Outsource Payroll Services
- C.A.(M)
- 2 days ago
- 10 min read
Updated: 7 hours ago
Malaysian Payroll Outsourcing Explained
Outsourcing payroll services in Malaysia is a common practice for businesses looking to streamline operations, ensure compliance, and focus on their core activities. Here's a comprehensive overview:
Benefits of Outsourcing Payroll in Malaysia
Compliance with Local Laws:Â Payroll specialists stay updated with the ever-changing Malaysian statutory requirements, including Employees Provident Fund (EPF), Social Security Organization (SOCSO), Employment Insurance Scheme (EIS), and Lembaga Hasil Dalam Negeri (LHDN - Inland Revenue Board of Malaysia) tax deductions. This significantly reduces the risk of errors, penalties, and legal issues.
Cost Savings & Predictability:Â Outsourcing can reduce overhead costs by eliminating the need for in-house payroll software, IT maintenance, and dedicated payroll staff. Many providers offer scalable pricing, often per employee per month, making budgeting easier.
Accuracy and Efficiency:Â Professional payroll providers use specialized systems and expertise to ensure precise salary calculations, timely deductions, and accurate compliance reports, minimizing errors and employee dissatisfaction.
Enhanced Data Security:Â Reputable payroll providers implement robust security measures, including data encryption, multi-factor authentication, and access controls, to protect sensitive employee information.
Scalability:Â Whether your business is growing or experiencing seasonal fluctuations in workforce size, outsourced payroll services can easily scale up or down to accommodate your needs without the burden of hiring or training additional staff.
Focus on Core Activities:Â By offloading time-consuming payroll tasks, businesses can free up their HR and management teams to concentrate on strategic initiatives, talent management, employee development, and business growth.
Business Continuity:Â Outsourcing ensures uninterrupted payroll processing, even in cases of staff absences or turnover within your internal team.
Legal Requirements for Payroll in Malaysia
When handling payroll in Malaysia, it's crucial to adhere to several key legal requirements:
Employment Act 1955:Â This is the primary law governing employment relationships. It dictates rules for wage payments (at least once a month, no later than 7 days after the end of the wage period), working hours (up to 48 hours/week, max 12 hours/day), and various leave entitlements (annual leave, sick leave, maternity leave, public holidays).
Statutory Contributions:Â Employers are legally obligated to make and deduct contributions for:
Employees' Provident Fund (EPF):Â A mandatory retirement savings scheme for employees.
Social Security Organization (SOCSO):Â Provides coverage for work-related injuries, illnesses, or disability (Employment Injury Insurance Scheme and Invalidity Pension Schemes).
Employment Insurance Scheme (EIS):Â Offers financial assistance and support to employees who have lost their jobs involuntarily.
Monthly Tax Deduction (PCB):Â Income tax deducted directly from employee salaries and remitted to LHDN.
Human Resources Development Fund (HRDF):Â (Optional but common) Contributions to fund employee training and development.
Zakat:Â (Optional) Voluntary contributions for Muslim employees.
Payslips and Record Keeping:Â Employers must provide itemized payslips to employees and maintain proper documentation of all payroll records (personal details, offer letters, monthly payslips, proof of statutory payments, leave records) for a minimum of seven years.
Minimum Wage:Â Employers must comply with the minimum wage requirements, which are subject to changes.
Termination and Final Pay:Â Specific regulations apply to the calculation and disbursement of final pay when an employee is terminated, resigns, or is retrenched.
Reporting:Â Regular reporting to statutory bodies like EPF, SOCSO, and LHDN is mandatory.
Payroll Service Providers in Malaysia
Many reputable companies offer payroll outsourcing services in Malaysia. A popular option includes Bestar Malaysia.
When choosing a provider, consider their expertise in Malaysian payroll laws, their technology and automation capabilities, data security protocols, customization options, and the level of support they offer.
