Beginner’s Guide to Employees’ Provident Fund (EPF)

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You’ve probably read our three-part series on EIS PERKESO and what it does for employees in the private sector in Malaysia (here is the first part in case you haven’t). We’ve decided to write a few more to cover several of the more well-known institutions that you’ve definitely heard of, starting with the Employees’ Provident Fund, or EPF for short. 

What is the EPF? 

Commonly known as Kumpulan Wang Simpanan Pekerja (KWSP), the Employees’ Provident Fund (EPF) is a social security institution in Malaysia. Formed in 1951 pursuant to Employees Provident Fund Ordinance 1951, the EPF went through several iterations to become the EPF Act 1991 (Act 452) as we know it today. As of December 2019, the EPF has 7.63 million active members and 522,967 employers 

Similar to several compulsory pension plans in countries around the world, the EPF is designed to help private-sector employees conserve and save a fraction of their earnings in a scheme. The accumulated savings can then be used as either a retirement fund or to help employees in the event that they are deemed unfit for work. Membership of the EPF is mandatory for Malaysian citizens employed in the private sector and voluntary for non-Malaysian citizens.

Additionally, members may choose to maintain their EPF account under:

  • Simpanan Konvensional where their savings will be managed and invested conventionally; or
  • Switch their account to Simpanan Shariah where their savings will be managed and invested according to syariah principles

Benefits of EPF

You might probably be wondering, “That sounds great and all. But apart from having a lump sum to fall back on upon retirement, what other benefits can I really get from having an EPF contribution?”

Here are the benefits you’re entitled to

  • Account 1 Savings Top-Up – Make voluntary contributions to your spouse/family’s EPF account 
  • Hajj Registration – change your initial registration for Hajj under the Lembaga Tabung Haji (LTH) to the current EPF Hajj Registration facility without affecting the Hajj rotation date provided earlier.
  • Yearly Dividends – The EPF contributions made by you and your employers may be subject to investments, and will earn minimally 2.5% dividends annually that will be credited into your savings, allowing contributions to be higher than the original amount
  • Incapacitation – Access your savings if you’re unable to work 
  • Death – RM2,500 is paid to the member’s dependent of next-of-kin
  • Tax Exemption – EPF contributions are tax-deductible for up to a maximum amount of RM4,000

What’s liable for EPF contribution?

Before we go deeper into the details of EPF and how to calculate your staff’s contribution or that of your own, it’s important to note the different components liable for EPF and the components which don’t contribute to EPF.

Here’s the table which shows which payments are liable for EPF Contribution and which are not:

Liable for EPF Contribution
Not Liable for EPF Contribution
  • Salary
  • Payment for unutilized annual or medical leave
  • Bonus
  • Allowance
  • Commission
  • Wages for Half Day Leave
  • Incentive
  • Arrears of Wages
  • Wages for Maternity Leave
  • Wages for Study Leave
  • Other payments under contract of service or otherwise
  • Service Charge
  • Overtime Payment
  • Gratuity
  • Retirement Benefit
  • Retrenchment, Temporary Lay-off or Termination Benefits
  • Any Travelling Allowance or the value of any Travel Concession
  • Any other Remuneration or payment as may be exempted by the Minister

Source: https://www.kwsp.gov.my/en/about-epf/news-highlights/references/epf-act-1991

How to Calculate the EPF Contribution? 

Now that you know which pay components are liable for EPF contribution, we can zoom in on the main topic- calculating your EPF Contribution. 

To begin with, here’s the basic table to show the Contribution Rate for both local and foreign employees which are either earning a certain wage range, or fall into a certain age range:


Employee’s Status
Monthly Salary Rate
Stage 1 (Below 60 years old)
Stage 2 (Age 60 and above)
i. Malaysian
ii. Permanent Resident (PR)
iii. Non-Malaysians (registered as member before August 1998)
No Limit

Applicable for (i.) only
Employee’s Share: 0%
Employer’s Share: 4%
(Ref Contribution Rate – Section C)
RM5,000 and below
Employee’s Share: 7%
Employer’s Share: 13%

(Ref Contribution Rate – Section A)
Applicable for (ii.) and (iii.) only
Employee’s Share: 5.5%
Employer’s Share: 6.5%
(Ref Contribution Rate – Section C)
More than RM5,000
Employee’s Share: 7%
Employer’s Share: 12%

(Ref Contribution Rate – Section A)
Applicable for (ii.) and (iii.) only
Employee’s Share: 5.5%
Employer’s Share: 6.5%
(Ref Contribution Rate – Section C)
Non-Malaysians (registered as member from 1st August 1998
No Limit
Employee’s Share: 7%
Employer’s Share: RM5.00

(Ref Contribution Rate – Section B)
Employee’s Share: 5.5%
Employer’s Share: RM5.00
(Ref Contribution Rate – Section D)

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

The Contribution Rates

On 27th February 2020, the Malaysian government revised the contribution rates in light of the 2020 Economic Stimulus Package that was announced to help businesses that were affected by COVID-19. The statutory contribution rate for employees decreased from 11% to 7% and came into effect for wages in April 2020 (for May 2020’s contribution) and will extend up till December 2020 (for January 2021’s contribution).

