Navigating Payroll for Foreign Workers in Malaysia

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As Malaysia continues to modernize its employment landscape, foreign workers now have broader coverage under the Social Security Organisation (Socso). Starting in July 2024, all foreign workers, including expatriates and domestic workers, will benefit from the Socso Invalidity Scheme. This significant development not only impacts workers but also adds new dimensions to employer payroll management.

The Expansion of Socso Coverage for Foreign Workers

For years, foreign workers in Malaysia were primarily covered for workplace injuries. However, with the introduction of Socso’s Invalidity Scheme, foreign workers will now receive 24-hour protection, a critical step towards aligning Malaysia with international labor standards.

This new coverage also includes funeral repatriation costs, a significant concern for many workers and their families. In the unfortunate event of death, the scheme will ensure that the workers’ remains can be returned to their home country without financial burden to the family.

Payroll Adjustments for Employers

The expansion of Socso coverage does come with added costs for employers. Contributions to the scheme are now mandatory and are structured similarly to those made for local employees. While this may represent an additional financial obligation, Socso CEO Datuk Seri Dr. Mohammed Azman highlighted the importance of seeing these contributions as investments in worker security and welfare.

Employers must ensure their payroll systems are updated to reflect the new contribution rates and that they comply with the new regulations. Failure to do so could result in penalties or legal issues.

Managing the Changes

To effectively manage these changes in payroll, employers should:

Review Current Payroll Systems: Ensure that systems can accommodate the new contribution calculations for both local and foreign employees.
Educate HR and Payroll Teams: Stay informed about Socso's updates and ensure teams are well-trained in managing the new requirements.
Communicate with Workers: Clearly explain the new benefits and how these contributions protect them. Ensuring that workers understand the value of their contributions can help foster trust and transparency.
Plan for Financial Adjustments: Budget for the increased payroll costs, factoring in the new Socso contributions when planning for the company's financial year.

Payroll System Malaysia for Foreign Workers

Malaysia's payroll system for foreign workers is structured to ensure compliance with local labor laws while accommodating the unique needs of expatriates and non-residents. Here's a comprehensive overview of the key components and requirements involved:

1. Taxation and Deductions

Monthly Tax Deduction (MTD): Employers must withhold a portion of an employee's salary for income tax purposes and remit this to the Inland Revenue Board of Malaysia (IRBM) by the 15th of the following month. Foreign workers in Malaysia are generally taxed at a flat rate of 30% if they are non-residents, while residents benefit from a progressive tax rate system ranging from 0% to 30%, depending on income levels. Residency for tax purposes is determined by the time spent in Malaysia, not nationality.

SOCSO: All legal foreign workers must be registered under the Employment Injury Scheme (EIS), which is mandatory and covers work-related injuries. However, they are not required to contribute to the Employment Insurance Scheme (EIS). Employers must make these contributions on behalf of their foreign employees.

Employees Provident Fund (EPF): While not compulsory for foreign workers, EPF contributions can be made voluntarily. This involves both employer and employee contributions, helping to secure financial stability for the employee’s retirement or end of service benefits.

3. Employment Insurance Scheme (EIS):

Foreign employees are exempt from contributing to the EIS, which provides financial assistance during periods of unemployment for Malaysian employees.

4. Human Resources Development Fund (HRDF):

Contributions to the HRDF are not required for foreign workers. This fund is aimed at developing local Malaysian talent through various training and development programs.

5. Foreign Worker Levy (FWL):

Employers must pay the Foreign Worker Levy (FWL), a fee imposed to regulate the employment of foreign workers. This levy varies depending on the sector and is intended to control the number of foreign workers in Malaysia, prioritizing job opportunities for local citizens.

Key Points for Employers When Hiring Foreign Workers in Malaysia

Hiring foreign workers in Malaysia involves several legal obligations and procedural steps that employers must follow to ensure compliance with Malaysian labor laws. Here are the crucial points that employers need to be aware of:

1. Legal Obligations

Foreign Worker Levy Payment: Employers must pay a monthly levy for each foreign worker, with rates varying by sector (e.g., RM1,850 for manufacturing and construction, RM640 for plantation and agricultural sectors).
Insurance Policies: Employers are required to purchase insurance policies for foreign workers to cover hospitalization, surgical, and repatriation expenses.
Security Bond: A security bond must be provided by the employer, with the amount depending on the nationality of the worker, ranging from RM500 to RM2,500 per worker.

2. Recruitment Process

Quota Approval: Employers must first obtain a quota approval from the Ministry of Home Affairs' One Stop Centre (OSC) before recruiting foreign workers.
Visa with Reference (VDR): Apply for a VDR from the Immigration Department of Malaysia. This involves submitting the individual Immigration Security Clearance (ISC) results from the worker's home country.
Single Entry Visa: Following VDR approval, apply for a Single Entry Visa for the worker.
Health Screening: Foreign workers must undergo health screening in their home country and again upon arrival in Malaysia through the Foreign Workers’ Medical Examination Monitoring Agency (FOMEMA).