Cost of Payroll Outsourcing Services in Malaysia
You can expect payroll services in Malaysia to range from RM 10 to RM 100 per employee per month. Bestar has a minimum service fee starting from RM 600.00 per month for a certain number of employees.
One-Time Setup Fees
Bestar will charge a one-time setup fee to onboard your company. This fee covers:
Company Registration with Statutory Bodies:Â Registering your company with EPF, SOCSO, EIS, and LHDN (for PCB deductions) if you haven't already.
Initial Data Migration:Â Setting up your company's and employees' personal and payroll data within our system. This includes historical payroll data if you're switching from in-house or another provider.
System Configuration:Â Customizing the payroll system to your specific pay structures, allowances, deductions, and reporting requirements.
Policy Implementation:Â Defining and configuring leave policies, attendance rules, and other HR-related parameters within our system.
User Training:Â Providing training to your designated staff (e.g., HR manager) on how to use their client portal or communicate with our payroll specialists.
One-Time Setup Fees:
One-time setup fees can range from RM 250 to RM 700, or sometimes even higher for more complex setups or larger companies.
Additional Charges for Specific Services
Beyond the monthly payroll processing fee, you'll encounter additional charges for specific services, especially those related to annual compliance.
1. Preparation of Form E (Annual Employer Return)
Form E is an annual declaration that employers must submit to LHDN, summarizing the total remuneration paid to all employees in the preceding year.
What it includes:Â Bestar compiles all the necessary information from your payroll data to complete Form E accurately, including details on total remuneration, EPF, SOCSO, and EIS contributions, and other relevant information. We then assist with or handle the electronic submission to LHDN.
Charges for Form E Preparation:
Bestar charges a separate fee, which can be a flat rate or tiered based on the number of employees.
You might see charges ranging from RM 200 to RM 500Â for dormant companies or companies with a small number of employees.
For companies with more employees, Bestar charges a base fee plus an additional per-employee charge (RM 500 for the first X employees, plus RM 50 per additional employee).
2. Preparation of Form EA (Employee Income Statement)
Form EA is an annual statement of remuneration for each employee, which employers must provide to their employees by the end of February of the following year. Employees use this form to file their personal income tax returns.
What it includes:Â Bestar will generate a detailed Form EA for each of your employees, containing their total income, benefits-in-kind, statutory deductions (EPF, SOCSO, EIS, PCB), and other relevant tax-related information. We will then provide these to you for distribution to your employees.
Charges for Form EA Preparation:
Similar to Form E, Bestar includes separately on a per-employee basis.
Expect charges ranging from RM 10 to RM 50 per employee for Form EA preparation.
Additional Charges: Detailed Breakdown
1. Off-Cycle Payroll Runs
What it is:Â This refers to any payroll processing that occurs outside of your agreed-upon regular monthly (or bi-weekly/weekly) schedule. Common reasons include:
Processing bonuses, commissions, or special one-time payments.
Finalizing termination pay for employees leaving mid-month.
Correcting errors from a previous payroll run that require immediate payment.
Charges:
Flat fee per run:Â It can range from RM 100 to RM 300+ per off-cycle run, regardless of the number of employees included in that run.
Urgency surcharge:Â If you need a very quick turnaround, Bestar charges an additional "rush" fee.
2. Bank File Generation / Payment Disbursement
What it is:
Bank File Generation:Â Bestar prepares a structured electronic file (in a format like IBG or JomPAY) that your company can directly upload to your corporate bank portal to initiate salary payments to employees. This automates the payment process and reduces manual data entry errors.
Payment Disbursement (Full Service):Â In addition to generating the bank file, Bestar also handles the actual initiation of the payments from your designated bank account. This requires giving us specific access or authorization to your bank.
Charges:
Bank File Generation:Â Ranges from RM 50 to RM 200 per payroll run.
Full Payment Disbursement:Â This is a more premium service due to the added responsibility and security requirements. It can be charged:
Per transaction/employee: RM 1 - RM 5 per employee for direct disbursement.