KWSP members may still choose to opt to maintain the original 11% contribution rate by completing Borang KWSP 17A (Khas 2020). The form must be submitted by employers to the EPF and be effective the following month.

As an employer, to accurately calculate your employee’s salary, you may refer to the link here to find out the exact EPF amounts that needs to be contributed by both you and your employee.

Locate your employee’s wage range

If your employee is a Malaysia citizen, Malaysian Permanent Resident or non-citizens who have elected to contribute before 1st August 1998, simply refer to Part A and from there, locate your employee’s wage range.

Likewise, if your employee isn’t a Malaysian citizen and has elected to contributed on/after 1st August 1998 or under paragraph 6 of the First Schedule on/after August 2001, refer to Part B and locate the employee’s wage range to find out the exact amount. For employees over the age of 60 years, you can refer to Part C or Part D depending on their immigration status and the election of contribution period prior to certain set dates.

Some examples of how the EPF contribution amount is calculated for employees

Employee StatusWageEmployee Contribution AmountEmployer Contribution AmountTotal Contribution Amount
Malaysian Citizen 27 Years OldRM8,473.00RM 595.00RM 1,020RM 1,615.00
Permanent Resident  64 Years OldRM 3,752RM 209.00RM 247.00RM 456.00
Non-Malaysian (registered as member from 1st August 1998) 46 Years OldRM 11,840.00 RM 840.00RM 5.00RM 845.00
Malaysian Citizen 39 Years OldRM 26,500 RM 1,855RM 3,180RM 5,035

It’s highly important to note that employers are actually not allowed to calculate the employee’s and employer’s contribution amount based on the exact percentage as denoted in the table. Also, they are only allowed to use the percentages for salaries that exceed RM20,000.00. The total contribution will be rounded to the next ringgit if it contains cents. 

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What about Voluntary Contributions?

In certain cases, employees or employers can choose to contribute more than the stipulated EPF rates. Bear in mind that the last opted rate will be the new contribution rate until the employee or employer (or both) submits a cancellation form. The two tables below show how the voluntary contributions will work if either Employee or Employer decides to make a voluntary contribution:

Example of Employee Voluntary Contribution:



Salary
Employee
Employer
Payable Contribution
Contribution Rate
Voluntary Excess
Employee Contribution

(i)
(|ii)
(i) + (ii) = A
B
A + B

Employees aged below 60 years old and earns a salary of less than RM5,000

RM1,000
7%
5%
12% * RM1,000 = RM120
13% = RM130
RM250
Employees aged below 60 years old and earns a salary of more than RM5,000

RM6,250
7%

5%
12% * RM6,250 = RM750
12% = RM756
RM1,506
Employees aged 60 and over with a salary of less than RM5,000

RM1,000
0%
5%
5% * RM1,000 = RM50
4% = RM40
RM90
Employees aged 60 and over with a salary of more than RM5,000

RM6,250
0%
5%
5% * RM 6,250 = RM312.5
4% = RM252
RM564.50 = RM565 (Rounded to nearest Ringgit)

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

For an employee to make voluntary contributions, he or she must submit the Form KWSP 17A (AHL) or KWSP 17AA (AHL)

Example of Employer Voluntary Contribution

 
Salary
Employee
Employer
Payable Contribution
Contribution Rate
Voluntary Excess
Employer Contribution
A
(i)
(ii)
(i) + (ii) = B
A + B
Employees aged below 60 years old and earns a salary of less than RM5,000
 
RM1,000
7% = RM70
13%
5%
18% * RM1,000 = RM180
RM250
Employees aged below 60 years old and earns a salary of more than RM5,000
 
RM6,250
7% = RM441
12%
5%
17% * RM6,250 = RM1,062.50
RM1,503.50 = RM 1,504
(Rounded to nearest Ringgit)
Employees aged 60 and over with a salary of less than RM5,000
 
RM1,000
0% = RM0
4%
5%
9% * RM1,000 = RM90
RM90
Employees aged 60 and over with a salary of more than RM5,000
 
RM6,250
0% = RM0
4%
5%
9% * RM6,250 = RM562.50
RM562.50 = RM563
(Rounded to nearest Ringgit)

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

For an employer to make voluntary contributions, the employer must submit Form KWSP 17 (MAJ). Also, if an employee and employer were to make voluntary contributions, both parties must submit Form KWSP 17A (AHL) and Form KWSP 17 (MAJ) respectively.