3. Post-Recruitment Requirements

Medical Examination: Within 30 days of arrival, the foreign worker in Malaysia must pass a medical examination by FOMEMA to obtain a Visit Pass (Temporary Employment) [VP(TE)]
SOCSO and EPF Contributions: Foreign workers must be registered under the Employment Injury Scheme of SOCSO for foreign workers. EPF contributions are optional but can be made if the foreign worker in Malaysia chooses.
Monthly Tax Deductions (MTD): Employers must deduct monthly tax payments from the foreign worker's salary based on their residency status.

4. Compliance and Reporting

Notification to Authorities: Employers must notify the Director General of Labour (DGL) within 14 days of the end of the foreign worker’s employment, whether due to termination, resignation, or expiration of the employment permit.
Employment Records: Employers must maintain accurate employment records, provide copies of employment contracts and payslips to the workers, and adhere to regulations regarding working hours, rest days, and leave entitlements.

5. Penalties for Non-Compliance

Failure to comply with these regulations can result in severe penalties, including fines up to RM100,000, imprisonment for up to five years, or both.

Utilizing Recruitment Agencies

Outsourcing the recruitment process to authorized agencies can streamline compliance and reduce administrative burdens. These agencies handle the legal paperwork, coordinate with relevant authorities, and ensure that all procedural steps are followed correctly.

By adhering to these guidelines and utilizing the expertise of recruitment agencies, employers can effectively manage the hiring and employment of foreign workers in Malaysia, ensuring compliance and minimizing risks. For more detailed information, employers can refer to resources from Human Resources Online. , APSAMASAMA, and Fareezlaw.

Key Components of a Payslip Format for Foreign Workers in Malaysia

In Malaysia, the payslip format Malaysia for foreign workers is generally similar to that for local workers but may include additional details to comply with specific regulations and transparency requirements. Below is a detailed overview of the key components typically included in a payslip format for foreign workers in Malaysia:

Employer Information:
- Company name
- Company address
- Employer registration number
Employee Information:
- Employee's full name
- Employee's identification number (e.g., passport number or work permit number)
- Job title or designation
- Employee number (if applicable)
Payslip Period:
- Start and end date of the pay period
- Date of issuance of the payslip
Earnings:
- Basic salary
- Overtime pay
- Allowances (e.g., housing, transport, meal allowances)
- Bonuses and commissions
- Any other earnings (e.g., holiday pay, shift allowances)
Deductions:
- Employee’s contribution to the Employees Provident Fund (EPF)
- Social Security Organization (SOCSO) contributions
- Employment Insurance System (EIS) contributions
- Income tax deductions
- Loan repayments (if applicable)
- Other deductions (e.g., union fees, advance payments)
Net Pay:
- Total earnings
- Total deductions
- Net pay (amount to be paid to the employee)
Additional Information (Specific to Foreign Workers):
- Work permit details (number and expiry date)
- Passport details (number and expiry date)
- Any other relevant information required by immigration or labor laws
Employer and Employee Declarations:
- Employer’s signature or authorized signatory
- Employee’s signature (optional but recommended for acknowledgment)

Compliance and Record-Keeping

Employers in Malaysia are required to maintain accurate records of all payments made to employees, including foreign workers. These records should be kept for at least six years and be readily available for inspection by relevant authorities.

Utilizing Kakitangan.com for Efficient Payroll Management

Kakitangan.com is a robust HR and payroll management platform that can streamline the complexities of managing foreign worker payroll in Malaysia. Here’s how it can help:

Automated Calculations: Kakitangan.com automates payroll calculations, including tax deductions and social security contributions, ensuring compliance with Malaysian laws. This reduces the risk of errors and administrative burden.
Compliance Management: The platform stays updated with the latest regulations, ensuring that your business remains compliant with SOCSO for foreign workers, EPF, and tax requirements for both local and foreign employees.
E-Payslips: Kakitangan.com provides secure e-payslips, allowing employees to access their salary information online, which is both efficient and environmentally friendly.
Comprehensive Reporting: Generate detailed payroll reports to track expenses, manage budgets, and ensure accurate financial planning.
User-Friendly Interface: The platform’s intuitive design makes it easy for HR teams to manage payroll, leave, and employee data efficiently.

By integrating these features, Kakitangan.com helps businesses navigate the complexities of payroll management for foreign workers, ensuring compliance and operational efficiency. For more information, visit Kakitangan.com.

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Final Thoughts

Understanding and managing payroll for foreign workers in Malaysia requires a thorough grasp of local laws and regulations. Tools like Kakitangan.com can significantly simplify this process, allowing businesses to focus on growth and development while ensuring compliance and employee satisfaction.

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