Understanding Payroll Processing in Malaysia

Payroll is one of the most essential company duties, even though it can be exhausting. Even a minor error can result in late payments, violations, or dissatisfied employees. And that’s not what business owners want.

Processing payroll seems easy, so why is there so much to handle? It can easily become too much and leave you behind, especially if you are still counting on manual work. Blinkpayroll found that 74% of businesses are currently using or in the process of adopting cloud-based payroll technology.

The good news is that we have you covered. This article discusses payroll processing in detail and guides you through making it simpler, quicker, and less stressful for your company. Continue reading to learn more about Malaysian payroll management!

What is Payroll Processing?

Processing payroll is a routine and necessary operation for every business. Usually, there are three primary phases to this process: pre-payroll, payroll processing, and post-payroll. Several tasks and sub-steps are included in each stage to help ensure accurate and effective payroll management.

Payroll is often handled by the human resources department or specialised payroll professionals. Companies may use in-house personnel, outside vendors, or contracted teams.

Although payroll can be handled manually, most companies find payroll software more efficient. Some businesses also favour payroll outsourcing, delegating all payroll-related responsibilities to a third party.

How Does Payroll Processing Work?

Although Malaysian payroll isn’t very complicated, several things must be done properly. The procedure has three phases: pre-payroll, actual payroll, and post-payroll. Here are the steps taken at each level to guarantee that workers receive their payslips on schedule and accurately.

1. Pre-payroll activities

Preparations required before payment processing are known as pre-payroll duties. They entail important administrative choices, legal registrations, and data collection to ensure proper payroll runs.

• Employer registration: Register with local tax authorities and social security bodies to get identification numbers and onboard new hires.
• Payroll policy development: Create policies covering pay periods (weekly, monthly), payment methods (direct deposit, check), and other payroll guidelines.
• Payroll system setup: Implement in-house payroll software or partner with an outsourced payroll service provider.
• Data collection: Gather employee information, tax documents, compensation details, work hours, PTO records, and other relevant data.
• Data validation: Verify the accuracy of collected data to prevent errors in payroll calculations.

2. Actual payroll processing

Businesses calculate employee compensation after completing pre-payroll chores. The time needed for this step depends on whether payroll is handled manually or with software.

• Gross pay calculation: Factor in hours worked, PTO, overtime, and other earnings.
• Deductions and taxes: Compute payroll taxes, insurance premiums, garnishments, and other deductions.
• Net pay determination: Subtract deductions from gross pay to calculate take-home pay.
• Accuracy check: Review payroll calculations to ensure accuracy.
• Payment distribution: Issue employee payments via the selected method, such as direct deposit or checks.

3. Post-payroll activities

Payroll processing doesn’t end with payment issuance. Maintaining compliance and appropriate record-keeping requires several follow-up actions.

• Payslip distribution: Provide employees with payslips, either electronically or in print. A well-structured payslip can simplify this task and ensure every payslip contains the essential details.
• Tax reporting: Submit payroll tax withholdings (income tax, social security contributions) to the appropriate government agencies.
• Compliance reporting: File necessary reports, such as gender pay gap disclosures requiring payroll data.
• Record-keeping: Maintain payroll records and handle payroll-related accounting tasks for auditing and compliance purposes.

How to Process Payroll in Malaysia

To guarantee employees are paid accurately and under legal regulations, payroll processing in Malaysian businesses entails several critical stages. Here is a basic payroll process steps tutorial:

Step 1: Understand and apply labour laws

Learn and understand your company with local regulations such as the Employment Act 1955, Income Tax Act 1967, EPF Act 1991, SOCSO Act 1969, and EIS under the Employment Insurance System Act 2017.

Step 2: Register the company with statutory bodies

If not already done, register your company as an employer with multiple organisations from LHDN (Inland Revenue Board) – for PCB/MTD (monthly tax deduction), EPF (KWSP) – for provident fund contributions, SOCSO & EIS (PERKESO) – for social security and unemployment insurance, and HRDF, if applicable, for training levy.

Step 3: Collect and maintain employee information

Gather and record employee information from Full name, NRIC/passport, Bank details, EPF/SOCSO numbers, Tax file number (from LHDN), and Employment terms (salary, role, allowance, etc.)

Step 4: Track Time, attendance & leave

Accurately tracking employee work time and leave is crucial for calculating payroll correctly. This step directly affects salary calculation, particularly when there are Overtime hours, Unpaid leave, Late arrivals, Early departures, Public holidays, and paid leave.

Step 5: Compute payroll components

Computing payroll components in a Malaysian company involves calculating an employee’s gross pay, which includes basic salary, overtime, allowances, bonuses, and other earnings. From this amount, you subtract all statutory deductions mandatory under Malaysian law that were mentioned before in step 1.

Step 6: Calculate net pay and pay your employees

To find the employee’s net or take-home pay, deduct the deductions from their gross salary. This is how much you will pay your staff. The withheld deductions (such as taxes and contributions) must be sent to the appropriate government organisations according to their monthly or quarterly deadlines.

Step 7: Keep payroll records

Payroll isn’t a one-time task. After your employees’ salaries have been paid, you must retain payroll, payslips, and submission records for at least seven years. Keeping records is useful for audits, disputes, or tax reviews.