If the employee chooses to cancel the employee voluntary contribution, they must submit Form KWSP 18A (AHL). Likewise, if the employer chooses to cancel the employer voluntary contribution, they must submit Form KWSP 18 (MAJ)

How do I Submit my EPF Contributions?

As an employer, you must pay your employee’s contributions on or before the 15th of the following wage month. There are several ways of submitting your EPF payments for your employees.

The table below indicates the various methods you can utilize to pay your employee’s EPF contributions:

Payment Channel
Payment Mode
i-Akaun (Employer)
Employees can submit contribution data and/or make contribution payments online
  • Maybank2u
  • Financial Process Exchange (FPX)
  • Direct Debit Authorisation (DDA)
e-Caruman app
Employers can submit contribution data and make contribution payments online
  • Financial Process Exchange (FPX)

Internet Banking
Employers can submit contribution data and make contribution payments

Bank Agents

Type of payments:
  • Contribution (Form A)
  • Late Payment Charge/Dividends
  • Self-Contribution
  • I-Saraan/i-Suri
Cash/Cheque/MyDebit Corporate Card

List of Banks:
  • Bank Simpanan Nasional
  • Maybank
  • Public Bank
  • RHB Bank
EPF Counter

States:
  • Alor Setar
  • Ipoh
  • Johor Bahru
  • Kangar
  • Kelantan
  • Kota Bharu
  • Kuala Lumpur
  • Kuala Terengganu
  • Kuching
  • Melaka
  • Muar
  • Seberang Jaya
  • Seremban
  • Shah Alam
Cash/Cheque

What happens if there’s an overdue contribution or late payment?

As an employer, you are obligated to make EPF payments for your employees by the 15th of the following month. In the event that you didn’t make the contributions within the stated period, the contributions will be considered as an outstanding contribution. The EPF makes an assessment of the contribution and the Officer presiding over this will provide the Form KWSP (Form E) and Form KWSP 8 (Form F). The EPF payment must then be made on the latter form. For unpaid outstanding contributions, payments can be made using Form A (Online).

The late payment charge is then calculated by using the lower dividend rate between Simpanan Kovensional and Simpanan Shariah for each respective year with an additional 1%. The minimum late payment fee that will be imposed is RM10 and any charges with cents will be rounded up to the nearest Ringgit denomination.

What happens if the employer fails to comply?

As an employer, if you fail to comply with the EPF Act 1991 and KWSP 1991 Rules, you will be subject to certain penalties as shown in the table below:


Section
Offences
Penalties/Legal Action
41(1)
An employer who fails to register with EPF within 7 days from the date he employs an employee.

Imprisonment term not exceeding 3 years or to a fine not exceeding RM10,000 or both.

43(2)
Failure to make contribution on or before the 15th day of the month.

59(a)
Makes a false statement orally or in writing.

48(3)


Deducts the employee’s share of contributions from the wages and fails to pay to EPF.

Imprisonment term not exceeding 6 years or a fine not exceeding RM20,000 or both.

47(1) & 47(2)
Deducts from the wages of any employee as part of the employer’s share of contribution.

41(3)
Fails to notify the EPF within 30 days from the date he ceased to have any employee.

Imprisonment term not exceeding 6 months or a fine not exceeding RM2,000 or both.

42(1)
Fails to furnish the statement of wages to his employee.

46(1)
Failure of the Company’s Director, Partner of the Firm or an Association of Persons to pay the outstanding EPF contribution.

Claims may be filed in court and actions that can be taken against you:
  • Bankruptcy Action
  • Seizure & Sale of Assets
  • Retention of Passport: Section 19 – The EPF Board may apply to the Immigration Department to prevent any company directors/partnership of firms/business owners from leaving the country if the company/firm fails to pay the contribution asset.

Source: https://www.kwsp.gov.my/en/employer/overview/compliance-and-enforcement

We hope this post serves as a good informative guide as to what the EPF is, and how it works. If you feel that manually calculating EPF might be a chore and is very time-consuming, we recommend that you check out our LHDN-approved Talenox EPF Calculator to help speed things up. It’ll definitely save quite a substantial amount of time, and if you want to calculate EPF quickly for all your employees, we do recommend signing up for a Talenox account on our website (https://www.talenox.com.my/en/) so that you can calculate not just EPF, but your EIS, SOCSO and PCB/MTD amounts very quickly as well.

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