Which Payments Are Subject To Employees Provident Fund (“EPF”)?

Q1. What is Employees Provident Fund (“EPF”)?

Answer: 

EPF or Kumpulan Wang Simpanan Pekerja (KWSP) is a Federal Statutory body in Malaysia under the purview of the Ministry of Finance. It is a compulsory saving scheme for private sector workers in Malaysia which is governed by the Employees Provident Fund Act 1991 (“EPF Act 1991”).

Q2. What is the objective of EPF?

Answer: 

To provide a measure of security for old age retirement and provides supplementary benefits to its members to utilize part of their savings for house ownership and other withdrawal schemes.

Q3. Who should contribute towards the fund?

Answer: 

Section 43(1) of the EPF Act 1991 provides that every employee (14 years old as the minimum age for employment1) and employer2 within the meaning of the Act shall be liable to pay monthly contributions on the amount of wages at the rate respectively set out in the Third Schedule.

All employees in Malaysia under a contract of service whether express or implied, oral or in writing must be registered as a member of the EPF.

Q4. Whose responsibility to pay the monthly contributions?

Answer: 

Employers are statutorily required to contribute to the EPF in respect of any person that have been engaged by them to work under a Contract of Service or Apprenticeship3.

Q5. What is contribution?

Answer: 

Contributions are a mandatory salary deduction comprising the employee’s and employer’s share that has to be contributed within a specified period based on the rates specified in the Third Schedule of the EPF Act 1991.

Q6. What is the definition of wages?

Answer: 

Wages are all remuneration in the form of money paid by an employer to an employee under a contract of service or apprenticeship based on agreed terms of payment, whether monthly, weekly or daily.

Section 2 of the EPF Act 1991 provides for payments which are subject to EPF contribution include:-

• Salary
• Bonus
• Allowance
• Commission
• Incentive
• Arrears of salaries
• Payment in respect of unutilized annual or medical leave
• Paid maternity leave
• Paid study leave

Q7. What are “non-wages”?

Answer: 

Payments which are not liable for EPF contribution are:-

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

The employer does not need to make employer contribution to EPF and deduct the employee’s contribution from the above payments.

Q8. Are wages paid for work during holidays (public holidays, annual leave) subject to EPF contribution?

Answer: 

Yes, unless the work is considered as overtime.

Q9. Are salary adjustments subject to EPF contribution?

Answer: 

Yes, and it will be paid as current contribution.

Q10. Is a driver’s trip allowance subject to EPF contribution?

Answer: 

Yes. Trip allowance is included in wage elements.

In a High Court case, the Court held that payments described as “reimbursement” or “travel allowance” that were paid by the employer to the employee for trips he made while working as a driver in the company were incentives that are covered under the EPF Act 1991 and were subject to EPF contributions4.

Q11. Is a part-time worker or employee who works with more than one employer subject to EPF contribution?

Answer: 

Yes.

Q12. Do non-Malaysian employees have to contribute?

Answer: 

No. However, they are given the option to contribute. If an employee has opted to contribute, the employee and the employer are liable to contribute and not allowed to revoke the option made.

Q13. When should employer pay contribution to EPF?

Answer: 

Contributions must be paid by the employer on or before 15th of each month.

For example, October 2020 salary deduction for employee’s and employer’s shares shall be paid as November’s contribution by 15th November 2020.

Q14. What happen is the employer does not contribute to the EPF?

Answer: 

The employer can be charged for not paying an employee’s EPF. Section 43(2) of the EPF Act 1991 provides that any employer who fails to pay the EPF contributions within the prescribed period (on or before the 15th of every month) shall be guilty of an offence and shall, on conviction, be liable to imprisonment for a term not exceeding 3 years or to a fine not exceeding RM10,000.00 or to both.

Q15. What happen if the employer has deducted its employee’s contribution but not make any payments to the employee’s account?

Answer: 

If the employer is found guilty, they can be jailed up to 6 years or to a fine not exceeding RM20,000.00 or to both5.

The employer would also be liable to pay late payment charges and dividend to EPF under Section 45 of the EPF Act 1991 for the unpaid outstanding contributions.

FOOTNOTES 

[1] Section 2(2A) of the Children and Young Persons (Employment) Act 1966

[2] Employers include: a) Managers, agents or persons responsible for payment of salary or wages to an employee b) Any group of people whether statutory or non-statutory or incorporated c) Any government, government departments statutory bodies, local authorities or other bodies specified in the Second Schedule of EPF Act 1991

[3] Section 45 of the EPF Act 1991

[4] https://www.freemalaysiatoday.com/category/nation/2017/08/14/lorry-driver-wins-appeal-over-non-payment-of-epf-for-trips-made/

[5] Section 48(3) of the EPF Act 1991

THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.-GENERAL DISPUTE RESOLUTION AND APPELLATE DIVISION-