Essential Guide to EPF, SOCSO, EIS, and HRD Contributions in Malaysia [2025 Update] |

Introduction

In Malaysia, statutory salary deductions are an essential part of employment compliance, safeguarding workers’ rights and future well-being. Understanding these mandatory contributions helps employers remain compliant and allows employees to know where their money is going. This comprehensive guide covers all major deductions effective in 2025, including EPF, SOCSO, EIS, and HRD levy, complete with rates, eligibility, benefits, and penalties for non-compliance.

Understanding EPF (Employees Provident Fund)

Overview of EPF and Its Importance

The Employees Provident Fund (EPF) is Malaysia’s cornerstone retirement savings scheme for private-sector workers and non-pensionable public-sector employees. It ensures that every working Malaysian saves consistently for retirement, supported by employer contributions.

EPF Contribution Rates for Malaysian Citizens and Permanent Residents

The EPF rates depend largely on the employee’s age and monthly earnings. Here’s a breakdown:

EPF Rates Based on Age and Salary

Employee Age	Monthly Salary	Employee Contribution	Employer Contribution	Total Contribution
Below 60	RM5,000 and below	11%	13%	24%
Below 60	Above RM5,000	11%	12%	23%
60 and above	Any amount	0%	4%	4%

EPF Important Contribution Notes

Minimum Age: 14 years old
Maximum Age: 75 years old
Rounding Rule: Round up to the nearest ringgit
No Exact % Calculation: Except if monthly salary exceeds RM20,000
Reference: EPF Third Schedule

Sample EPF Contribution Calculation Explained

Salary	Employer’s Share (12%)	Employee’s Share (11%)	Total Contribution (23%)	Calculation Type
RM6,250.00	RM756.00	RM693.00	RM1,449.00	✅ Accurate
RM6,250.00	RM750.00	RM688.00	RM1,438.00	❌ Inaccurate

Using the Third Schedule ensures compliance and accuracy.

EPF Contributions for Foreign Employees

Revised EPF Rates for Foreign Workers Effective March 2025

From March 2025, contributions for foreign employees are simplified:

Employee Age	Employee Contribution	Employer Contribution	Total Contribution
Any age	2%	2%	4%

Foreign workers enjoy basic EPF benefits with minimal contributions, promoting financial inclusion without overburdening employers.

What is SOCSO (Social Security Organization)?

Introduction to SOCSO and its Purpose

The Social Security Organization (SOCSO), known locally as Pertubuhan Keselamatan Sosial (PERKESO), offers essential social security protections for workers. Established under the Employees’ Social Security Act 1969, it provides financial coverage in case of workplace injuries, illnesses, disability, or death. Every Malaysian employee earning below RM6,000 is compulsorily enrolled, though higher earners can voluntarily continue coverage.

Coverage Under SOCSO - The Two Main Schemes

SOCSO divides its protections into two core schemes:

Scheme	Coverage
Employment Injury Scheme	Covers accidents at work, during commutes, occupational diseases, and work-related deaths
Invalidity Scheme	Covers disabilities or deaths unrelated to work

This dual-coverage structure ensures employees are protected in a wide range of circumstances.

SOCSO Contribution Rates and Eligibility

Both employers and employees contribute to SOCSO monthly. Contributions depend on the employee’s age and nationality.

First Category Contributions

Eligibility: Malaysians and non-Malaysians under 60
Rates: Employer 1.75%, Employee 0.5% (Total 2.25%)

Second Category Contributions

Eligibility: Malaysians and non-Malaysians aged 60 and above
Rates: Employer 1.25%, Employee 0% (Total 1.25%)

➡️ Reference: SOCSO Contribution Table

Salary	Employer’s Share (12%)	Employee’s Share (11%)	Total Contribution (23%)	Calculation Type
RM6,250.00	RM756.00	RM693.00	RM1,449.00	✅ Accurate
RM6,250.00	RM750.00	RM688.00	RM1,438.00	❌ Inaccurate

Using the Third Schedule ensures compliance and accuracy.

Key Facts About SOCSO Registration

Malaysian employees automatically use their NRIC number as their SOCSO ID.
Non-Malaysian employees require employer assistance to register and obtain a unique 12-digit SOCSO number.

Employers must ensure timely registration and monthly payments to avoid hefty penalties.

Employment Insurance System (EIS) Explained

Purpose and Coverage of EIS

Launched under the Employment Insurance System Act 2017, EIS acts as a safety net for employees facing involuntary unemployment. Managed by SOCSO, it offers financial assistance and re-employment services to affected workers.

EIS Contribution Rates and Wage Ceiling

Both employers and employees contribute equally:

Contribution Party	Rate	Wage Ceiling
Employer	0.2%	RM6,000
Employee	0.2%	RM6,000
Total	0.4%	Capped at RM24 monthly

➡️ Reference: EIS Contribution Table

Contributions are mandatory for Malaysians aged 18–60, except those over 57 who have never contributed before.

Comprehensive Benefits Offered by EIS

EIS isn’t just about payouts. It offers a range of support services:

No	Benefit	Description
1	Job Search Allowance (JSA)	Monthly cash while seeking new employment
2	Reduced Income Allowance (RIA)	Compensation for salary loss in a new job
3	Training Allowance	Financial support during retraining
4	Early Re-Employment Allowance	Bonus for securing new employment early
5	Career Counseling & Job Matching	Assistance through SOCSO job services

EIS thus ensures both financial and career continuity for unemployed individuals.

Human Resources Development (HRD) Levy

What is HRD Levy and Who Must Pay?

