EPF is a retirement saving scheme for employees who are liable to contribute EPF in Malaysia, governed under the Employee Provident Fund Act 1991 in which the savings contributed will be managed and invested under Simpanan Konvensional or Simpanan Shariah. The saving is comprised of the employee’s and employer’s monthly contributions and yearly dividends earned.
Commonly referred 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) how it is known today.
What components are liable and not liable for EPF contribution:
Components liable for EPF contribution include:
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
Components not liable for EPF contribution include:
service charge;
overtime payment;
gratuity;
retirement benefit;
retrenchment, lay-off or termination benefits;
any travelling allowance or the value of any travelling concession; or
any other remuneration or payment as may be exempted by the Minister.
Employer’s Responsibility on EPF Contribution:
As an employer the responsibilities include:
Paying EPF contributions in respect of any person who has been engaged to work under a Contract of Service or Apprenticeship.
Ensuring accurate monthly contributions are deducted from the employees’ salary and remitted to EPF.
Must make monthly payment on or before 15th of the month.
The employer needs to pay both the employees’ and the employer’s share to the EPF.
Employers may deduct the employee’s share from their salary.
What is EPF Contribution and how is it calculated?
EPF Contribution is mainly categorized as follows:
Mandatory Contributions
Voluntary Contributions
Unclaimed Contributions
Contributing more than statutory rates
Mandatory EPF Contribution/EPF Calculator:
Employers are not allowed to calculate the employer’s and employee’s share based on exact percentage EXCEPT for salaries that exceed RM20,000.00. The total contribution which includes cents shall be rounded to the next ringgit.
Points to remember:
EPF Contributions must be paid in only ringgit denominations and without any cent value
Minimum employee EPF contribution rates have been reduced from 11% to 9% beginning January 2021 for a period of 12 months.
Employees can choose to continue paying 11% if they wish. In which case, employers must get them to complete a KWSP 17A (Khas 2021) form. Employers must retain the completed form and enter the application online via i-Akuan or email to KWSP.
Voluntary EPF Contribution:
While there is a certain category of employees who are exempted from contributing, they are still allowed to elect to contribute. When an employee listed below has opted to contribute, both such employee and employer shall be liable to contribute, and the option may not be revoked. This includes:
Domestic Helpers: Employees working in a residential home and employed by a private individual.
Foreign citizens: Employees whose country of domicile is outside Malaysia and who enter and stay in Malaysia temporarily under provisions of any written laws relating to immigration.
In both cases Form KWSP 16 is to be submitted to the EPF with a copy to the employer.
Unclaimed Contributions:
Members aged 75 and above can conduct an online search on whether the respective member still has an account with the EPF or if there are any unclaimed withdrawal payments.
Contributing more than statutory rates
A salaried employee has a choice of contributing more for better savings. Employee or the employer (or both), may voluntarily contribute at a rate exceeding the statutory rate as long as they meet the requirements.
What happens in case of failure of timely EPF contribution?
If the employer fails to pay the contributions within the prescribed period, this contribution will be considered as an outstanding contribution. Under certain circumstances, the EPF will assess the contribution.
The EPF Officer will provide Form KWSP 7 (Form E) and Form KWSP 8 (Form F). Payment must then be made using Form KWSP 8 (Form F).
For unpaid outstanding contributions, payments can be made using Form A (Online).
Late Payment Charges:
The lower dividend rate between Simpanan Konvensional and Simpanan Shariah for each respective year with an additional one (1) percent.
The minimum late payment charge imposed is RM10. The late payment charge will be rounded up to the nearest Ringgit denomination.
If an employer fails to comply with the EPF Act 1991 and KWSP 1991 Rules, they will be subjected to certain penalties which are:
EPF Dividend Calculation:
EPF invests in diverse approved investment portfolios so that the members receive yearly dividends.
The EPF guarantees a minimum 2.5% dividend.
Dividend rate is calculated based on the lowest dividend declared between the Simpanan Konventional and Simpanan Shariah.
An Annual Dividend payout is credited based on the members savings as at 1 January yearly.
EPF Withdrawal:
EPF can be withdrawn under following conditions:
At attaining age of 55 years.
Leaving the Country
Death
Incapacitation for any reason
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