors who receive wages/salaries from company

Under current EPF laws, the contributions required are as follows:

If employee earns RM5,000 and below:

  • 8% as employee’s contribution
  • 13% as employer’s contribution

If employee earns above RM5,000:

  • 8% as employee’s contribution
  • 12% as employer’s contribution

Social Security Organization (SOCSO)

SOCSO or also known as PERKESO (Pertubuhan Keselamatan Sosial) is a Malaysian government agency that was established to provide social security protections to Malaysian employees under the Employees’ Social Security Act, 1969.

Both employer and employee are required to make monthly contributions to Social Security Organisation (SOCSO) for full time positions. Please see the rate of contributions at Perkeso’s website here

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