The HRD Levy, regulated by HRD Corp under the PSMB Act 2001, aims to fund training initiatives. Employers who benefit from a skilled workforce are required to invest in it.

HRD Levy Rates Based on Company Size

10 or more Malaysian employees: Mandatory 1% contribution.
5–9 Malaysian employees: Optional 0.5% contribution if registered.

How HRD Levy is Calculated

The calculation considers only the basic salary plus fixed allowances:

Formula: HRD levy % × (Basic Salary + Fixed Allowances)

Payments exclude overtime, bonuses, and commissions.

Benefits of Contributing to HRD Corp

Training Grants: Financial subsidies for employee training.
Skill Enhancement: Access to certified upskilling programs.
Tax Deduction: Contributions qualify as deductible expenses under the Income Tax Act 1967.

Participation in HRD Corp not only boosts employee skills but also improves organizational competitiveness.

Penalties for Non-Compliance with HRD Corp Requirements

Non-compliance with HRD levy obligations can result in serious consequences:

Offense	Penalty
Failure to Register	Fine up to RM10,000, or imprisonment up to 1 year, or both
Failure to Pay Levy	Fine up to RM20,000, imprisonment up to 2 years, 10% annual interest on outstanding amounts

Thus, strict adherence to HRD regulations is a must for all eligible employers.

Below is a summarized table showing commonly used payroll elements in Malaysia, their statutory contributions (EPF, SOCSO, EIS, HRDF), and tax exemption guidelines.

No	Payroll Element	EPF	SOCSO & EIS	Taxable	HRDF	Tax Exemption Rules
1	Basic Salary	✅	✅	✅	✅	-
2	Bonus	✅	❌	✅	❌	-
3	Commission	✅	✅	✅	❌	-
4	Director Fees (yearly)	❌	❌	✅	❌	-
5	Director Fees (monthly)	✅	✅	✅	✅	-
8	Absent	✅	✅	✅	✅	-
9	Overtime	❌	✅	✅	❌	-
10	Childcare Allowance*	✅	❌	✅	✅	Tax-exempt up to RM3,000 per annum for children up to 12 years old.
11	Education Allowance*	✅	❌	✅	✅	Taxable unless provided as a reimbursement for official duties.
12	Housing Allowance*	✅	❌	✅	✅	Taxable unless provided as a reimbursement for official duties.
13	Parking Allowance*	✅	❌	❌	✅	Fully tax-exempt if provided to all employees and based on actual expenses incurred.
14	Petrol / Travelling Allowance*	✅	✅	✅	❌	Tax-exempt up to RM6,000 per annum for official duties. Records must be maintained for audit purposes.
15	Broadband/Telephone/Mobile Plan*	✅	❌	❌	✅	Tax-exempt for one unit per category (e.g., one mobile phone, one broadband subscription).
16	Attendance Allowance**	✅	✅	✅	❌	Taxable as it is considered part of wages.
17	Shift Allowance**	✅	✅	✅	❌	Taxable as it is considered part of wages.
18	Meal Allowance**	✅	❌	❌	❌	Tax-exempt only if it's given regularly at the same rate to all employees or for work-related duties like overtime or business trips, and is limited to the actual amount spent.
19	Payment of Arrears	✅	✅	✅	✅	-
20	Claim (Reimbursement)	❌	❌	❌	❌	Not taxable if reimbursed based on actual expenses incurred for official duties.
21	Advance Deduction	❌	❌	❌	❌	Not taxable as it is a recovery of advance payments.
22	Loan Deduction	❌	❌	❌	❌	Not taxable as it is a recovery of loan repayments.

Practical Tips for Employers to Manage Statutory Deductions

Best Practices for Payroll Management

Common Mistakes and How to Avoid Them

Mistake	Solution
Using outdated contribution rates.	Check official websites regularly.
Missing payment deadlines.	Schedule payments early each month.
Incorrect registration of employees.	Maintain updated employee records.

Future Trends in Statutory Deductions in Malaysia

As Malaysia embraces digitization and an ageing workforce, expect:

Greater use of e-contribution portals.
Gradual shifts in EPF and SOCSO rates to accommodate demographic changes.
Expanded benefits under EIS and SOCSO to include gig economy workers.

Staying updated with regulatory changes will be critical for both employers and employees.

Conclusion

Understanding statutory deductions like EPF, SOCSO, EIS, and HRD levy is not just about compliance—it’s about ensuring financial security and career growth for Malaysia’s workforce. With these systems in place, Malaysia continues to build a resilient, skilled, and future-ready workforce. Employers and employees alike must stay informed and engaged with these vital systems.

FAQs About Statutory Deductions in Malaysia

1. What happens if an employer fails to make EPF contributions?

Failing to contribute EPF on time can lead to legal actions, penalties, and even imprisonment under the EPF Act 1991.

2. Are contract and part-time workers covered under SOCSO and EIS?

Yes, as long as they have a contract of service, part-timers and contract workers are eligible for SOCSO and EIS coverage.

3. How are statutory deductions calculated for foreign workers?

Foreign workers contribute to EPF at 2% employee and 2% employer rates. For SOCSO, they contribute similar to Malaysians if under 60 years old.

4. Can employees opt out of EIS contributions?

No. EIS contributions are mandatory for all Malaysian employees aged 18–60, except those aged 57 and above without prior contributions.

5. Is there a cap on SOCSO contributions?

SOCSO contributions are based on the wage ceiling specified in the contribution table; above a certain amount, the contribution remains capped.

6. What allowances are included in HRD levy calculation?

Only basic salary and fixed allowances are considered. Overtime, bonuses, and commissions are excluded.