Easy Complete Guide to EPF Contributions

Most Malaysians in the working scene would probably know about the Employees’ Provident Fund (EPF). As for employers or those working in HR, they are responsible for managing EPF for their employees. In short, HR managers are expected to calculate accurate monthly contributions and check for any potential miscalculations or discrepancies. But before we dive into the details, it is crucial for employers to fully grasp how EPF contributions work. Below is everything you need to know about EPF in Malaysia.

Firstly, what is EPF?

Also known as Kumpulan Wang Simpanan Pekerja (KWSP), the Employees’ Provident Fund (EPF) is one of the world’s oldest and largest retirement savings funds, with 7.63 million active members and 522,967 employers as of December 2019. It serves as a social security organization that primarily helps private sector employees save a fraction of their earnings, which can be used as retirement funds in the future. 

Who is required to make EPF contributions?

It is mandatory for all Malaysian employees in both the private sector and those in non-pensionable roles in the public sector to contribute to EPF. Though, this remains voluntary for non-Malaysian citizens. However, there are some exceptions to this, which includes domestic workers, any individual detained in prison, or, as noted above, those who are not permanent citizens of Malaysia. To see the full list of exemptions for EPF contributions, click here. 

What kind of payments is subject to EPF contributions?

Generally, most types of employee remuneration are liable for EPF deductions. This includes the following:

• Salary 
• Commission
• Bonus
• Allowance
• Payment for unused annual or medical leave
• Wages for half-day leave
• Wages for maternity leave
• Wages for study leave
• Other payments under contract of service or otherwise

On the other hand, there are a few exemptions that are not considered to be liable for EPF deductions, such as:

• Service charge
• Overtime pay
• Retirement benefit
• Retrenchment, lay-off or termination benefit
• Gratuity payment
• Any travelling allowance or the value of any travel concession
• Any other remuneration or payment as may be exempted by the Minister

When and how are EPF contributions calculated?

Employers are expected to make the monthly payment on or before the 15th of the following wage month. This means that employers would need to contribute on behalf of their employees first, which can be recovered once the salary is paid to the employee. 

A few aspects to look into when calculating the EPF contributions include the monthly salary rate, employees’ age as well as the citizenship status of employees. Here’s a guide:

Source: https://www.kwsp.gov.my/employer/contribution/all-about-your-responsibility

Also, it is important to note that the contributions should be calculated according to the Monthly Contribution Rate under the Third Schedule of the EPF Act 1991 instead of the exact percentage. The latter is only applied to employees who earn a monthly salary exceeding RM20,000. 

*Note that cents should also be rounded up to the next Ringgit during EPF calculations.

What is the Contribution Rate?

In early 2020, the Malaysian government revised the contribution rates in view of the 2020 Economic Stimulus Package that was announced to assist companies hit by the global pandemic. The contribution rate for employees reduced from 11% to 7%, although this applied to EPF members until the end of 2020. 

As of July 2022, the minimum statutory contribution rate, which was previously reduced to 9%, has been restored to 11%. 

Here’s a calculation sample:

Source: https://www.kwsp.gov.my/employer/contribution/all-about-your-responsibility

What are the payment methods?

Besides the conventional visit to any available EPF counters, employers can also pay through e-Caruman, mobile app, online banking or bank agents. 

Do note that for payment via e-Caruman, an account with KWSP i-Akaun is required. For more information on the payment steps, visit here.

What would happen if there’s an overdue or late payment? 

As mentioned above, employers are responsible to submit EPF payments by the 15th of the following wage month. In any case, where the payment was not made during the stated timeline, the contributions will fall under outstanding contribution. The EPF officer will provide Form KWSP 7 (Form E) as well as KWSP 8 (Form F), where payment must be made through KWSP 8 (Form F). As for unpaid outstanding contributions, payment can be made through Form A (online).

The late payment charge is calculated by using the lower dividend rate between Simpanan Konvensional and Simpanan Shariah for each year with an additional 1%. Additionally, the minimum late payment fee that will be charged is RM10.

And that’s it! We hope this simplified complete guide helps you understand EPF better, and for more information, you may visit the official KWSP site here. 

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