Transport vs Travelling Allowance in Malaysia: EPF, SOCSO & Payroll Guide
Learn the key differences between Transport and Travelling Allowance in Malaysia, including their impact on EPF, SOCSO/EIS contributions, and how they align with the Employment Act. A must-read for SMEs and HR professionals.
Transport Allowance vs Travelling Allowance in Malaysia: A Complete Guide for SMEs and Payroll Clerks
Understanding the difference between transport allowance and travelling allowance is crucial for Malaysian SMEs, business owners, and HR professionals. Misclassification can lead to payroll errors, statutory non-compliance, and potential penalties. This comprehensive guide explains both allowances, their correct treatment under Malaysian law, and practical implementation advice.
For a complete guide to managing payroll in Malaysia — including how allowances like transport and travelling fit into payroll workflows — check out our Comprehensive Guide to Payroll Management in Malaysia.
What is Transport Allowance in Malaysia?
Transport Allowance is a regular, fixed payment provided to employees to cover their daily commuting costs from home to their primary workplace and back.
Key Characteristics:
- Regular Payment: Disbursed monthly or per pay period as part of the salary structure
- Fixed Amount: Typically a flat rate (e.g., RM150, RM300 monthly)
- Purpose: Offsets routine travel expenses like fuel, tolls, or public transport fares for the regular commute
- Contractual: Usually specified in the employment contract or company policy
Example: An employee receives a fixed RM200 each month to help with petrol costs for driving from Subang Jaya to their office in Kuala Lumpur.
Critical Difference: Statutory Treatment Under Malaysian Law
The most significant distinction lies in how Malaysian legislation treats these allowances for statutory contributions.
Transport Allowance = Wages
Under the Employees Provident Fund Act 1991 and Employment Act 1955, transport allowance is considered part of “wages.”
Statutory Implications:
EPF Contributions
MUST be included in the contribution base
SOCSO/EIS
MUST be included in insured earnings
Employment Act
Considered part of wages for overtime, termination, and other calculations
Taxation
Subject to PCB deduction and taxable in employee’s hands
Legal Reference: EPF defines wages as “all remuneration in money payable to an employee” including allowances, but excluding specific items like travelling allowance.
Travelling Allowance ≠ Wages
Genuine travelling allowance qualifies as expense reimbursement, not remuneration.
Statutory Implications:
EPF Contributions
NOT included in contribution base
SOCSO/EIS
NOT included in insured earnings
Employment Act
Not considered wages
Taxation
Generally not taxable if based on actual, receipted expenses
Legal Reference: EPF Act Section 2 specifically excludes “any travelling allowance or the value of any travelling concession” from wage definition.
For step‑by‑step help setting up payroll items and statutory contributions in AutoCount, see the AutoCount Payroll Setup Guide.
Comparison Table: Transport vs Travelling Allowance
| ASPECT | TRANSPORT ALLOWANCE | TRAVELLING ALLOWANCE |
|---|---|---|
| Payment Frequency | Regular (monthly) | Irregular (when travel occurs) |
| Purpose | Daily home-to-work commute | Business travel outside normal route |
| Basis of Calculation | Fixed amount | Actual expenses or approved rates |
| EPF Contribution | Included in wages | Excluded from wages |
| SOCSO/EIS | Included in insured earnings | Excluded from insured earnings |
| Employment Act | Considered wages | Not considered wages |
| Documentation | Not required | Required (claims, receipts, logs) |
| Tax Treatment | Taxable | Non-taxable (if actual expense reimbursement) |
To ensure your allowance types are correctly categorized for e‑Invoicing, make sure your data classification codes in AutoCount are up to date.
Common Allowance Scenarios and Classification
Scenario 1: Monthly Petrol Subsidy
A company pays RM250 monthly to all employees who drive to work.
- Classification: Transport Allowance
- Statutory Treatment: Subject to EPF, SOCSO/EIS
Scenario 2: Mileage Claims for Client Visits
Employees claim RM0.60 per kilometer when visiting clients during work hours.
- Classification: Travelling Allowance
- Statutory Treatment: NOT subject to EPF, SOCSO/EIS
Scenario 3: Parking Allowance
Fixed monthly payment to cover daily parking costs at office building.
- Classification: Transport-related allowance (likely subject to contributions)
Scenario 4: Outstation Trip Per Diem
Employee receives RM100/day for meals during a 3-day training in another state.
- Classification: Travelling Allowance component
- Statutory Treatment: NOT subject to EPF, SOCSO/EIS
Compliance Checklist for Malaysian SMEs
For Payroll Clerks:
- Classify Correctly: Review each allowance payment against its actual purpose
- Documentation: Maintain clear records justifying travelling allowance claims
- Payroll Setup: Configure systems to exclude travelling allowances from contribution calculations
- Regular Audits: Periodically review allowance classifications
For SME Business Owners:
- Policy Development: Create clear allowance policies in employee handbooks
- Contract Clarity: Specify allowance types and conditions in employment contracts
- Budget Accurately: Account for statutory contributions on transport allowances
- Seek Professional Advice: Consult with HR experts or accountants if uncertain
Consequences of Misclassification
Under-contribution (Mislabeling Transport as Travel):
- EPF: Penalties up to RM10,000 or imprisonment under Section 43(1)
- SOCSO: Fines up to RM10,000 or imprisonment under Section 94
- Additional liabilities for unpaid contributions with interest
Over-contribution (Mislabeling Travel as Transport):
- Incorrectly increased EPF/SOCSO costs for employer and employee
- Potential employee grievances over reduced take-home pay
- Administrative complexity in correction processes
Best Practices for Implementation
1. Clear Policy Documentation
- What qualifies as travelling allowance
- Claim procedures and required documentation
- Approval processes for business travel
- Fixed transport allowance rates and eligibility
2. Accurate Payroll Processing
- Set up separate earning codes for each allowance type
- Ensure payroll software correctly handles contribution calculations
- Train payroll staff on the distinction and legal requirements
3. Regular Compliance Reviews
- Quarterly reviews of allowance payments
- Stay updated on LHDN, KWSP, and PERKESO guidelines
- Adjust policies based on legislative changes
For accurate preparation and submission of your LHDN e‑Invoice for allowances and related payroll items, see how to use AutoCount Accounting for LHDN e‑Invoice.
Conclusion
Proper classification of transport versus travelling allowance protects both Malaysian employers and employees. For SMEs, it ensures statutory compliance, avoids penalties, and maintains accurate payroll records. For employees, it guarantees correct EPF savings accumulation and appropriate SOCSO/EIS coverage.
Disclaimer
This article provides general guidance. For specific situations, consult with qualified HR professionals, accountants, or legal advisors familiar with Malaysian employment law. Legislative interpretations may vary based on specific circumstances.
Frequently Asked Questions
Is mileage claim considered travelling allowance?
Yes, if it reimburses actual business travel outside normal commute. Maintain mileage logs as evidence.
Can we pay a combined "transport and travel" allowance?
Not recommended. Separate payments ensure clear classification and compliance. Mixed allowances may be fully subject to statutory contributions.
How does LHDN view these allowances?
Transport allowance is taxable. Travelling allowance based on actual, receipted expenses is generally tax-exempt. Keep receipts for 7 years.
What if an employee has no fixed workplace?
Field staff may receive a fixed transport allowance for daily duties. Document the nature of their work to justify the classification.Absolutely — with Mobile & eCommerce module, + POS + Accounting you’re set for omnichannel operations.
Get Clear on Allowances: Maximize Compliance and Efficiency
Stay compliant and optimize your allowances today! Learn more about Transport vs Travelling Allowance in Malaysia for better HR management.