Flat fee per payroll run:Â RM 150 - RM 500+ per run, depending on the volume of payments.
3. HRDF Assessment & Registration
What it is:Â The Human Resources Development Fund (HRDF) is a mandatory levy imposed on employers in certain industries in Malaysia to promote and develop training. Companies that meet specific criteria (e.g., 10 or more Malaysian employees) must register and contribute to HRDF.
Assessment:Â Determining if your company falls under the mandatory or optional categories for HRDF contributions based on your industry and employee count.
Registration:Â Assisting with the application process to register your company with HRD Corp (the body managing HRDF).
Charges:
This is a one-time fee for initial setup.
Charges can range from RM 300 to RM 700+.
Considerations:Â While the registration itself is typically handled by the employer, Bestar can provide valuable guidance on eligibility, help with the documentation, and ensure correct initial setup, avoiding future penalties. We will also handle the monthly levy submission as part of ongoing payroll services.
4. CP22 / CP22A / CP21 Preparation
These are crucial LHDN (Inland Revenue Board of Malaysia) forms related to employee tax clearance and notifications:
CP22 (Notification of New Employee): Employers must notify LHDN about new employees who are likely to be chargeable to tax, especially those receiving income that is subject to MTD (Monthly Tax Deduction). This must be done within one month of the employee's commencement date.
Charges:Â A relatively low flat fee. RM 50 - RM 150 per submission.
CP22A (Cessation of Employment - Private Sector): Employers must notify LHDN when a private sector employee ceases employment (resigns, retires, is terminated, or dies). The employer must withhold any money payable to the employee for up to 90 days or until LHDN issues a tax clearance letter. This must be submitted at least 30 days before cessation of employment, or within 30 days of being informed of an employee's death.
Charges:Â Given the withholding requirements and the need for prompt submission, this tends to be a more substantial charge. Expect to see fees ranging from RM 150 to RM 400+ per submission. This includes the follow-up with LHDN for the tax clearance letter.
CP21 (Employee Departing Malaysia): Employers must notify LHDN when an employee (who is liable to pay tax) is about to leave Malaysia for more than three months. Similar to CP22A, all payments to the employee must be withheld until tax clearance is received. This form must be submitted at least 30 days before the employee's expected departure date.
Charges:Â Similar to CP22A, charges can range from RM 150 to RM 400+ per submission, covering the preparation and follow-up for tax clearance.
Considerations:Â These forms are critical for tax compliance and avoiding penalties. Outsourcing their preparation ensures accuracy and timely submission, especially given the strict deadlines and withholding requirements. Bestar has established processes for liaising with LHDN for tax clearance.
How to Get Detailed Quotes
To get the most accurate and detailed quotes, follow these steps:
Prepare Your Information:
Number of Employees:Â Clearly state your current headcount (and any expected growth).
Types of Employees:Â Differentiate between full-time, part-time, contract staff, local, and foreign employees, as this can affect pricing.
Payroll Frequency:Â Monthly, bi-weekly, weekly.
Complexity of Payroll:Â Are there many allowances, commissions, bonuses, or complex leave calculations?
Current Setup:Â Are you currently doing payroll in-house or with another provider?
Specific Services Needed:Â Beyond basic payroll, list out all the additional services you are interested in (e.g., Form E, Form EA, leave management, attendance tracking, claim processing, HR advisory).
How Bestar can Help
Bestar offers a wealth of benefits and support to businesses, particularly in a complex regulatory environment like Malaysia. We essentially take the burden of payroll management off your shoulders, allowing you to focus on your core business.
Here's a breakdown of how Bestar can help:
1. Ensuring Compliance with Malaysian Regulations
This is arguably the most critical benefit. Malaysian payroll involves intricate laws and frequent updates. Bestar will:
Stay Updated on Laws:Â Continuously monitor changes in the Employment Act 1955, Income Tax Act 1967, and regulations from statutory bodies like EPF, SOCSO, EIS, and LHDN.