Signs to Reevaluate Your Payroll Processing Practices

It might be simple to overlook the signs that your payroll procedure needs improvement, particularly if you’re too busy to notice. If you encounter any of the issues listed below, it could be time to review your payroll processes.

1. Your business is expanding

Growth is an excellent indication for any business, but it may also mean it’s time to rethink your payroll process. As you recruit more people, managing payroll manually becomes increasingly challenging due to the increased computations required.

Even if you currently use software, ensure it can accommodate your expanding workforce because many systems have limitations. HashMicro is one of the programs you can use, and it can expand with the size of your business while still performing at its best. Click the banner below to get your personalised quote!

2. You’re struggling to keep up

Consider changing your strategy if payroll duties take too much time. Processing payroll doesn’t have to take a lot of effort or time. While outsourcing payroll tasks to a Professional Employer Organisation (PEO) can be expensive, think about doing so.

3. Payroll costs are too high

If payroll is starting to become a financial burden, it might be time to look at more affordable options. Don’t be afraid to compare payroll solutions; trustworthy and reasonably priced options are available.

Examine several payroll software suppliers, contrasting features, prices, and customer feedback. Although it could take longer, doing payroll by hand could help save expenses if you have a small staff.

4. You need a faster payment method

Are the employees seeking a more convenient payment method or a direct deposit? If so, it might be time to reevaluate the payment option for your payroll. Examine current payment options if you would like a quicker one.

Find out if your bank provides bulk payroll services for pay cards or direct deposits. Additionally, payroll software can offer a variety of payment methods. Examine the features of any software you now use to make it as convenient as possible for you and your staff.

5. You’re struggling to obey the regulations

Managing tax compliance and government contributions is crucial to the Malaysian payroll process. In Malaysia, you must precisely compute, withhold, and remit payments according to local rules.

Tips to Optimise Payroll Processing Using Payroll Software

Are you irritated by payroll problems? You may save time and frustration by making clever adjustments, regardless of the problem—delays, mistakes, or compliance concerns. Do you want the payroll process to run more smoothly and effectively? Here’s how to make it completely compliant, quicker, and simpler:

• Develop a clear payroll policy to guide processes and set expectations.
• Adjust your payroll cycle and frequency to match your business operations.
• Leverage time-tracking and payroll software for accuracy and efficiency.
• For faster salary disbursement, offer flexible payment methods like direct deposits or mobile wallets.
• Hire skilled payroll professionals who understand payroll’s technical and legal side.
• Stay updated on payroll laws and regulations to avoid compliance issues. A few changes can make a big difference: less hassle, more accuracy, and more time saved.

Manage Payroll Processing Effectively with HashMicro

Payroll management involves more than mathematical calculations. It’s about ensuring that your staff receives correct and timely compensation. However, managing computations, deductions, and compliance can quickly become too much as your company expands.

The HashMicro Payroll System can help with that. The AI-powered system, Hashy AI, streamlines payroll by automating all tasks, including computations and payment processing, allowing you to concentrate on what truly counts—effectively handling the issues about your personnel.

HashMicro offers these features to help you:

• Automated payroll processing: Covers salary calculations, tax deductions, and seamless bank transfers with major banks.
• Regulatory compliance: Adheres to Malaysian labour Laws regarding contracts, attendance, leave, overtime, and payroll.
• Employee self-service & mobile app: Employees can manage attendance, leave, overtime, and payslips through a mobile app, reducing HR workload.
• Comprehensive leave management: This includes leave encashment, unpaid leave, carryover options, and expiration dates for flexible policies.
• Overtime & late deduction automation: Accurate calculations for overtime, meal allowances, and late deductions processed directly in payroll.

Conclusion

Payroll processing includes data collection and registration, compliance reporting, and salary computations. It guarantees that employees are paid on schedule and appropriately while fulfilling governmental obligations such as taxes and contributions.

The HashMicro Payroll System can help if managing payroll feels too much to handle. Payroll computations, deductions, and payments are automated, freeing you up to concentrate on expanding your company. Every payday will be managed smoothly with no manual errors or missing deadlines.

Thanks to its advanced features, it efficiently manages employee data, compliance, and even mobile access. Try the free demo now, and say goodbye to complicated payroll processing!

FAQ About Payroll Process

• What are the benefits of outsourcing payroll process services in Malaysia?

  Outsourcing payroll means letting experts handle salary calculations, tax deductions, and government contributions for you. This helps businesses avoid mistakes, save time, and comply with labour laws. It also allows business owners to focus on growing their company instead of dealing with payroll paperwork.

• How do payroll software solutions address the unique needs of Malaysian businesses?

  Payroll software in Malaysia can handle local tax rules and deductions automatically. It ensures the employers pay the salary on time while also generating reports needed for government compliance. This makes payroll faster, more accurate, and hassle-free for businesses.

• What is supplemental pay?

  Supplemental pay refers to employee compensation in amounts that differ from an employee’s regular hourly, daily, or similar periodic rate. Examples include bonuses, commissions, overtime pay, and severance pay. This type of compensation may be taxed differently than an employee’s base wage and salary.