Accurate Calculations:Â Ensure correct calculation of:
EPF (Employees Provident Fund):Â Mandatory retirement savings.
SOCSO (Social Security Organization):Â Employment injury and invalidity schemes.
EIS (Employment Insurance Scheme):Â Provides benefits for job loss.
PCB (Potongan Cukai Bulanan / Monthly Tax Deduction):Â Income tax deductions.
HRDF (Human Resources Development Fund):Â Training levy for eligible employers.
Other deductions like Zakat (for Muslim employees) if applicable.
Timely Submissions:Â Ensure all statutory contributions are submitted to the respective authorities (EPF, SOCSO, LHDN, HRD Corp) by their deadlines, avoiding penalties and fines.
Accurate Reporting:Â Prepare and submit all required annual reports, such as Form E (annual employer return) and Form EA (annual employee income statement).
Compliance with Minimum Wage:Â Ensure your payroll adheres to the latest minimum wage order.
Leave and Overtime Management:Â Help correctly calculate and manage various leave entitlements (annual, sick, maternity, etc.) and overtime pay according to the Employment Act.
2. Cost Savings and Efficiency
Outsourcing payroll can significantly reduce your operational costs and boost efficiency:
Reduced Overhead:Â Eliminate the need to hire and train dedicated in-house payroll staff, purchase and maintain expensive payroll software, and invest in IT infrastructure for data security.
Predictable Costs:Â Bestar charges a predictable per-employee fee, making budgeting easier.
Minimizing Errors:Â Bestar uses specialized software and expertise, drastically reducing the chance of costly payroll errors, recalculations, and related penalties.
Time Savings:Â Free up your HR and finance teams from time-consuming administrative tasks, allowing them to focus on strategic initiatives that directly impact business growth.
3. Enhanced Data Security and Confidentiality
Payroll involves highly sensitive employee information. Bestar offers:
Robust Security Measures:Â Implement advanced data encryption, secure servers, multi-factor authentication, and strict access controls to protect employee data from breaches and unauthorized access.
Compliance with PDPA:Â Adhere to the Personal Data Protection Act 2010 (PDPA) in Malaysia, ensuring sensitive personal information is handled legally and securely.
Disaster Recovery:Â Have robust backup and disaster recovery plans to ensure business continuity even in unforeseen circumstances.
4. Access to Expertise and Best Practices
Specialized Knowledge:Â You gain access to a team of payroll specialists with in-depth knowledge of Malaysian labor laws, tax regulations, and best practices.
Advisory Support:Â Bestar offers advisory services on complex payroll scenarios, compensation structures, benefits administration, and HR compliance, helping you make informed decisions.
Industry Insights:Â Benefit from the provider's experience working with diverse clients across various industries, offering insights into efficient payroll processes.
5. Improved Employee Experience
Accurate and Timely Payments:Â Ensure employees are paid correctly and on time, which is crucial for morale, trust, and retention.
Professional Payslips:Â Provide clear, professional, and compliant payslips to employees.
Employee Self-Service (ESS) Portals:Â Bestar offers ESS portals where employees can securely access their payslips, check leave balances, apply for leave, and submit claims, reducing queries to the HR department.
Confidentiality:Â Employees can be confident that their sensitive financial information is handled by an impartial third party with strict confidentiality protocols.
6. Scalability and Flexibility
Accommodate Growth:Â As your business expands or contracts, Bestar can easily scale our services to match your changing workforce size without you needing to hire or retrain internal staff.
Handle Fluctuations:Â Ideal for businesses with seasonal staff or fluctuating employee numbers, as you only pay for the services you use.
7. Business Continuity
No Disruption:Â Payroll processing continues smoothly even if your internal HR or finance staff are on leave, sick, or leave the company.
Reduced Dependency:Â Less reliance on a single internal individual for critical payroll knowledge.
In essence, Bestar acts as an extension of your team, providing the specialized knowledge, technology, and robust processes needed to manage payroll efficiently, accurately, and compliantly in Malaysia.